Tokenomics Proposal [Community Consideration]

“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.

1 Like

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.

1 Like

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

2 Likes

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.

2 Likes

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

3 Likes

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.
3 Likes

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.

2 Likes

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.

5 Likes

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.

4 Likes

@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?

1 Like

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!

1 Like

It is clear to me that the actual design (by Dominic and Dfinity team) was done with a long term vision rewarding more investors ready to lock their investment on long term. The longer, the better reward. it make so much sense. Obviously, I see that some people would want to have the best long term reward, while being able to sell their neuron quickly. At then end, 100% would go to neurons, the rewards would go down for everyone and the ICP price would also being kept low as the entire supply would be available for sell somehow. Just make absolutely no sense to me and this is not what I have signed up for. It is a hard decision to lock for 1 year and have your investment available in a quiet short period compare to 8 years but if you have any doubt, go for the 1 year. But we have to do it and live with it.
On another related but different subject, we should first vote on how many % of votes should be needed to pass some of the proposals. Not all proposals weight the same. A change proposal that affect others financials should certainly need a 80% or 90% approvals for passing. I don’t understand why or where it comes from that a 50+1 adoption level was adopted for a fit for all proposals.

5 Likes

Very interesting @lastmjs and thanks for the information ~ just read Vitalik’s article with one of his key takeaways summarised below:

To me, the goal of crypto was never to remove the need for all trust. Rather, the goal of crypto is to give people access to cryptographic and economic building blocks that give people more choice in whom to trust, and furthermore allow people to build more constrained forms of trust : giving someone the power to do some things on your behalf without giving them the power to do everything. Viewed in this way, multisig and social recovery are a perfect expression of this principle : each participant has some influence over the ability to accept or reject transactions, but no one can move funds unilaterally.

2 Likes

Hello @Michaelannh ~ thanks for tagging me. Surprised that a simple post can generate so much interest. The beauty of this is right or wrong, ideas are being put forward as there is so much to learn from others.

For me, I am just a layperson throwing out ideas for discussion as I am neither a crypto tokenomics expert nor someone who professes to be and you for one are obviously a learned and well researched person in this field based on your highly analytical and well thought-out posts.

I have not been keeping pace with all the comments here on this forum but have read snippets here and there. With so much interest generated and comments received (93 posts and counting), we should probably start thinking of summarising what has been discussed as follows:

  1. Without over-thinking, what is the number 1 problem (if any) in ICP’s tokenomics that needs to be solved right now?

  2. If this problem has been identified, what are the proposed solution(s) (extra points for proposed solutions from qualified and experienced crypto tokenomics experts) that the community can come up with?

  3. From all the proposed solutions received, what are the pros and cons in implementing each of the proposed solutions together with supporting evidence / calculations / research backing up these proposals?

  4. Put the best proposal to be voted-upon by the community.

  5. Repeat step 1.

A summary of the above should be pinned to this main post for the benefit of others who have not kept up with all the posts here (apologies if I am somehow reiterating what @lastmjs may have mentioned previously but I guess this should be high on the agenda).

On a side note, I have also noticed a few posts about issues with transferring of neurons. Not sure if this is the same but Harrison Hines mentioned in his recent community conversation that “neurons as NFTs” was on Fleek’s roadmap as per the following link:

Wonder how this is going to play out.

Thanks.

5 Likes

I highly agree with the eventual importance of having different vote threshold levels for different types of proposals.

4 Likes

Another challenge with neuron transfer: wouldn’t this very much complicate liquid democracy?

Once neurons start following a broader variety of other neurons, wouldn’t neuron transfer make it much more of a challenge to ensure that you’re still following who you want to, given that the neuron you’re following may at any arbitrary time be sold to another principal? Many of the guarantees of liquid democracy would seem to break down.

This could also very much compound the security risks here.

Malicious actors technically need only a significant proportion of the liquid voting power on the IC at a given moment to determine NNS outcomes. Some neurons can have small ICP stakes, but a ton of voting power from followers and their followers. So it could be relatively very cheap to buy at-least-momentary control of the IC if neurons can be transferred - nothing remotely close to the cost of “50% of the ICP + 1 vote,” as is more commonly discussed.

Unless these challenges can be addressed, supporting neuron transfer looks prohibitively risky.

2 Likes

I love this. Personally, I am somewhat confident that I could create a small group of 3-5 people that would be one of the most unbreakable networks ever to exist, considering how strong my trust is in them. I would trust them with my funds, if not my life. I hope many of us have people like this in our lives.

7 Likes

I think these are really good points.

If neurons can be sold, neurons basically just become speculative ICP futures (with certain optionality attached, and bonus-adjusted for dissolve delay and age bonuses). The incentives for ICP holders to steward the IC’s development for its long-term success mostly evaporate.

Combined with the fact that liquid democracy could become unworkable with neuron transfer (per post above), how would governance on the IC function anymore?

2 Likes

so in a free market parties can decide on rules and boundaries. a free market isn’t willy nilly anything goes as participants are free to make rules and come to agreement among participants; you are free to not participate and create your own market with no rules at all and see if anyone wants to be a part of it as well. the rules of the dfinity market are such that people who funded this project and gave it money knew that it would be a staking type system, and in general staking type systems involve locking up coins which generally entails not being able to sell that account. given that no one was forced to give the foundation money it seems obvious to me that the free market of people who gave money went along with this idea.

i don’t know how many have set their dissolve delay to 8 years now but those who have basically have consented to the current arrangement. you can talk about free market all you want but you must recognize that in a free market actors are free to collude and agree on rules/contracts

regarding the minimums have you considered the “nothing at stake issue” this is a major issue and well i do not know the internal functions of the dfinity system i can tell you that perhaps you should consider the idea that another reason the minimum exists as such is because of scaling issues around the ledger that need to be worked on. so the solution isn’t let’s make it harder for investors but lets make the system function better to provide more access. and to your point about decentralization if we were to move to a % based system it would mean that less new coins are available to be sold to the market thus thwarting the ability of new stakers to come on board.

and btw the minimum on Eth is 32 Eth, which is quite a lot, and so yes you actually get more for having a high stake vs having only 16 eth and needing to participate in a pool. By comparison waiting for 1 ICP ($55) to be generated on a daily basis given that the current yield is about 25%+ (if locked for a long time) requires about 1470 ICP which currently has a market value of $81k, whereas 32 Eth is over 100k; so i’m not sure how you can claim that the other systems somehow offer something better to the small investor.

finally as far as payments for following as you say they should collect fees but they can also choose not to collect fees (remember that free market!). an entity that wants more votes would obviously have lower fees or even no fees. in the case of dfinity foundation most of the important proposals come from it at this point and it has a sizable war chest so one can imagine that they value having more followers and voting power at this point rather than charging some fee.

your concerns are well places but I think in the case of the 1 icp minimum you are attributing to some sort of poor design decision to what is more easily explained by technical scaling issues that in the future may improve. and with regard to neurons you have to acknowledge that while it’s true that someone locked into an 8 year dissolve may sell their vote it would be highly irrational for them to sell their vote for a change that would have a negative impact 8 years down the line, whereas if he were free to sell his neuron whole the system losses the extra protection of participants who must without doubt consider what are the long term consequences of their actions.

2 Likes