Tokenomics Proposal [Community Consideration]

Also, just a fun idea to throw out, would anyone be interested in sharing their views on some of these topics in my Demergence podcast? I’d love to get a series of “debates” going on there, perhaps we could do one episode on one controversial topic, and two community members with opposing viewpoints could fight it out in a civil manner. There are many ways to do this, but if people would be interested in coming on Demergence let me know.

6 Likes

Here’s some data validating my claims: https://twitter.com/kylelangham/status/1433077356596502528?s=20

Assuming the data is correct, and I’d love to know more about how the data was collected from the author, almost no one is creating neurons for 5, 6, or 7 years. It’s as if 5, 6, 7, and 8 year neurons are all equivalent.

3 Likes

Point 2: You raise some more great points, @MichaelAnnh.

First and foremost, I think you’re very right to suggest to never underestimate the free market and human ingenuity. Outright bans rarely, if ever, work… by far the most sustainable solutions are the ones that individuals want to use as intended - ones where there’s little to gain by skirting or gaming, creating shadow markets in the process, as you note.

So I also very much share your intuition to continue to pursue economic guardrails for the security of the IC (the IC already has many of these), rather than strictly prohibitive technical ones: try to make it so that it is in very few parties’ interest to act counter to what’s good for the IC’s long-term success. As you note, perhaps only large state actors and others with significant clout and interests beyond the financial would then have any reason to act maliciously.

I think it’s also a great point that it appears that one can in fact already today transfer a neuron, by selling the identity and deleting the seed phrase. (Wasn’t aware that you could delete the seed phrase - thought that once it was set, it was set for good… but logging into the Internet Identity app just this morning proved my ignorance here as well!)

In view of all of this, here’s an updated stance.

I maintain that we as a community should look to the IC’s security first. To the extent that it’s currently possible to discourage malicious behaviour using technical means - until we figure out a better, more sustainable way - I think we should. In the immediate term, for example, that may mean ensuring that every Internet Identity is created with a seed phrase, and making that seed phrase permanent and impossible to delete.

But at the same time, post-haste, I think we should start looking into longer-term risk mitigations, to prepare for what increasingly seems to be the inevitability that neurons will at some point, maybe sooner rather than later, be transferable. And here, I think we need to seriously consider the possibility, remote as it may seem at the moment, that we could encounter malicious behaviour from interested state actors, or other monied parties with non-financial goals. The IC could be world-changing, and very smart global players have already evidenced their own early belief in this too, to date having invested at least hundreds of millions of dollars. So as the IC continues to mature and prove its potential global influence, I don’t think we’ll be able to rely on ICP buyers’ financial self-interest alone… it may take more than that.

And as soon as we have sound risk mitigations in place, it would be great to enable neuron transfer officially. The creative opportunities could be significant, and should be fully supported, to the extent that it’s safe.

Really appreciate your thoughts @MichaelAnnh… thanks again.

5 Likes

This is an existential question that you should add to your list. Does having liquid neurons break the underlying incentives of the NNS? It certainly reduces the effectiveness of the skin-in-the-game mechanism…but by how much?

Could we barbell this so that a market doesn’t develop…or at least there is a floor/ceiling or a very narrow market. If I can always get out of my neuron for N = N - (x * Years staked) where x is the percentage of the underlying that you lose per year then the market that emerges should only be in between that floor and the full amount. It seems like that market would attract a much smaller participation.

Ultimately though, does any ability to get out of a neuron increase the likely hood of an NNS attack? It does. How much? I don’t have a ton of answers, just trying to document the questions.

5 Likes

Another fun idea: Is anyone interested in having some informal small group video/audio chats, sort of like a Continental Congress or Town Hall? Seems in-person discussions could be very nice since all of the issues here are deep and ideas and solutions complex and nuanced, hard to get it all down in writing.

7 Likes

@ayjayem you have some very good points. I know you proposed permanent seed phrases for internet identities, but maybe the idea also applies well to individual neurons. Would anyone ever buy a neuron that has permanent seed phrase? Not me. Anybody who knows that seed phrase could take it over. That would make it a huge personal risk to buy a neuron from someone else. This seems like it would be an effective deterrent for neuron transferability.

I think very good and interesting points have been made about neuron transfer by many people in this roadmap conversation. I am eagerly awaiting a response from Dfinity foundation about whether there is anything built into IC technology to deter this activity. Several people have indicated that neuron transfer is inevitable. For example, @talkingant argues that “IC’s chain key crypto has forever destroyed non-transferability for all crypto assets”. Do the cryptographers at the Dfinity foundation agree? Or is there something about chain key cryptography that is not public knowledge or the public doesn’t understand yet that prevents this inevitability? It seems that Dfinity foundation intentionally designed the tokenomics to make it hard to transfer neurons, but I’d like to know if they have anything baked into the technology stack to enforce this tokenomics design principle? It is a huge team of cryptographers after all and hopefully they already considered these issues.

@lastmjs your idea of a Town Hall is brilliant. I think it is important to have folks from the Dfinity foundation present because it would help panelists avoid conjecture. The format would be a good way to further refine the questions, concerns, ideas, and solutions that are being discussed.

4 Likes

The discussion is really great.

@ayjayem You’ve proposed the following:

To the extent that it’s currently possible to discourage malicious behaviour using technical means - until we figure out a better, more sustainable way - I think we should. In the immediate term, for example, that may mean ensuring that every Internet Identity is created with a seed phrase, and making that seed phrase permanent and impossible to delete.

@wpb 's statement is right on this:

That would make it a huge personal risk to buy a neuron from someone else. This seems like it would be an effective deterrent for neuron transferability.

@ayjayem you’ve correctly mentioned, that my approach would be quite liberal.
At this state, I’d actually see adding a permanent seed phrase the opposite of what ICP should do. It’s another restriction, another fear that is carried on, further preventing some secondary liquidity.

IMO neuron trading is a huge opportunity which could embrace a completely new industry and economic system. An opportunity which could bring growth and worth to ICP. I think we agree on this, however we disagree on the path. Maybe I need to research on all of the security concerns, in order to understand your points better. If you’ve got more infos/statements/a list of concerns, I’d be glad to dive deeper into it.

Here I can add another crypto project: Nexus Mutual
They have got a liquidity pool. If a certain treshold is not sustained, NXM can’t be liquidiated directly in the pool. They knew that and helped to actively embrace a secondary market. If people want to get rid of NXM, but the pool MCR (100% I think) isn’t met, they can’t liquidate directly.
They wrap NXM to get WNXM and sell it. The market knows this liquidity issue and says: “Well if you want to sell WNXM you’d receive less than with the current pool ratio.” => price difference and sellers actually lose money. There is an economic thinking now. NXM also has governance rights as far as I know. I’ve not yet heard that bringing in secondary liquidity had negative impact on voting behaviour.
It would be interesting what they say about this concern.

If this is translated to ICP it would mean that a simple neuron trading plattform could be embraced where there’d be a difference on the spot price according to supply/demand. The market would price in the liquidity and lock- up period. Someone selling will take e.g. -20% on his 2y locked neuron.

Again, I have to ask: What are the exact concerns, if other projects show much more courage on things like that? If the correct concern is, that someone votes against the protocol, sells his neuron and leaves afterwards, then you always make the statement out of the view of the malicious actor, not out of the view of the potential buyer, who stacks cheap ICP. Their time horizon is probably higher than to the next neuron trade. If they seriously believe in ICP over the long term, they will buy up all the cheap neurons, and let them work for them. They’ll try to engage in governance to actually improve the value of ICP. If something like that would come, I’d only buy neurons and not ICP. If they offer me cheap neurons, be sure I’d take them.

I absolutely agree on your following point:

And here, I think we need to seriously consider the possibility, remote as it may seem at the moment, that we could encounter malicious behaviour from interested state actors, or other monied parties with non-financial goals. The IC could be world-changing, and very smart global players have already evidenced their own early belief in this too, to date having invested at least hundreds of millions of dollars.

We should make some scenarios and ask ourselves how a potential malicious actor could trade/benefit from such a system without risking everything. Im really interested in all the wild scenarios, possibly coupled to insights in ICP security.

If we take a look at it from the free market again a few things could happen:
Huge spot difference on neurons to liquid ICP. => People will find a way to use it: Either speculate on falling ICP price/ or buying up cheap neurons. This could actually be a healing process telling us more about ICP itself and how people think about it, than anything in blockchain before. Look on how “On-chain analysis of btc and other assets” suddenly became a completely new phenomenon/analysis tool for traders/analysts etc. What could neuron trading possibly do? This could be huge.

I see reports of neuron prices in the morning. Wild speculations, analyst coverage and interpretation what this tells us about future ICP price… never ending possibilities with neuron trading alone.
For me it’s much more a great opportunity than a security issue.

The free market puts pressure onto things which don’t work until they do. That’s why people flee out of fiat into crypto.
We should accept all the signals. By actually not adding a permanent seed phrase we’d say in full consciousness: “Hey, we see it and we actually like neuron trading.”
Now adding a permanent seed phrase would create the next wave of anger and could even harm the project:
“Now they’ve also taken p2p neuron trading.” I already hear it…

A quick response to another statement:

So as the IC continues to mature and prove its potential global influence, I don’t think we’ll be able to rely on ICP buyers’ financial self-interest alone… it may take more than that.

IMO that can be resolved by great governance + community. If your ICP get coupled to governance rights with an enormous bandwith of voting decisions you can participitate, people will have less incentive to look at prices. => One doesn’t give up such a right that simply. I actually don’t care if the price moves +50% or -50% atm, if I look at my ICP holding as a form of democratic right. If we’d flee from a country everytime a government makes a bad decision, we’d be normads again.
This is another aspect of tokenomics and I’m convinced that great governance will lead to community support, and create inherent value for a project. If ICP goes along this path it will have a bright future.
I’ve just seen a tweet of @lastmjs and that’s exactly the way to go.

1 Like

Thanks for this @MichaelAnnh. It sounds like the key point of difference right now comes down to the actual risks and concerns posed by enabling neuron transfer - we both agree that neuron transfer would be great to enable, so long as it’s safe (read: secure against 51% attacks, and generally still conducive to long-term good governance of the IC).

Are you on Telegram? If so, might I suggest that we connect there to discuss - don’t want to air possible attack vectors in a public forum.

If you want, you can hit me up at @Ayjayem on Telegram.

I see how your approach fixes the inequality regarding “interest of interest”, however it doesn’t solve the liquidity advantage for large holders. Large holders simply get liquidity faster due to the 1ICP treshold. Automatic compounding doesn’t change that. Of course 10ICP vs 1kICP get the same reward speaking in terms of maturity via compounding, however large holders still reach the 1ICP treshold faster due to their high stake.

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.

This has nothing to do with fairness and leads highly to inequality. Why does someone with a higher stake get that advantage over smaller fish? There is simply no reasonable explanation.

Lowering the treshold, wouldn’t make it fair, it would only make it less unfair.

@wpb Pegging the condition to a fixed maturity would be interesting, as you’ve suggested. I actually can’t think of any scenario on how to get an advantage right now, since each neuron (same age) would get percentual ICP released at the same time. That would be worth a try. However compounding alone won’t help.


@lastmjs
Your townhall proposal is great, and I’ll give your podcasts a try.

@ayjayem Thx for the invitation. I’m looking forward to hearing more about it.

1 Like

@MichaelAnnh you make an excellent point regarding the liquidity advantage of large stakeholders. Thank you for illustrating it so well.

Automatic compounding, whether it is daily or based on a fixed threshold maturity, provides equality for accumulation, but not equality for liquidity. I’m in favor of equality for both accumulation and liquidity, so I would advocate for a fixed threshold maturity to Spawn Neuron instead of the 1 ICP threshold.

I think a fixed threshold maturity of 1 % is reasonable (although I personally would not object to it being higher). At the current voting reward rate of return, a fixed threshold maturity of 1% means neurons with 8 year dissolve delay would be able to Spawn Neuron approx every 12 days and neurons with 6 month dissolve delay would be able to do it every 25 days.

I have no problem with this difference in timeline because it is another mechanism that makes it more attractive for longer term investing, which is the goal of the tokenomics. This would not be an inequality in my mind, this is the investment choice that everyone gets to make and it applies equally to everyone.

All of that said, I still really want to advocate for daily automatic compounding for anyone who chooses accumulation as their preferred participation strategy. My points above are only intended to address the inequality of liquidity between large and small stakeholders. Implementing a fixed maturity threshold to Spawn Neuron does not negate the ability to also allow automatic compounding or automatic daily compounding.


I am definitely not sold on the idea that neurons should be transferrable. I would only be interested in that idea if the Dfinity foundation confirms that they believe there is a security risk that exists by not making them transferrable and they believe there are no mitigation strategy options. Unless that happens, I would rather stick to the current tokenomics design which is intended to prohibit neuron transfer due to security risks and the desire to attract long term investors.

To me, the free market trading that should exist is the ICP token, not the neuron. If an individual decides to participate in governance by staking, then they need to go into that decision with eyes wide open after DYOR. It’s a choice and all investors should understand the commitment and live with the consequences. I don’t even have sympathy for seed investors (etc) on this point because part of their investment risk was a commitment to accept the tokenomics that Dfinity had the right to design in the best interest of the project. I just don’t agree with the idea that neurons need to be transferrable in a free market when they were not designed for that purpose.

3 Likes

@wpb
I’ve seen that a “Merge Maturity” button was included. I’m really astonished and happy about this. This helps to fix an underlying problem.

As you’ve written:

Automatic compounding, whether it is daily or based on a fixed threshold maturity, provides equality for accumulation, but not equality for liquidity. I’m in favor of equality for both accumulation and liquidity, so I would advocate for a fixed threshold maturity to Spawn Neuron instead of the 1 ICP threshold.

The merge maturity button helps to provide equality for accumulation now. I hope the liquidity aspect will also be fixed soon, via your approach.

4 Likes

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?

2 Likes

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

2 Likes

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.

2 Likes

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.

2 Likes

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.

3 Likes

@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.

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.

1 Like

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.

3 Likes

“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