Capped & Stepped Inflation: General Info

[ChrawnnaCorp]

At the end of this post you will be invited to explore 3 proposed Capped & Stepped inflation models on dedicated threads.

You’ll also see a link to signal your preferred Capped & Stepped model on-chain with your DOT!

A (light) version of this post was presented on AAG if you prefer to watch.

The information presented is the result of a Crowdsourced investigation funded by DOT RFP #1.

But first let’s explore the idea of Capped & Stepped supply…

Capped & Stepped inflation was originally mused by Gavin Wood in “The Gray Paper Interview” April 28, 2024.

Watch 77 sec. Clip
Watch 18 min. Musing

Here are the rules we’re operating under to reach the stated goal.

Though Capped & Stepped inflation is just one piece of the economic story…

Several economic levers are out of scope of this initiative and can remain under the purview of OpenGov to adjust the DOT economy under strict income set by Capped & Stepped inflation.

There are ~1.58B DOT circulating today. ~1.6B minted and ~20M Burned from treasury & coretime.

On Oct. 10, 2024 DOT holders voted to reduce inflation to a fixed 120M DOT per year.

This set DOT inflation on a decreasing trend relative to total DOT supply.

While this trend seems promising, it is less flattering when looking at All Time DOT Inflation.

The Blue Circle shows where the change to fixed inflation was made.

See this chart and more on the Inflation Tool Dashboard.

It is important that all DOT holders ask themselves where on the “Hard Money Spectrum” the DOT token falls.

An asset “Worth Selling” is perceived as damaging to hold.

An asset “Worth Holding” is perceived as advantages to hold into the future.

New data from the Parity Data Team suggests a significant % of staking & validator rewards are being sent to exchanges (hinting at intention to sell).

The yellow line shows assumed % sold.

See the Parity Data Staking Rewards Behaviour Dashboard (a work in progress).

DOT Worth selling has disastrous effects on the network…

To Stop the Sell we need to move DOT toward “Worth Holding” on the Hard Money Spectrum.

Not to “compete with Bitcoin” but the make DOT less “Worth Selling”.

Luckily Capped Supply is a powerful industry meme that seems to positively influence holding behaviour.

Here are some stats on the top 5 industry projects with a Capped Supply:

In addition to Capped Supply, Stepped Inflation has a number of benefits we can leverage when aiming to “Set a psychologically resonant economic framework that compels value creation.”

There are two elements of all Stepped Inflation models:

But be warned - there are great risks associated with any inflation (income) reduction!

However we are facing certain risk under the current economic game. We must consider the costs of doing nothing when deciding to do something.

We would now like to present to you 3 Capped & Stepped models to consider & debate.

They exert pressure on holders to to replace inflation with revenue (or decrease expenses) to varying degrees from Hard to Soft pressure.

Many Stepped inflation models we will present do NOT reach the psychological Cap. If this is deemed unsatisfying, this can be solved by stepping down a % of remaining supply to be minted or by picking a less-memorable Cap.

(Hard Pressure) DotSama’s Halving Boom - 2 year periods, 50% Steps - 2.1B Cap

See the dedicated thread here.

(Medium Pressure) Wud’s Two-thirdening - 2 year periods - 33.33% steps - 2.5B Cap

See the dedicated thread here.

(Soft Pressure) Laki’s Pie - Banana Cream Edition - 2 year periods - 13.14 steps - 3.14B Cap

See the dedicated thread here.

You can produce your own Capped & Stepped models with the Polkadot Inflation Tool Calculator!

Thank you for your attention to this matter!

Please engage in respectful discourse below. What excites you about Capped & Stepped inflation? What concerns you? This post will be updates as FAQs roll in!

Finally, once you feel informed, please signal on-chain your favourite model of the ones presented.

→ See Hard Pressure model here.
→ See Med Pressure model here.
→ See Soft Pressure model here.

→ Vote here!

[contexant]

Can we just do medium first and see how it goes?

[ChrawnnaCorp]

An interesting idea. Might undermine the “Certainty” goal though?

[Ravi_Patel]

After Fix DOT supply than what about the polkadot price ?

[Nukeme3]

I’m hesitant to rock the boat while we’re still taking on water. I agree with the idea of setting a capped supply and clear plan for profitablity, but it is imperative that this should not be a knee-jerk reaction.

I know there are conversations and progress towards reducing costs, increasing revenue, and growing adoption, but I’m not convinced that we have a a well defined plan to achieve this. I strongly believe an aggressive disinflation rate may be a system shock if these things are not successful. For this reason, I’d lean towards delaying a decision until the network has a clear business model(s) rather than just hoping the network will figure it out.

If anything, I could agree with a soft disinflation to give the network ample time to test different DOT-focused revenue streams, while also baking a commitment to fiscal responsibility, and signaling a long-term vision rather than a hopium pump-and-dump to chase and cycles.

These are just some initial thoughts and impressions, but I’ll be very interested to see others’ comments.

[D0tSama]

If the inflationary credit line continues unchecked, there’s little incentive to take meaningful steps toward sustainability. The percentage of DOT staking rewards flowing to centralized exchanges and being sold is staggeringly high, this isn’t conjecture, it’s backed by data. Within just 24 hours, the community has shown strong support for introducing a hard supply cap and a structured halving model (e.g., 50% reductions). This isn’t a knee-jerk reaction, it’s a clear signal that long-term value alignment matters. With 11 full days of voting left, now is the time to act. Vote with your DOT.

[Nukeme3]

I think what I’m trying to express is the fact that we need to be sure this vote is based on rational decisions. I’ve seen the sentiment for a capped maximum supply circulating for several years. By no means am I surprised by the vote now. I’m just concerned about any disheartened DOT holders who may vote to quickly cap the supply in the hopes of immediate short-term gain at the expense of long-term network viability. There is a lot of dissent I see regarding the DOT price and how it compares to other tokens. This concern is important for me to voice, and thus, here I am.

Personally, I see Polkadot as a long-term solution to create a better Internet. I try to vote with that in mind. The need to maximize profit is not critical on my list at this time and I am more than willing to postpone any immediate reward if it means the network and capabilities within the ecosystem are properly incubated and matured to a point of independent revenue generation. I know not everyone shares the same opinion, and I fully respect that. Thankfully, we have an open forum for anyone to share their thoughts.

Thank you, Jay, and anyone else involved in gathering this information and bringing it to a vote.

[tom.stakeplus]

Imagine if someone put the same effort into finding ways to fix the actual issue instead of looking at band-aiding a symptom.

But, let’s spend 6 months on this first, kill run way, and then we can start talking about how to fix the actual issue (i hope, but probably not). Assuming we then work on fixing the actual issue, we will have a game plan in about checks notes 1 year. That’s unlikely though because the response of token holders to the band aid will yet again steal the stage.

Imagine simultaneously saying “We need something for token holders to do” and suggesting fiddling with the only thing they have to do. When they staked, they made assumptions, changing anything is a terrible idea. We should rebrand to FAFO Chain. How cool would Messi look with “FAFO” on his jersey?

if we had at least a plan to fix the actual issue – it might be different. Any change now would only result in additional negative consequences. There is only one question an existing staker can ask with any change to inflation, tokenomics or staking at this point and the answer wouldn’t be good. It could trigger a chain reaction.

[ChrawnnaCorp]

Hi Tom. Thanks for commenting but it is important to read the material before adding respectfully to the discourse!

There are models presented here that provide ample runway in the form of inflation for decades.

Under the current model, however, there doesn’t seem to be much motivation to act on solving the issues you hint at. Reward selling data from Parity (also linked above) suggest the status quo is greatly hurting network security with weak token performance.

Please do take a look at what is presented here and join the discussion!

[tom.stakeplus]

It doesn’t matter what the proposed changes are. Any change at all will result in people questioning if they should continue staking. We current;y have no plan to fix the actual issue. Until there is at least a plan to fix the actual issue no changes should be made.

I mean, I agree with you…. But you’re basically gambling the fate of the network by fiddling with literally the only thing people can do with their tokens at the moment.

Plus this whole topic is super negative. Why wouldn’t you want to talk instead about all the revenue we’re going to have from insert great revenue idea here?

[ChrawnnaCorp]

Of course those living off staking rewards (or treasury) will always be against the idea of cutting inflation to force economic development.

The risk is to their bottom line at the cost of the network - the network is already bleeding out from their selling.

“We should just have a plan” hasn’t worked so far and that’s unlikely to change as long as inflation keeps providing the easy road.

Time for us to grow up or face the consequences of inaction.

[tom.stakeplus]

I’ve made more from working in the eco than from staking rewards. I wouldn’t be selling my staking rewards if I didn’t need funds to invest back in to operations to be able to do more and provide better services.

Well you’re basically the only person with control of public consciousness and what I’ve seen is that you’re continually taking us down the wrong roads.

Waiting for a plan hasn’t worked because we have no leaders. A complaint I’ve had for checks notes almost 4 years. You’re basically the closest thing to it and you’re more interested in maximizing your gas lighting talent tree.

[D0tSama]

Totally agree with this. I stake too and benefit from the industry most highest staking rewards while being a proud member of providing security to the network. However, i haven’t sold a single DOT. This change will only impact those who are selling their rewards and costing the entire network security to go down in value. Behavior change is necessary here and that is what skin in the game exactly means.

[ChrawnnaCorp]

Certainly agree complaining hasn’t gotten us anywhere. Please ensure you’ve expressed your preference in the on-chain snapshot vote here!

[tom.stakeplus]

Sure thing, I will utilize the tokens that I purchased around $42/dot to signal my preferences and intent using the on-chain snapshot at $3.58/dot . These evil stakers have to go. Absolute worst of humanity.

[muddlebee]

@tom.stakeplus

When they staked, they made assumptions, changing anything is a terrible idea.

Makes sense. Many are sticking around because of juicy APY.
What are some alternative ways you think can improve the current situation?

[tom.stakeplus]

Leverage the fellowship. the IBP and marketing bounty to generate revenue for the chain. Create a series of market places that allow buyers and sellers to directly interact. The services offered would be substantially equivalent to the google cloud platform.

If W3F and Parity were to use the IBP and quit giving money directly to google – by itself – would generate 250K//yr of revenue for treasury at a 10% treasury fee. The marketing bounty would be able to market the services and have a direct measurable return to treasury.

Of course the best thing to do would be to use a 12+ core chain to have on-chain slots.

I’ve gone into more detail elsewhere. But many have issues that need to be overcome and there’s a lack of any substantive help in the eco (along with a lack of direction, leadership, understanding, and plans)

The Future of Decentralized Voices — Our Plan to Retune DV

The fundamental problem we have is that the only way to take tokens out of circulation is through the acquisition of core time. With recent conversations around the price of core time it’s clear that with core time alone it will never be possible even with scaling to take a sufficient number of dot off the market. Since gossip doesn’t cleanly scale and doubling the number of validators more than doubles the bandwidth requirement, even with improvements, doesn’t allow for a sufficient number of c…

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Owning stocks, etc. doesn’t come with liability (that’s literally what the ‘L’ in LLC/ plc./ Ltd. means). My example was issuing receipt tokens / depository tokens and allowing peer to peer trade. I can’t even count the number of liabilities. We’d effectively be opening a brokerage. Instead of an “ADR” it would be a “PDR”. I spent some time today digging around in AI, it seemed to believe the easiest route would be in allowing non-us citizens access to securities from all markets, including …

And, once we’ve talked extensively about the planned revenue, and about how awesome it will be, then we can look at refactoring rewards. We need positive bias when we make the change.

[ChrawnnaCorp]

Looks promising - let’s see if we can make this happen

[Maxx]

I remember reading a previous post that GreenHatter had reposted from X to Reddit, that stated that there was ongoing sentiment to permanently cap supply at 3.1B, which would incrementally decrease over time at a rate of roughly 2.1%/year, capping out around 2065.

My only concern is how sustainable it is in the long-run?

It fantastic for price-action and having a set cap limit on inflation will keep bears at bay, but it would essentially remove staking rewards entirely, eventually, with validators being restricted on a set amount of income instead of being able to reap the maximum amount of rewards per era.

I personally use DOT as a decentralized savings account, providing security to the network (in the upper echelon of <1% of all wallets), while maximizing benefits of staking rewards, but there also has to be some incentive for holders to remain loyal to the network?

[sudey]

Guys, we need to act as soon as possible. We don’t have time for long discussions, time is working against us. I think such conversations should have started back in 2022-2023. Wasn’t it clear that a high percentage of staking wasn’t a good thing.