Tokenomics Proposal [Community Consideration]

It looks like this button is always active. Do we know how much it costs(if anything)? Can I mash it like “abba” in Ikari warriors?

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hi all, i recently lost some funds using the NNS wallet app. (see NNS Disburse changes account address randomly? NNS doesnt validate account. Lost ICP - #3 by superduper)

Apparently we are able to transfer funds to invalid account addresses: so i’d like to propose for consideration that the NNS (a) return any funds which are sent to invalid addresses (b) enforce checksum on accounts for transfers of ICP so that in the future ICP cannot be sent to account addresses which don’t actually exist.

thanks

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i don’t like this proposal it adds another layer of complexity to spawning which just isnt necessary. we already have enough to deal with and the 1 icp threshold is easy and simple to understand.

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i don’t see this as a problem. someone’s invested more in this system and they get an advantage.

whales also have the issue that they cannot sell all of their coins immediately or have to find otc buyers, as well as invest in better security and systems for evaluating proposals. so if you want to get into “equivalency” there are may facets of the prism to see reality from besides when a neuron reaches that magical 1 icp.

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I don’t see any value to the network in being able to transfer neurons. I see a big security risk for myself and other neuron holders. Also it will create a sort of “votes for sale” situation that will misalign incentives for long term growth that the network benefits from long term staking when some people will decide to sell their neurons or some rental market comes into play where basically it becomes cheaper to attack the system.

anyway if neurons can be transferred then we might as well get rid of staking because what’s the point then. as no one will have anything at stake since they can sell immediately.

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@superduper

i don’t see this as a problem. someone’s invested more in this system and they get an advantage.

So you want someone with more money to have an exponential advantage? Where does your assumption come that 10% invested of 2 people with different net worth should lead to an advantage for the one with the higher stake?

Large holders have to find Otc buyers for their 100ks of ICP… That’s indeed such a problem if you have net worth of millions of dollars and you have to knock on the door of an exchange. Indeed, I’m so glad that I’m not a millionair and won’t have to deal with such things. *Sarcasm off

The only reasonable argument is the security aspect, if you have a higher stake. So large holders want to get something extra for having to deal with higher security for their stake? Is this your main concern? Just to add a few points to this aspect:

  1. If yes, it should be discussed and not be hidden behind the shadow of unclear tokenomics.
  2. The exponential function is hard to handle. As I’ve provided in multiple comments, the advantage of this would multiply over time to such an extent, that a large holder could probably buy up a whole country just to secure his stake.
  3. IMO the protocol should aim for as much decentralization as possible. Since that can only happen over governance, it should mean that neurons/votes/holdings should be distributed over time. Additional incentives to prefer larger holdings are a bit contrary to this. @lastmjs made a great podcast about this.
  4. Large holders have already got a big advantage they always seem to forget: Their large holding. Someone with a large holding can live from the staking reward atm. Spending a few ICP on additional security seems to be a fair trade for beeing able to practically not work and earn as much as a few middle class workers a month.
  5. Comparison to other projects: Eth PoS doesn’t give you more just because you have a high stake. Also not Polkadot, or Cardano. So why do we want to go a complete other way here again?

At least we got rid of this with the merge maturity button now, so the only discussion point is the liquidity aspect. One of my arguments:

If there is serious market action, high stakes have got a liquidity advantage, which small guys don’t have.
E.g.: ICP rises to 300$ => 1kICP probably gets 1-2 ICP a week. At 300$ that would suddenly be 300$ to 600$ on liquidity in a week. The high stake holder can dump it, the small guy (10ICP) can’t (even if it would only be a fraction; we speak about 0.01 to 0.02 ICP a week =>@300$ : 3$ to 6$).
It’s the simple fact that the high stake holder can (and will) use it to realise profit and engage in the market, while the small fish can’t.

If you want to say that this is justified because of greater expenses for security, then I’d like to have some calculations/facts and discussions about this.

What is an acceptable amount of money for something like that? Is the 1ICP treshold liquidity advantage good for this? Should we make another incentive? E.g. Dfinity treasury wallet pays for this directly, instead taxing the small holders indirectly via the liquidity over the 1ICP treshold? What do others say to the presented points above?

Why do other projects don’t have this kind of arguments/problems?
Of course they have other approaches via stake pools and nominated proof of stake, however they are not so different. The stake pool operators collect a certain amount of fee of the people, who are delegating to them.
=> If that is translated, it would mean that the neurons we’re following should collect fees. If someone with a high stake wants to collect additional income, he should advertise his neuron and make others follow him. Would that be an approach suitable for Dfinity?
Via this he could earn without giving others a liquidity disadvantage, he could pay for additional security, and it would lead to more decentralization of the IC, since direct participation in governance becomes rewarded more. Of course he’d also have to work for his earned ICP, that’s what I see as an absolute win for all.
Work more => earn more instead of have more => earn more


@superduper
My main concern in the neuron discussion is that the free market will find it’s paths anyway. Surpressing free market processes over the long term, only destabilizes the system. Actually we could both sell our votes atm. It doesn’t make sense but we could. You could call out a price and I could answer. Buying votes without transfering ICP or neurons. It’s possible.

I hope there will be a Townhall soon for all this kind of discussions.

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I agree on this and would be interested in the Foundations reasoning behind setting the threshhold to 1 ICP instead of a certain maturity as communicated @diegop

The maturity of a neuron starts at 0 but increases with voting activity. When a neuron’s maturity grows beyond a certain threshold, then it can spawn a new neuron containing newly minted ICP, which resets its own maturity back to zero.

[source: Understanding the Internet Computer’s Network Nervous System, Neurons, and ICP Utility Tokens | by DFINITY | The Internet Computer Review | Medium]

Another thing I would like to suggest is the option to lock a neuron in “merge maturity mode”. This would automatically merge the maturity (maybe once a day) and not allow neuron owners to spawn any neurons to retrieve their voting rewards. The lock-up mechanism would be exactly the same as it already is and users would benefit from an additional bonus, just like the age bonus.

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For anyone who is interested in discussing these topics face to face, we’re having a Town Hall video call meeting to discuss these governance/tokenomics topics this Friday at 5PM UTC in the DFINITY Devs Discord: DFINITY DEV OFFICIAL

I know it is short notice, the first time is tricky. But if it goes well and seems useful we can iterate on the process and hold these meetings on a regular basis or ad hoc whenever is necessary.

I hope to see you there.

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“most of the ICP minted is from staking not node providers”, for now*. We only have ~250 node machines right now. Should be 100x at least to really start flexing off the computational capabilities. And to have any global impact, it should eventually have 1M+ machines. Otherwise the computational fire power is just way to low to host global apps.

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Nice thing is that node provider capacity can scale with IC computational demand, which itself drives token price - meaning that each ICP would go further in paying node providers, when there’s a need to bring more node providers on to the network.

So simplistically, if IC canister demands grow 2x, suppose we need 2x more subnets (if already at capacity); this costs 2x as much to pay the new nodes on those new subnets.

But it’s reasonable to assume that ICP price grows roughly 2x in the same period (at least - probably more if you buy into Metcalfe’s Law), and so still the same amount of ICP must be minted to pay node providers (who get paid a relatively constant fiat amount, even if remitted in ICP). So roughly the same proportion (or even a falling proportion) of minted ICP should go to node providers vs. stakers over time, by this logic.

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How about a fork? Looks like part of the community is starting a new project that is a fork of icp called
icpreboot

Fwiw, I agree with your proposal to set a threshold based on neuron maturity, if that’s possible.

It might be helpful if @diegop could provide the team’s rationale for setting it to 1 ICP in the first place.

I agree with being able to transfer neurons, but not instantaneously. I think users should have to express their intent to transfer their neuron by initiating a countdown (weeks or months). During this countdown the neuron should no longer be allowed to vote. once the timer runs out the user should be able to set up a contract whereby another user can deposit a specified amount of ICP. If the correct amount is deposited the neuron ownership will be transferred and the transfer delay immediately reset.

Just my two cents on the matter

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I agree in general. But the demand elasticity is much greater than our capabilities to scale up the fleet size. The IC computational demand is already greater than what we have. Even a single problematic data center right now can slow down a whole region. Looking at the pace of II anchor growth (exponential), canister growth (exponential) and node fleet size (linear, or on pause?), what is obvious is that the computational capability does not grow as fast as everything else. We talk about “boundless scalability” and that is a great achievement on the software side but what it eventually comes down to is the computational capacity, which has problems. The interest is there, I’m waiting in the queue myself, but there is no visibility and seemingly nothing is happening. I’m sure a lot of work is happening behind the scenes though.

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Social recovery might be the solution to this: Why we need wide adoption of social recovery wallets

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We just finished up our first community governance meeting, what I’ve been calling a Town Hall meeting.

Here’s my summary of the most important conclusions and action items. Hopefully others in attendance will share their take-aways if beneficial:

  1. Neuron transfers seems a contentious topic: should we try to restrict them completely, put in some restrictions, or open transfers completely? Seems like we need a lot of deep thoughts and persuasions on this topic
  2. How will the inflation/deflation of the IC play out over the long term? I think we need someone to do a deep dive and create models mapping out various plausible scenarios. We want to make sure inflation will be in check at future theoretical levels of usage. The relationship between cycle burning and node operator reward inflation seems most important to understanding deflationary pressures…or perhaps just cycle burning. We need to know what amount of burn we can expect in the future. Charts and graphs please, if someone is looking for something beneficial to do this is an open opportunity.
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I see neuron sales/transfers kinda working like life insurance policies or annuities sales…where you would have to take a hit or get paid out cents on the dollar to cash out early but it could become an interesting market on an exchange. Unique compared to other tokens.

Example: a neuron with 100 ICP with an 8 year delay.

Why would someone sell? They need emergency liquidity maybe…

Would you pay market price for that? Of course not because you could just do that on a normal exchange. So you would buy at a discount and your return would be the market price after dissolve.

I don’t see the vote buying argument. If you wanted to buy votes go buy up tons of ICP on an exchange and stake but you could get votes at a discount but only if people are willing to sell at a loss.

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Here’s one concern I have. If neurons are transferable, in a market downturn many neuron holders would sell their neurons–almost certainly at a discount to the price of the ICP in the neuron. Anyone who wanted to buy ICP to stake in a neuron would almost certainly buy neurons on the secondary market instead of ICP. If long-term investors are all buying neurons instead of ICP in the downturn, the price of ICP could absolutely crater due to the severe supply/demand imbalance.

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I am strongly against a secondary market for neurons. No one would be able to anticipate how an actor with hostile takeover intentions could social engineer people into selling their neurons or how the holder would dump the neuron price on such a market in a stressed market scenario. Preferably, introduce an unwinding mechanism where the neuron holder pays a non-linear (based on time to maturity, dissolve time, etc) termination fee in ICP (a % of the ICP locked in the neuron) that goes straight to Dfinity or distributed pro rata to all neuron holders as locked ICP in their configured neurons. Dissolve/unwind the neuron and the remaining ICP after termination fee goes back to the holder which then can be sold on the market.

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@lastmjs

If I follow this thread of @Alixthe and @wpb I’ve got a few questions on what is discussed there:

Are you talking about simple multisig or much more social recovery?
If you’re talking about social recovery in terms of neuron ownership/transfer you should really be aware that this is an absolute sensitive matter IMO. @Alixthe wrote:

Also, perhaps the Master II could be pre-configured for certain eventualities for example in the event of a death (which needs to be verified by say the beneficiary)

Where does social recovery start and where does it stop? The further it is pushed, the more it gets into the direction of KYC. I think everyone sees this 3 fat marked letters now, and knows how sensitive this could get. As it is formulated above, you put yourself into an oracle problem, which further relies on trusted 3rd parties. The beneficiary can act fraudulant as well, that’s where 3rd parties would come into play. And in the end you’ve suddenly got a neuron which is only transferable if a certain lawyer (completely different from country to country) agrees to this. This wouldn’t go well in cryptoland (see Davos FUD).

If it is only much more an addition/tool for someone it could be a whole different story. The 2 following statements are completely different:

“You’ll get an additional tool, where you can set up social recovery, if you want it.”
“You’ll only be able to transfer a neuron if you set up social recovery.”

One statement might give freedom, the other one might take it.


@LightningLad91

I think there should be some sort of delay or waiting period (no voting capability) before a transfer can be completed.

I think users should have to express their intent to transfer their neuron by initiating a countdown (weeks or months). During this countdown the neuron should no longer be allowed to vote. once the timer runs out the user should be able to set up a contract …

Your mechanism is interesting. I’m quite on your side with this. However this would already go deeper into implementation.
I think there are still many points which have to be resolved if I read the latest posts. You’ve also written:

It might be helpful if @diegop could provide the team’s rationale for setting it to 1 ICP in the first place.

I’m as well interested, and @cryptoschindler also writes:

I agree on this and would be interested in the Foundations reasoning behind setting the threshhold to 1 ICP


@mechaquan

I see neuron sales/transfers kinda working like life insurance policies or annuities sales…where you would have to take a hit or get paid out cents on the dollar to cash out early but it could become an interesting market on an exchange. Unique compared to other tokens.

Absolutely agree on this.


@namyIC

Preferably introduce an unwinding mechanism where the neuron holder pays a non-linear (based on time to maturity, dissolve time, etc) termination fee in ICP

You’re approach is great the more I think about it. Maybe it’s a correct balance between complete liberal free neuron trading vs restriction and shadow market.
This could be enough to counter liquidity arguments: Paying a fee to unlock early is fair, otherwise I’d have to chose a shadow p2p market and trust on some unknown party. If I really need to liquidate I could, and ICP wouldn’t restricit it. With a fee there could be enough motivation not to do it. However it might become a political tool in the future (one governance vote makes restrictions much harder and the other one makes them loose). Since we all have governance rights that wouldn’t be such a problem (hopefully with enough decentralization).


@BenTaylor
I see your concern, but IMO that would lead to a healing effect. I’ve written something before which addresses your concern.

The main question we should ask ourselves is: Are we afraid to make some sincere postive longterm changes in tokenomics, because it might have a negative impact on the price over the short term?

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No one should ever invest money that one can’t afford to loose in the first place. However, with that said, I completely understand that one’s life situation can go from better to worse quite fast and therefore it would be beneficial to unwind the locked neuron(s) in that case in case of the need of emergency funds. But in order to do so it must come to a cost and I believe it is best if that cost come to such a price that it should be close to ones last resort of options. This is the governance of the whole network and if one decides to unwind the cost of ones decision of doing so should benefit the rest of the neuron holders in the network why I am leaning more towards a pro rata distribution model of the fee paid for unwinding. We have a perfectly capable primary market where ICP is traded, creating one for neurons would most likely make this one very illiquid as well on top of the other concerns I mentioned earlier. Just my 2 cents!

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