Tokenomics Proposal [Community Consideration]

Agree with what you said. Regarding the second point, ic.rocks should be accurate. Although the neuron 4000-4000 is a mystery to me.

Seconding this. Tokenomics as designed and publicized were a big draw for me as an early investor, and all of the tokenomics parameters seem very nicely-calibrated for the IC in steady-state. As Wenzel notes, neuron transfer is worrisome for the security reasons outlined in previously published Dfinity materials.

If the goal is to get to 90% staking and encourage decentralization, then that’s where the focus should be - how do we make staking and participating in governance more attractive?

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Hi @wpb
I read carefully your post and agree for most part. I also, have expressed not to make any important changes as we got in with the actual rules.
My question to you is Why do you say the goal is to have 90% stake in the neurons?
If this is to create an artificial value to ICP by creating low ICP available supply, I do not think this is a good strategy.
With mass adoption and IC technical success that it should have, having many ICP in circulation, thus creating large volume for trading, is a better option on the long run. Have some ICP available for large institution to get in and hold long term.
Creating artificial value by locking the vast majority , on hype or whatever else, is never a good way on long term. And the way I see it, Dfinity (and yourself and myself) are looking for a very long term. So long that I have no intention to unlock my 8 years ever. This is how much I believe in the IC project.

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Good question. Dfinity stated the goal in the article linked below in the section toward the end titled Calculating Voting Rewards. In my opinion, this goal is foundational to the tokenomics design. This article had the biggest influence on my decision to invest and stake because it lays out the tokenomics rules and goals in detail.

“Calculating Voting Rewards, Overview
We begin by deciding that 90 percent of the total supply of ICP should be locked in neurons. Then we estimate what returns, in the form of newly minted ICP, must be provided to those locking their ICP to incentivize 90 percent participation. This allows us to calculate the total rewards that must be paid if we are successful. We then decide to distribute this quantity of newly minted ICP regardless of the current level of participation, such that participants will receive larger rewards until participation reaches 90 percent, allowing the markets to persuade those who are not currently participating to participate.”

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I, also have read that document before investing. I think we have 2 different interpretation for the 90%.
As they wrote “We begin by deciding that 90 percent of the total supply of ICP should be locked in neurons”. I read it as they have made their calculation while thinking the probability that 90% of ICP will be locked at some time. But I do not read it as this is a goal. It was an assumption to me. But I can be wrong.
Still, I think having a good supply for the market is good for stability and avoid manipulation. If only 10% of the supply is available on the market and 2 or 3 whales are part of that 10%, they will do whatever they want with the price.
Market will decide at the end. Will be interesting to see in 2 - 3 years

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Hmmm. I suppose you are right. I hadn’t considered that idea previously and I would not want that to happen. Vote following through liquid democracy should be a personal and independent decision, not a contractual obligation for some service provided. I suppose this is a good reason it should not be visible which neurons are following which neurons, which is not possible today. I believe this is why ic.rocks and others cannot determine the liquid voting power of specific neurons.

This is a good place to introduce another request for the Dfinity foundation. I don’t know if anyone else has already defined a term for this yet, but for now I will call it liquid voting power. Liquid voting power is the overall total voting power of a neuron inclusive of its own voting power and the total voting power it obtains from all vote followers in the liquid democracy model.

I think it is important to be able to track the liquid voting power of neurons. I think only Dfinity foundation can/should make this metric visible. The stated goal is decentralization over time. This will happen. The only time in IC history that individual neurons should have greater than 51% liquid voting power should be Dfinity foundation in the early days. As decentralization occurs, we will need metrics that enable visibility to which neurons are gaining enough liquid voting power to control the NNS.

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Seconding this. I came here thinking I wanted neurons to be freely traded, but after reading some of the other comments I agree that the security concerns make sense. I don’t like the idea of being able to unlock staked neurons early, even for a penalty. I would much prefer to see a streamlined way to transfer ownership of an existing neuron to a beneficiary in the event of a death, sickness, etc. I think many people in the community, myself included, are not planning to dissolve our neurons ever. We definitely do not want to rely on passing down Yubi keys.

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Just wanted to add my support for Wenzel’s proposal. I think being able to monitor the Liquid Voting Power (LVP?) of a neuron would be useful for a lot of reasons.

It would be really interesting to watch an organization’s LVP move up or down in real time. Especially as the network matures and more influencers become active in the community.

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Agree with measuring “liquid voting power” - makes a lot of sense.

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I had bought it to this forum about airdrops for investors who hold for more than 5 years+
This will woo more people to be invested in the nns…
Airdrops is a thing that attracts the market. ICP has everything in it, However right now what ICP needs is big quality investors locking in for long term which will enhance the project and also lift up the morale of all developers at the same😊

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Make neurons transferable (as NFT) and then you can sell them on secondary markets at a discount, where the future ICP will be discounted via the market’s time-value of money.

If the protocol forbids neuron transferability, people will have canisters own neurons that can be transfered like NFT (“wrapped neuron”). If IC prevents canisters from owning neurons, external blockchains will implement chain key crypto where smart contracts will wrap the neurons into NFTs (similar to how IC plans to control native Bitcoin with canisters).

The long term security of the protocol cannot assume neurons will never be transferable. The irony is IC’s chain key crypto has forever destroyed non-transferability for all crypto assets. Everything will be transferable and liquid in the future.

Therefore we should just accept this reality and model security based on neurons being transferable, and make them transferable ASAP rather than waste time with early unlock penalties that force the protocol to determine the time-value of money, when that is a job for markets.

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Seconding this. The stated inflation rate is 10% annually for the first 8 years. So each day reward is 10%/365*current_total_supply if I understand this code correctly ic/governance.rs at e362530172c44679313b1b7fca1e90d8967545d8 · dfinity/ic · GitHub. That means reward for each day increase if the total supply is increasing. What I don’t know is whether the 10% rewards include node provider reward. I hope the foundation could make the reward info for node provider a public info, which might also incentivize people to become node prioviders.

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I support the idea of “liquid voting power”. It would serve as a leaderboard to incentivize independent parties to gain followers.

In addition, I would like to request neuron naming (perhaps the NNS team is tracking this issue).

Related:

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After reading the entire thread I have to say thank you to all of the people putting some serious time into thinking through their ideas and presenting them here. Also thank you to the Dfinity Team for demonstrating that they want to move in the direction of the community driving the future of the IC.

Given the current discussion above, this is a summary of my current stance on tokenomics:

  1. Like @wpb and some others have said I agree that we should not make any changes to the current programmatic mechanics of the tokenomics. I think more time should be given to capture some metrics to determine how the tokenomics are actually playing out. Without some metrics on the key variables, making changes is somewhat uninformed (if not completely random). This is dangerous because the “levers” and the strength of those levers aren’t fully understood.

  2. I agree that more metrics should be made transparent. The primary ones being:
    a. Percent of ICP locked up over varying time periods (this would answer some of the behavioral
    questions that @lastmjs has asked above),
    b. A measurement of neuron liquid voting power so that a “take over” of the IC can be defended
    against.
    c. Some analysis should be completed to confirm whether it is possible to reach ICP price appreciation
    (or even stable) state through the mechanics of the deflationary/inflationary mechanics. @Trevor
    asks some good questions on this above.

  3. I’m really on the fence regarding unclaimed ICP. I can’t decide if it should just be left alone, burned, or re-distributed. This is a really tough one that probably has some legal issues that vary by country/jurisdiction.

  4. Due to the security reasons expressed, I think we should do whatever we can to avoid the creation of a Neuron trading market.

These are some really tough concepts that will take a lot of smart people debating in order to come to the best possible outcome.

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I fully agree with this. I think the tokenomics model is working just fine

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How do people still think it’s good token economics. I was just reading for days but could not resist anymore ICP has terrible token economics.
First, let’s look at this;
Dscvr thread: here you go fools .
and, now the current situation is for a 4 years seeds (the ones bought each 0.03$) going to dump on current buyers. It’s like a leaking boat and if there is not any investment coming people going to lose 70% of their money at the end of 4 years. Besides any gain, it’s really risky, and when more people learn this they are going to avoid investment on icp, without the help of the community, icp is going to leak more like a snowball effect. Even after 4 years foundation etc is going to mint 300M coins? is it like a joke? nothing is transparent about token economics since day1 its understandable with that much-broken level. I believe that ICP not going to survive well with that broken token economics people are not blind as creators of this thinks.
Honestly, I have no idea how to fix this but maybe stopping the aging of seed neurons and increasing the maturity rate of neurons created after launch as 2-3x maybe can lead to a bit equal distribution.
There should be 75-80% of coins on exchanges, not 10%. It was a broken launch, who launches with 0.005% coin on the first day and make their coin on the top 3 as there was 40$B investment on it at the first day (probably the real market cap was around 200M$) and with showing circulating supply 127M and dump other 10-20M coins weeks later. It’s has terrible token economics and with this level of tech, it could be in the top 3 for real atm. Really sad these happened to ICP.

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@icpmax, I’m having a tough time following this, but I think your primary critique is about the token distribution–not the tokenomics. We can’t do anything about the distribution of ICP at this point. And that’s not what this thread is about. This thread is about tweaking the set of incentives around the ICP token to meet some desired purpose (whether it is to increase the security of the network, to increase demand for token, etc.).

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For most, I disagree with @icpmax. Those seed investors (which I am not and have bought my few first ICP at 320$) had invested 10k, 30k or whatever (at .03 cents each ICP) back years ago when Internet Computer was only on paper, not much more then a dream. These investors had the most faith that the dream would come true. Without these investors, IC would just not exist. Now, if these investors believed enough to pour thousand of dollars in a dream, why would they sell now that IC is alive and work amazingly? These people believe much more in Crypto then fiat money. Why would they sell? To buy other cryptos? or get back to fiat? Where will they invest their fiat money obtained from that dump? What is better then ICP as investment for the next 20 years? If you have a clue, let me know, I may be interested.
I just believe (but may be wrong) these seeds will invest most of their new obtained ICP in the NNS and have great returns, while the price would go up.
I don’t see many other ways (other then Dfinity have done) to obtain funds for a project on paper only.
Our risk to invest in ICP now, a great working layer 1 network, is millions times less then for these seeds investors at the time.
What I found to be bad at launch wad the lack on clear information, which is a general statement and complain as I can see. Now, we have to live with it and go forward, if we believe in the technology of course, which I do from the very beginning I learn about IC. (When ICP was selling at 320$ back in May)
This is my thinking but respect yours.

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If the penalty were so severe that it ate into the principal, and if the totality of said penalty were burned or distributed to, say, only locked neurons, then MAYBE I’d agree. But even then it’s a maybe.

And regarding neuron transfers… one thought is for neurons to be transferrable to other II’s that are subordinate to my master II (i.e., created by me via my master II). And perhaps there needs to be a rule that a neuron can only be transferred to a subordinate II that has been in existence for a year (or some other arbitrary time)… or perhaps the % of the neuron that can be transferred is dependent upon the age of the subordinate II.

I’m not a fan of transferring neurons, except for legacy/estate needs.

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Anyone who believes neurons should not be transferable is making the same mistake as Bitcoin’s decaying block reward: it is a bad security assumption for the future.

If an external blockchain implements chain key crypto and private smart contracts, one will be able to create neurons on addresses controlled by the external blockchain. Then later one could transfer ownership of this neuron on the other blockchain, while on the IC it appears nothing happened. Only the buyer of the neuron would know the transfer happened, preventing NNS voters from blacklisting transferred neurons.

If the security of the IC/NNS depends on neurons not being transferrable, it faces a ticking time bomb of another blockchain implementing CKC and private smart contracts. If just 1% of locked ICP wants to be sold annually, that is still a huge market to build a product for. Then an attacker could still perform whatever governance attack they want, while only losing the discount on locked ICP. The discount will still be non-trivial, because neuron sellers have to incentivize buyers over just buying their own ICP and staking. Plus, the sale won’t happen instantly, so the attacker still risks the price of ICP declining after a bad proposal is passed.

The counter to the governance attack is for neuron buyers to be aware of the voting status of the neurons they wish to buy. Buyers will not want to buy neurons that are actively voting because of the risk of becoming a bagholder after a governance attack. I expect neuron markets to prevent listing of neurons for sale that are actively voting to save buyers the trouble of manually looking that up.

If the IC directly allows neuron transfers, it could implement some light rules/restrictions to enhance security, that are not enough to incentive the creation of an external neuron market. For instance, adding small delays to voting/following/transferring actions could prevent attackers from instantly voting then liquidating a neuron. Or create a special neuron state that allows it to be transferred but not vote. It would be better for the IC to have some control over neuron markets than for them to have free reign on external blockchains.

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