Agree here - I think an important part of this is for us to collectively agree “budgets” for these categories… what spend do we see as essential to ecosystem growth and how much do we want to allocate to each of those buckets. I would include incentivisation within the marketing part too.
Hi @asteeber
Thank you for your patience, I was closely involved with the PBA at UC Berkeley and did not have time to follow up. Also, thanks for expressing your concerns!
Minting tokens to Treasury from inflation indeed does not offer any security benefit compared to having the Treasury stake part of its funds. It is, however, a much more straight forward mechanism and does not come with all the overhead of changing the code how Treasury works, we don’t have to worry about how Treasury decides on nominations etc. That means, I don’t see any benefit of doing that, but it creates a lot of problems. The argument then would be to just stick with the simple system. Of course, these funds are minted from thin air, a tax on the collective to be able to fund public goods in the ecosystem.
Having said that, I already expressed the idea that I’d like to see a governance-controlled nomination pool that has the goal to further decentralize the validator set. This does the same as having Treasury directly stake funds, but we could move the DOTs out of Treasury and could implement the logic on the nomination pool level. This would also solve the issue of what happens to staked DOTs and burns of the Treasury. It’s just a cleaner solution.
You are also right with the fact that staking rewards might decrease in situations where we are off the target. I assumed that we are in equilibrium, not the worst assumption as we currently see a clear convergence. But, if we see that divergence is too large, we could further adjust the curves (by changing min. inflation) to make the implications of divergences less severe.
I any case, I think that the APY is even sufficient in your calculation. You should not forget that a very high APY has a severe impact on any use-case that is collateralised with DOT. Those services must outcompete Relay Chain staking, an already difficult task. Nominators have shown very low elasticity to changes in staking APY, so I expect that we do not see big changes here.
I hope that this convinces you.
Cheers
Jonas
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Thanks for the excellent response.
I think this is a perfect experiment for Kusama, especially since we don’t know exactly how nominators will respond to slightly decreased returns. I think you have me convinced as far as this method is concerned - it is indeed simpler. Ultimately it would be really nice if inflation parameters could be configured directly via governance instead of needing to hardcode the parameters in the runtime.
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As it’s been mentioned in tandem to this conversation - posting here the link to @jonas RFC regarding coretime sales being burnt: Burn Revenue from Coretime Sales by jonasW3F · Pull Request #10 · polkadot-fellows/RFCs · GitHub
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@jonas has the W3F modelled coretime income?
I’m assuming so given @AlistairStewart’s note about expecting revenue to be slow to begin with.
Could you share this analysis - it would be helpful to set expectations and also focus people’s attention on how treasury spending can be focused towards the common good.
exposing the respective parameters to governance for fine-tuning is part of the proposal, yes 
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This depends on the actual implementation of the pricing mechanism in Coretime sales. Afaik, this hasn’t been finalized yet.
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You note in your coretime burn RFC:
Coretime revenue often appears to be inversely correlated with times when the Treasury should increase spending. During periods of low Coretime utilization (indicated by lower prices), it’s important for the Treasury to spend more on projects and endeavours to increase the demand for Coretime.
Is this grounded in any specific data analysis or review or just a high level interpretation based on casual observation?
It would be really useful if there is any research here that can add further colour other than that I’m trying to hack together.
Would Parity data team or Polkaholic be able to help? @Karim @sourabhniyogi
I agree with @jonas’s opinion on having a stable inflow for Treasury.
As mentioned by the others in the discussion, we currently have enough fund in the Treasury; however, the fundamental purpose of the Treasury is to fund the projects that can grow the ecosystem. We should always have more than enough in Treasury to become future-proof.
The beauty is in between not having too much fund in Treasury while being future proof for any potential projects that benefits the ecosystem.
Sustainable projects require continuous development and maintenance; this costs money.
Some projects could benefit the ecosystem a lot, but might not necessarily generate revenue by itself, e.g. wallet apps (unless they charge some fee)
Therefore, we need a Treasury that has constant inflow to ensure there is always fund to support good projects, not only to expand and attract new projects to the ecosystem, but also to support ongoing good projects to develop continuously.
Some argues that sending staking reward to Treasury and funding projects encourages project teams to dump DOT on the market and bring the DOT value down; nonetheless, the value a project can bring to an ecosystem is hard to evaluate, but the more people build and attract users to the space, the demand increases and thus adds value to the entire ecosystem. This is the intrinsic value that is often missed.
On top of @jonas’s suggestion on having part of the staking reward sent to the Treasury, I suggest we need to also make a dynamic burning rate in the Treasury and a dynamic upper limit of the Treasury fund in proportion to the outflow. To simplify this upper limit idea, a dynamic burning rate should be sufficient to achieve dynamic upper limit goal, as if the burning rate increases, the amount of DOT held in Treasury automatically decreases and the rate is kept if the condition meets.
This should be implemented in a function instead of going through referendum every time the rate needs to be changed; namely, less human intervention in the long run.
In this design, there are several parameters to consider and should be discussed and agreed upon by the community:
- Dynamic Burning rate:
- currently sits in 1% but once the upper limit hits this should increase
- Outflow rate:
- used to determine the burning rate (can potentially be 0 if the outflow increases)
- DOT based or fiat based (value)
- Staking reward % to Treasury:
- Should it also be dynamically determined or not
If there is anything that I have not yet considered, please do point them out.
You guys are trying to create another U.S government with DOT attached. What’s the point of crypto then?
The majourity of treasury income comes from inflation and you would like to add even more? How does that make sense?
The treasury should gradually disappear. That’s the whole point of crypto. We don’t want to create another U.S. government within the metaverse ecospace.
Proposal: Burn the treasury, mint DOT when proposals are approved.
This is not technically correct.
A state government has a lot more entities other than just the Treasury.
The ideology of decentralization should be the final goal; however, at the beginning of any project, even Bitcoin, it is always done by a group of people; thus, it is somehow centralized at the beginning.
A project will not grow if everything just go completely decentralized, a group of brilliant minds needs to push the development forward.
We have to be pragmatic here. Without incentives, how many people would want to continuously dedicate their time and effort to work on something that no one is sure about its future? No matter how great the tech is, incentives in any form is the only way to attract more people into the space. That is the same logic as having staking rewards or mining rewards. Treasury in other words just provides a way which we can decide, in a decentralized manner through governance, to incentivize people to build on and for the space.
In a glance it might look like it is like a government, but what makes it different is how it operates.
Through decentralized voting, and it is much more transparent than the government.
If Polkadot were to be total centralization and mimics the government, we wouldn’t even be able to have a discussion here.
Best.
Thus we also need a way to keep the amount healthy. That should be the key to this discussion.
Stable inflow + dynamic burning rate
Like the U.S. government, the treasury is always going to overspend no matter how much we sacrifice our own money. That’s just the nature of government spending. Let the market decides which project is the best not the treasury.
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Debt is a form of enslavement. Government creates debt obligations that it’s citizens children’s children will be forced to pay.
In contrast to government, Polkadot is a completely voluntary way to coordinate human action. No debt. No force. Polkadot spending is constrained by the size of the treasury rather than by the willingness of high time preference politicians to take on more debt.
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The debt is created when you spend more than you earn. In this case, DOT is taking a debt end.
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Thanks for your comments @asteeber and @jonas, I find the discussion around increasing inflation versus staking treasury funds interesting, and generally agree that at the end of the day they are similar, and someone has to bear the cost.
I think Jonas highlighted the simplicity of the increasing inflation correctly.
I want to emphasize on “someone has to bear the cost” a bit further and argue that the task of bringing massive amounts of treasury staked funds to the staking system would also reduce the rewards of certain other stakers through various ways, and effectively some existing stakers would be more affected. Contrary, in the inflation increase model, everyone pays the cost evenly.
This was merely another aspect of the simplicity of the original proposal which I find appealing.
From my side, I am also looking forward for more sophisticated pools (see: Nomination Pool controlled by a smart contract) that can help entities like treasury stake, but at the moment I am afraid it would unravel into a massive manual undertaking, and one which will be very political and difficult to come to consensus about.
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