Is there any sentiment among the community that our inflation rate is too high? In the current zeitgeist inflation above some small amount is seen largely as a bad omen for the economy, and something to be avoided. I’m personally worried that this is scaring off potential immigrants.
Obviously we set it, so it doesn’t denote much in our system, but potential dotters aren’t going to see it that way, as they largely don’t understand the technology. They see - high inflation… problems lurking. Already I see on forums that Polkadot ‘prints money’ and it gets laughed at. I love Polkadot and I hate to see that the non-technical community sees it as a joke.
I still haven’t gotten a full answer as to why we set it high in the first place, and am not necessarily against it, but I would at least like to see us actively combat this type of sentiment in our marketing.
Sidenote: if it was set high to impart opportunity costs on crowdloaners, is there discussion around lowering it once agile coretime hits?
I am not the expert on this topic to make suggestions, but can provide a bit more explanations of status quo.
Inflated tokens have two purposes:
Staking reward
Treasury
I will leave the treasury part out. There are many discussions on how to improve treasury income mechanism.
The primary reason for inflation is security budget. We need people to pick good validators and stake. That’s what make the network economic secure while maintaining decentralization.
The more staking rewards, the more people stake, and therefore the more secure the networks (relaychain + all the parachains).
There is obviously a balance required between not enough staking reward (resulting insecure network) and too high (resulting low liquidity of token, unhealthy market and increase the cost of passive holding due to dilution).
An insecure network is completely unacceptable whereas the problem of too high inflation is not that bad compare to security. That may be able to explain why people may be biased towards to a high inflation model.
So to me, the first step to discuss on the inflation adjustment is to find out how much staking rewards is needed to maintain the network security.
So I agree with everything you’ve said in this paragraph completely. The issue is the growth of a network is still dependent on psychology. Even if the system itself is sound, if people feel ill towards it growth will be stunted. So it’s something to take into consideration. However, upon further reflection I do agree that it’s fine for now. I’m sure we’ll figure something else out as the system matures.
In other words, inflation transfers wealth from one person to another. As long as the transferred wealth is used efficiently and productively for useful purposes, it’s not a big problem. It’s all about the governance design of Polkadot, as discussed in this article.
A very high inflation can disincentivize users from buying and holding the token, thus impacting ecosystem growth, as DOT decreases in value over time. Implementing mechanisms like Bitcoin’s halving or gradually reducing inflation over time, or making it dynamic based on the value of DOT, can be useful. This way, the ecosystem can grow over time, and more transaction fees can be collected for the treasury.
Amusingly, bitcoin’s consensus shall break down due to halvings transitioning from inflation to fees.
It might not matter since bitcoin is centralized into a few mining pools, which makes double spends a choice by those parties, not an incentives game. It’s also maybe fixable without soo much inflation, just burn most fees and print block rewards.
It’s a fun cautionary tail about deflation though.
Of course inflation is far too high. It could be low single digits (positive…there’s a reason no one implements demurrage – the UX is terrible).
But speaking from experience on another network, proposing to lower it will be the biggest shitstorm to ever hit OpenGov by an order of magnitude.
It’s called the money illusion. The harm is less debasing the token directly but more negative externalities from the payouts (like tax liability and selling rewards to pay it).
Best to wait until 2025 when the current treasury wars and Parity decentralization have wound down.
As a crypto enthusiast, I have been following Polkadot for a while and I am impressed by its vision of interoperability and scalability. I think Polkadot has a lot of potential to become a leading platform for decentralized applications and innovation. However, I am also concerned about the perception of its inflation rate, which is set to be 10% annually. I understand that this is a mechanism to incentivize staking and treasury funding, but I fear that it may deter some investors and users who are used to low or fixed inflation rates in other cryptocurrencies https://market.cryptex.net/en/usd/ I think Polkadot should do a better job of explaining the rationale behind its inflation model and how it benefits the network and its participants. I also think Polkadot should highlight its other strengths, such as its governance, security, and flexibility, to attract more attention and adoption. I believe Polkadot is not a joke, but a serious contender in the crypto space.
Polkadot is one the very most decentralized networks out there and I think this is a direct result of this inflation rate. More than half of the total supply is staked right now, and when I’ve gotten rewards, I’ve been getting something close to 16% APY. That’s a good deal.
I feel that chasing price action is short-sighted. The theory seems to be that the non-technical community gets interested in the price action and stays for the tech, but that doesn’t ring true to me. My guess is that such participants are more likely to chase the next butterfly that comes along, the volatility of their presence akin to the volatility of the price action itself.
I’m not here for price action. I’m here because I believe in the protocol and the SDK, the possibilities for society, and what excites me is the number of developers we have in the Polkadot and Kusama dev community and their activity. The price action will eventually follow because the fundamentals are there. So I want plenty of DOT in the treasury to deliver to builders and marketing initiatives. And in the meantime, the staking rewards are more than enough; the only missing ingredient is patience.
I like Polkadot’s vision of connecting blockchains and enabling innovation. [But I’m worried about its high inflation rate of 10% which may scare off some crypto users. Polkadot should explain its inflation better and showcase its other features, like governance, security, and flexibility. Polkadot is a real competitor in crypto.
It’s kind of true. I’m maintaining the biggest Polkadot forum threads in Germany with almost 100k views. Many ppl are afraid of loosing value with high inflation, what is not the case because you get more than inflation with staking.
Myself I would not invest in a project with high inflation unless I’m not very early. I would definitely not buy more DOT now simply because of that reason (others are getting it for free). Even if it’s not totally true you always have a little bit the feeling you could be the exit liquidity.
At the end this remains a big point when thinking about an investment.
So the way I see it, Polkadot is essentially using inflation as it’s primary form of taxation. We create ~7.5% more DOT a year, devaluing everyone’s DOT (the tax). Then we redistribute that minted DOT. Taxes/Executive branch!
Taking that into consideration, a tax rate of 7.5% is actually low as compared to any modern nation at 20-50%. Not to mention that taxation of this form is flat and largely inescapable.
The peculiarity lies in the fact that, rather than channeling tax revenues back into the treasury, we’re distributing them directly back to the citizens. This is a bit unconventional, but I would argue it’s effective given our current circumstances.
With Polkadot being a relatively closed system, with no way to pay for external goods like food and housing, a citizen’s only real option is to contribute that DOT back into projects in the ecosystem. And while the treasury could play this role to some extent, it’s really more suited to large ventures, doling out significant amounts to specific initiatives. The private sector, by contrast, is a lot more spread out in it’s distribution of DOT, allowing the system to explore a much richer set of avenues than if under the purview of the treasury alone.
In the future, when DOT holders have more options, we’ll likely want to shift more of the tax revenue towards the treasury, but I imagine this is already the plan.
No Investor / Price talk
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