The adoption of network coins that are storable across the Web3 industry is a broken system.
I’ve seen people like Vitalik talk about demurrage before but I’ve never seen a reason or sufficient justification to not adopt this approach as the implementation at the base layer for a network and its network coin.
The article is based on some more in depth analysis that explores how demurrage could be implemented using a network coin tax - https://money.web3economy.io/
Demurrage via a network coin tax could help with creating some of the most impactful and incentive aligned economic systems that have ever existed, a network coin tax could help with:
Paying node operators - Transaction fees would no longer be required for compensating node operators. Network coin taxes reward active users and coin velocity and incentivise people to use the network coin more productively, helping to prevent stagnation.
Reduced risk of concentrations in coin ownership - Even a small network coin tax makes it very hard to accumulate large and growing amounts of the network coin tax. Storable network coins with even a small risk-free reward from staking or fully collateralised single asset lending can be easily accumulated and consistently over generations.
Reducing transaction fees or even eliminating fees entirely - This could be achieved if a sybil resistant solution can be implemented securely at scale.
Improved network effects - You can apply the network coin tax very granularly so that it maximises the productive usage of the network coin, this could help to increase network effects due to increases in financial market efficiency.
Generating reliable ecosystem funding - The network coin tax would be collected periodically so ongoing amounts of funding would be available for node operators and ecosystem initiatives.
Accelerating ecosystem growth - Increasing the network coin tax can result in more income for funding more ecosystem initiatives to feed a growth fly wheel.
Global public goods funding - Even a small rate of demurrage in a very large ecosystem could generate a very large amount of income, eventually this could fund global public goods once a network is more mature and is one of the leading networks.
I believe demurrage is eventually inevitable as the current implementations of storable network coins are a highly flawed design. Eager to discuss this in as much detail as people like as I’ve been looking far and wide for any good counter arguments to this approach - I am yet to find anything.
Would love to hear from anyone who has thought about this before or what reasons people might have why they think demurrage is not the correct solution for Web3 network coins or for systems of money more broadly. Happy to chat about this in more detail on a video call if anyone is interested in this topic!
Encointer.org (a kusama systemchain) implemented demurrage for its community currencies (non-speculative tokens). There, however, it acts as a counterbalance to Encointer’s UBI.
Thanks for the link, will check it out! The design space for mediums of exchange adopting demurrage is pretty wide - although demurrage will be important the range of implementation possibilities is high.
The network coin is where demurrage is also essential if these emerging networks are to become a true public utility. You cannot trust a network coin that is storable as it can easily consolidate over time into the hands of a few people. Gonna take a while for the industry to shift from storable to demurrage implementation but i’ll be campaigning for it until it’s done!
I like the concept of depreciating money and incentivize people to use and spend instead of holding, our stagnant economies need to push large holders to be more active and help come up with ways to make the token more useful and move the economy instead of rewarding them for doing nothing and hope for the best in the long term.
I wonder if people would get used to the balance in their account going down and convince them that is a good thing, that this tax will be well spent, perhaps a simpler to understand concept that plays better with our psychology is to just burn the income(or most) to not have to trust an irrational community with a growing treasury to do the right thing.
I’m interested in ideas around taxation to generate real income and social impact and not depend on money printing to keep our unused systems operational. Our KSM denominated parachain focused on DAOs and payments is designed to tax payments for goods&services, with the amount of the contribution going down when you pay for curated listings in a DAO which incentivizes economic activity through DAOs instead of P2P. Demurrage would be an interesting concept to implement in this kind of spend/utility oriented chain.
This is an important area I had to spend enough time on, our existing fiat currencies have a somewhat similar outcome however the number in your account stays the same but your purchasing power reduces. Achieved with storable money with inflationary expansion. It’s more hidden to the end user but they are holding a currency that is losing value. Inflationary monetary systems are extremely harmful for increasing wealth inequality as it pushes up the prices of other hard assets - currently land and stocks as we see in our current economy.
But with demurrage you don’t need to be losing purchasing power just because you are losing some of the coins. The supply of the coin can be fixed or expansionary but it needs to be below the growing demand the network coin - achieving this means you cause deflation and the price of the network coin goes up. So a demurrage network coin with deflation. So you could have slightly less coins at the end of the year but your purchasing power could have gone up dramatically as the coins are now more valuable. And a network coin tax is great for making a circular economy that could achieve this type of growth as you have a certain percentage of the supply that can go straight into funding new initiatives and improvements. The pre-requisite to the network coin tax however is making a good funding process, as otherwise you waste the network coin tax income and don’t generate enough growth.
Yes absolutely, it’s great for the network layer as it means the network coin will actually be reliable as a public utility - as now it cannot easily be concentrated into the hands of a few people over the long term. Multiple mediums of exchange will likely exist and these communities / DAOs can also benefit from the same token tax model which can then fund public goods within their own communities. Mediums of exchange also don’t need to worry about maintaining the network itself so all the funds can go towards initiatives that are beneficial for that community.
I’m not a fan of taxes on goods / services (labour or capital creation) as it results in deadweight loss - the more you tax them the less of them you get. It is much better to tax land, Web3 network coins and mediums of exchanges as none of these taxes cause deadweight loss. Couple this with removing permanent shares from organisational structures and replacing them with temporary ones and boom you’ve fixed the global economy - https://contributionism.io/
