Why you think ppl would do what you expect? If I sold DOT def not for parachain projects in the first place. Why do they suffer from high staking rewards? I don’t quiet understand the relation. I would simply go into stables for safe 6%p.a.
I also mentioned already there are some ETN that offer DOT staking yields on stock exchanges. It would move a lot if those were lowered.
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We’ll lose a lot of stakers if we reduce inflation (hence APY) significantly. We need at least a few projects like Mythos (btw inflation didn’t stop them from joining), only then we can think about reducing inflation. The compromise is to decrease inflation just by 1%, and see what happens, what Kian said in the debate.
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Ok, that’s interesting.
I belong to the faction that sees a change in the tokenomics critically, I mentioned the reasons.
However, if inflation is reduced, in paradoxically, I consider a far -reaching (halving) to be more effective from the start.
What should be achieved with the reduction? We hereby want to achieve people who criticize high inflation or consider it unattractive. This target group would not convince 8%. Also, it would not have the positive effects as hoped for to stabilize DOT. It would only reduce the current problems (at best) but not completely eliminate them.
5%, a halving, would be an announcement that makes you notice. But I still see the risks overwhelmed. It is the quratature of the circle that has to be created but the achievement of deflation at other levels would be much better, of course difficult to implement if the ecosystem should remain cheap and attractive.
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@coco - wrote my reasonings here -
Perhaps use the burn mechanism to reduce DOT supply, rather than the rigid and inflexible inflationary rules.
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Good to see a vibrant discussion on here. Just reposting my X Post , TLDR I am pro reducing inflation largely inline with the figures mentioned by @jonas, but would like to see a 2-step process reducing it further after a 6 month period.
Having been on the forefront of end-user Polkadot staking for over 2 years it is evident to me that stakers are ready for reduced inflation. To my knowledge the 10% originally introduced was an estimate figure rather than grounded in science. This is common with new systems - but time has passed and data is sufficiently suggesting changes can be made, & now is a good time to leverage that feedback loop.
I hope that a swift final decision is made on or days after the next AMA planned next week, with an on-chain vote being posted thereafter with the final recommendations, without delay. The community has had time to discuss and bring forward their views, and the people involved in the AMA and surrounding advisors have enough expertise to weigh those views & make a final recommendation to take forward.
What we don’t need is weeks and months of discussion without action. What would be a lot more valuable is a quicker decision & enacting that’ll generate tangible feedback from the system, which will ultimately guide future decisions on inflation, including further reductions.
Polkadot is doing 3-4M transactions daily now and is one of only a handful of chains that can scale and maintain security - it is not going away. The ~16% reward rates now are also hugely larger than competing ecosystems. I therefore believe FUD around scaring off stakers with a reduced inflation has no merit. If one stakers sells, another stakeholder will buy for the mid to long term.
My personal hope is that a 7.5% max inflation with numbers similarly inline with @GehrleinJonas recommendations are initially enacted, with a further reduction 6-9 months down the line to a figure closer to 5%. Similarly to @kianenigma’s views, treasury concerns are secondary & can be adjusted if needed down the line.
Plans on further reductions should be included in the first on-chain vote to make it clear on the end goal, e.g. the scenario of moving to a % in multiple steps.
6 Likes
I agree with mostly with Ross PoV.
Particularly I would like to underscore the following ideas:
The ~16% reward rates now are also hugely larger than competing ecosystems. I therefore believe FUD around scaring off stakers with a reduced inflation has no merit. If one stakers sells, another stakeholder will buy for the mid to long term.
It has been commented - in post-truth emotional basis, with no data of rewards of competing alternatives - that reducing inflation will make stakers to go somewhere else: but where? And we are assuming that nobody will come in to replace the gone staker.
IMHO Polkadot has too much emission of tokens, inflation should be reduced drastically and community should be able to find a way to do it quickly (backing also @ross opinion here). Later community should find a way to decide or control this variable ( could be by openGov decission, could be by a code pattern on the chain, could be a combination of both, or whatever method …).
Regarding the comments about treasury, I agree that is a separate topic, but I think the last months spending come actually from a too optimistic position caused actually because they were high returns to the treasury due to a high emission. Typical behavior of inflationary policies IRL.
High emission and alcohol drinking are very similar: they are very attractive in first place, because the negative effects are only felt later on.
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@wabkebab raises excellent points. Even if the inflation is halved to 5% with the staking rate we have today, the system will still be very competitive next to Ethereum, Solana and Cardano, Tron and Avalanche. Those are all the platforms that are currently above DOT in marketcap, all of which yielding lower or around the same staking returns, with Solana and Avalanche being the highest. This is not including derivative products of course, but the competitive landscape as it is now remains in DOT’s favour even after this change.
Also note that Bitcoin does not have any staking, relying on its scarcity & halvings that dictate its tokenomics. If we imagine a graph of scarcity versus rewards (inflation), BTC and DOT would be on opposite ends of the spectrum. This proposal should bring DOT more to a balanced center of that spectrum.
It seems some opinions here also do not consider that the staking system has scaled over the last 3 years & is a very different system than what it was when the 10% inflation was first introduced. Back when staking first launched nominators were capped to 64 (!), and 20 validators. The system steadily expanded, and jumped from ~8k to ~19k supported nominators when I began taking notice of Polkadot. We then saw the introduction of bags list, nomination pools, and better UX with staking dashboard & wallet UIs, and more. During this growth phase inflation remained at 10% - the same 10% that launched with 20 validators.
Where incentives were definitely needed in the early days, they are not needed as much now, and are actually contributing to the detriment of DOTs reputation and long term value as inflation continues to compound total issuance. Barrier to entry has lifted significantly, the network has sufficiently decentralised, and daily transactions are growing network-wide.
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Hello All,
I was not aware of this channel and posted a WFC yesterday. Thankfully, @SAXEMBERG let me know that this channel exists. You can find my WFC here: https://polkadot.polkassembly.io/referenda/1049.
I have read through the messages above and would like to put my 2 cents in.
I will try to keep this concise. To me, the goal of this discussion is in the title: “Reducing Issuance and Complexity,” and coretime, governance, and treasury spending should be kept out of this discussion.
I believe it is all quite simple; we default to a proven and well-known model, that being BTC and the BTC halving mechanism.
Why: While “mums and dads” might not know what crypto, altcoins, or blockchain is, they all know what Bitcoin is. As Web3 is adopted by mums and dads, it will be easier if our inflation model is similar and relatable to BTC.
The US has already started to bring up BTC in politics for being a sound and resilient digital currency. We do not need to reinvent the wheel; in fact, there would be much synergy if we had a similar narrative to BTC. Polkadot already has a high Nakamoto Coefficient, and we are secure and scalable. However, our token metrics are not sound. We have regulatory clarity as software, and there is no reason why our “software” can’t be a hedge against an inflating USD. As this discussion has covered, we don’t know what the future holds with core time sales and JAM. However, I agree we should not have a fixed supply at this stage.
I do believe that we should align our inflation narrative with BTC and act sooner rather than later on this so that our supply halving happens in sync with BTC’s halving, allowing us to catch the halving wave after BTC’s halving. Such a narrative will spark the interest of long-term investors, knowing that now is the time to stake and get in early while the APY is high.
These four-year terms are also comparable to the US elections, making it more relatable for newcomers, and there will be synergies there for OpenGov to explore.
In closing, I decided to post this WFC as there is a huge growing discontent within the community on X.com.
I have made this chart for a quick visual on how this will look for the next 4 cycles:
Polkadot is upgradable, and if there is any discontent, we can make adjustments. However, I do believe that this will greatly strengthen our narrative and help restore confidence in our ecosystem.
Regards Josiah
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Reducing polkadot inflation is good but i dont think that is the major problem polkadot is facing , in my opinion, polkadot should focus more on building utility dapps in Defi , gamefi , gamblefi , fintech and Daos than infrastructures and tooling …
Infrastructure and inflation wont onboard users , polkadot needs to grow its user base…
Build communities and fund public good initiatives similar to superteam , solana Allstars , Polygon guild and sui on campus …
Check polkadpt campus guild out here
https://x.com/dotafricahub?t=5m9LnCo_a5JAj7EuvetRZA&s=09
Best regards,
Reflection on the current discussions
Hey everyone,
There have been extensive discussions in the forum, social media, and during the recent livestream. As expected, this topic evokes strong emotions and a wide range of opinions. I’d like to take this opportunity to reflect on these discussions, consolidate the options, and propose a way forward.
Here are the key takeaways:
- Most participants support reducing inflation.
- My initial proposal of a reduction to 8% has received significant backing.
- Many participants have also expressed a desire to reduce inflation even further.
In this post, I aim to align these options by focusing on a single change: whether we compute the newly total issuance of 8% on the total issuance after inflation or always on the total issuance when the upgrade goes live.
The following summarizes the two options:
Option 1: 8% constant inflation
MaxStakerReward: 85%max_inflation: 8%staker_inflation: 6.8%min_inflation: 6.8%- Treasury inflow: 1’155’539 DOT (per 24 days, growing at 8% annually)
- APR: 11.62% (at 58.5%)
- APR after inflation: 3.62%
The table below illustrates the development of the model over time.
| year | total_issuance | total_inflation | yearly_inflow_ | staker_apr | apr_after_inflation |
|---|---|---|---|---|---|
| 0 | ~1444688000 | 0.08 | 115575040 | 0.1162393 | 0.0362393 |
| 1 | 1560263040 | 0.08 | 124821043 | 0.1162393 | 0.0362393 |
| 2 | 1685084083 | 0.08 | 134806727 | 0.1162393 | 0.0362393 |
| 3 | 1819890810 | 0.08 | 145591265 | 0.1162393 | 0.0362393 |
| 4 | 1965482075 | 0.08 | 157238566 | 0.1162393 | 0.0362393 |
| 5 | 2122720641 | 0.08 | 169817651 | 0.1162393 | 0.0362393 |
| 6 | 2292538292 | 0.08 | 183403063 | 0.1162393 | 0.0362393 |
| 7 | 2475941355 | 0.08 | 198075308 | 0.1162393 | 0.0362393 |
| 8 | 2674016664 | 0.08 | 213921333 | 0.1162393 | 0.0362393 |
| 9 | 2887937997 | 0.08 | 231035040 | 0.1162393 | 0.0362393 |
Option 2: 8%, then gradually decreasing inflation
MaxStakerReward: 85%max_inflation: configured to start at 8%, then decreasingmin_inflation: equal to staker inflation- Treasury inflow: 1’155’539 DOT (per 24 days, growing at 0% annually)
This option does not lead to a fixed staker APR (giving the same staking rate), but rather lead to a reduction over time.
The table below illustrates the development of the model over time.
| year | total_issuance | total_inflation | yearly_inflow | staker_apr | apr_after_inflation |
|---|---|---|---|---|---|
| 0 | ~1444688000 | 0.0800000 | 115575040 | 0.1162393 | 0.0362393 |
| 1 | 1560263040 | 0.0740741 | 115575040 | 0.1076290 | 0.0335549 |
| 2 | 1675838080 | 0.0689655 | 115575040 | 0.1002063 | 0.0312408 |
| 3 | 1791413120 | 0.0645161 | 115575040 | 0.0937414 | 0.0292253 |
| 4 | 1906988160 | 0.0606061 | 115575040 | 0.0880601 | 0.0274540 |
| 5 | 2022563200 | 0.0571429 | 115575040 | 0.0830281 | 0.0258852 |
| 6 | 2138138240 | 0.0540541 | 115575040 | 0.0785401 | 0.0244860 |
| 7 | 2253713280 | 0.0512821 | 115575040 | 0.0745124 | 0.0232303 |
| 8 | 2369288320 | 0.0487805 | 115575040 | 0.0708776 | 0.0220971 |
| 9 | 2484863360 | 0.0465116 | 115575040 | 0.0675810 | 0.0210694 |
The following graph illustrates the metrics visually:
Other proposals
I’ve noticed some members of the community suggesting a significant reduction in inflation, for instance, cutting it by half to 5% or even more at once. However, I personally don’t support such a drastic change. Polkadot has developed into a complex ecosystem, and sudden, significant adjustments could trigger unforeseen second and third-order effects that are challenging to predict and might have detrimental effects. Additionally, a rapid decrease in inflation might undermine the stability of staking rewards, discourage participation, and disrupt the general balance. For example, a large reduction in staking rewards most likely forces many validators to drastically increase their commission, leading to even lower APY for nominators. Therefore, if we consider reducing inflation below 8%, it should be done gradually. This approach will allow us to monitor the ecosystem’s adaptation and ensure we make informed decisions based on observable impacts.
That being said, the process outlined below allows for community members that feel their preference is not captured by the proposals to add their own opinion.
Next steps
I want to remind everyone that this discussions aim to identify the most suitable parameter changes that have a good chance to be approved through a root referendum in the future. In the absence of better on-chain mechanics, we can construct a series of Wish-For-Change (WFC) referenda that run in parallel to choose between competing proposals. The referendum with the highest support is arguably the best candidate to put forward for a root referendum.
From my perspective, there are three referenda that help us obtain more clarity.
- WFC 1: Keep 10%
- WFC 2: 8% constant.
- WFC 3: 8% then decreasing
At first glance, WFC 1 (“Keep 10%”) appears to be somewhat redundant, because people could just vote “NAY” on both WFC 2 and WFC 3. There is, however, a stronger signal in observing WFC 1 being approved with the highest support, because it means that there is not another referendum that is likely to win with the current set of voters.
Using a set of WFCs has several benefits:
- It provides an objective, credible indication of which option is preferred, granting legitimacy through OpenGov.
- It undergoes the same voting mechanism as a later root referendum (in contrast to making off-chain polls).
- It is a permissionless process, allowing any part of the community that feels unrepresented by the proposed WFCs to initiate their referendum with parameters they find more suitable and potentially gain more support than other proposals.
- Spam is limited by the fact that a referendum needs a decision deposit of 20’000 DOT.
- While not being optimal, voting on different combinations of the proposals allows to express a preference order by the voters.
Important: The WFC referendum cannot be binding, meaning there is no mechanism to force the chain to update the parameters to the one specified in the WFC. It is simply a method to aggregate the opinion of voters through OpenGov and select a suitable candidate.
Rules
In the absence of a proper on-chain decision aggregation device for preferential questions, we need to use a set of WFCs as proposed above to narrow down consensus.
There are a few rules that I think make sense here.
- Only a WFC that is
executedcan be considered a candidate (i.e., it must be gathering enough approval). - If one or more WFCs are accepted, the one with more AYE votes (weighted with conviction) is considered the preferred candidate.
- WFCs should be run mostly in parallel.
This setup makes voting generally straight forward. A voter votes AYE on their preferred proposal and NAY on all others. If a voter sees their most preferred referendum failing, they might vote “AYE” on the secondly preferred referendum.
10 Likes
Thanks, Jonas!
I only like the model for option 3 and I’m hoping Polkadot can keep adjusting down after each major milestone, like JAM.
Thanks, Jonas!
I like the model of Option 3.
I still hope that there can be a new model which can reduce inflation more substantially.
Hi, we are the Polkadot Ecology Research Institute.
We strongly agree with the idea of reducing inflation. Although we acknowledge that a one-time reduction to 5% would have a significant impact, we still believe that a one-time reduction to 5% would be a better option.
We are deeply concerned with how the inflation rate and the Staking APY (Annual Percentage Yield) will influence the development of the ecosystem, rather than just considering the impact of the inflation rate on price alone.
When we compare the potential returns from participating in ecosystem projects with the Staking APY, we find that the Staking APY driven by 8% inflation is still very high. Very few business models can offer a return rate that is sufficiently attractive. Therefore, an 8% inflation rate is still too high, as it continues to incentivize users to participate more in Staking rather than in ecosystem projects.
Thus, we strongly recommend considering a direct adjustment of the overall inflation rate to 5% in order to bring the Staking APY down to a level where the returns from ecosystem projects become more attractive.
We believe that, while high inflation is one of the reasons constraining DOT’s further growth, the deeper core issue is that the Polkadot ecosystem lacks attractiveness.
The most fundamental problem with Polkadot is that the ecosystem is still in its early stages and has not yet formed a strong network effect (i.e., having enough projects, users, and capital). As a result, new developers and users are more likely to migrate to other, more mature public chain ecosystems.
If you do not agree with this viewpoint, you might consider adding a WFC4 option with the content “5% remains unchanged” to gather more feedback from the community.
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I agree with Zou Yang’s view. I believe we can add a 5% inflation to WFC4. We need lower inflation to activate our ecosystem applications.
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Hi @ZouYang
Personally, I think halving the inflation is too much of a gamble and the probability of some larger unpredictable events is too high. I gave additional reasons on various occasions. In fact, a proposal suggesting something similar to your idea is currently failing by a large margin. It seems to me that token holders already voiced their opposition to your idea.
Having said that, Polkadot is permissionless and the WFC track is open for everyone. I am planning to post the three WFCs later this week. If you want to make your own proposal and gather support, you are free to do so.
4 Likes
I would like make a very quick comment about
- WFC 3: 8% then decreasing
I think it was mentioned on the videocall held regarding inflation: The periodical revision by the central banks of the inflation rates is the best solution to tackle the problem until now.
Sometimes I feel that the ecosystem is on the need of inventing the wheel from scratch ( is it not round enough?) over and over again for certain topics, when a real life or other ecosystem examples could be good inspiration for a baseline to start for.
Things are in constant change ( not the world not Polkadot is the same since the first block was produced) so it should exist ( we should define which is, included its checks and balances) a way to address the inflation in a consensuated but periodical ( every year? every two years? every 5? i don’t have the answer) way to tackle the emission issue( too many, too few, is oke as it is now). A way that can bring stability for the network and all the existing and potential participants.
A way that is structured enough to exist to collect impressions and opinions on token emission and give shape to the different opinion streams, in order the ecosystem to decide it.
In other ways to phrase it, a structure to define “then decreasing” part of the third option ( what ever is decreasing, staying the same or increasing)
Basically, what @jonas is doing right now, but away from the individual effort ( which is admired and needed at this point), to evolve into something more structured IMHO.
But this is a second step. Food for though for the future.
The three WFCs are up for vote now.
Proposal 1 (10% constant inflation)
Proposal 2 (8% constant total inflation)
Proposal 3 (8% total inflation in the first year, then gradually decreasing)
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Thank you for your feedback. However, the WFC you mentioned, which you believe is similar to my idea, is actually quite different. My proposal is to maintain a fixed 5% annual issuance, with 20% of that amount going directly into the treasury. I’ve consistently reminded everyone, especially you, as a key person leading the discussion on how to adjust Polkadot’s inflation rate and related parameters, that we must fully consider the impact of these adjustments on the development of ecosystem projects.
I’m sure you arrived at these three WFCs after engaging with many participants in the Polkadot ecosystem, as I have. However, I’ve also specifically spoken with more individuals who were once part of the Polkadot ecosystem but have since left, including whales, venture capitalists, developers, and project teams, and I’ve gained different perspectives. I’ve come to realize how the current inflation rate and staking rewards impact investment decisions and how they influence the development decisions of developers and project teams.
Do you truly believe that staking rewards exceeding 10% won’t affect the development of ecosystem projects?
This is why I proposed what you consider a relatively aggressive 5% rate. I’m aware that such a significant change would have a substantial impact, and I understand what those impacts might be. However, I still choose to propose a 5% rate because, in my view, the positive outcomes will outweigh the negatives, and this is what Polkadot currently needs.
Of course, to avoid any misunderstanding in our discussion, may I ask you to specify what you meant by “the likelihood of larger, unpredictable events is too high”? Could you provide some concrete examples of such unpredictable events?
Additionally, I hope you can submit a WFC on my behalf, proposing a 5% inflation rate with 20% of it going directly into the treasury, and allow other users to vote on it. Why am I not submitting it myself? It’s clear that my influence is far less than yours, and to avoid any potential distortion of the outcome due to this, it would be most appropriate for you to submit WFC4. Thank you very much.
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Just fyi, our security depends upon validators being profitable, so any proposals that reduce rewards beyond some levels starts requiring larger and larger minimum commissions. If our minimum commissions should be 3% of the 15% inclation, then reducing the inflation to 5% requires a 9% minimum commissions. We’ve no immediate problems in polakdot, but this maybe an immediate concern in kusama, espeically in the bear market. We never worked out minimum commission levels before, but maybe this should happen.
2 Likes