Efficient Governance?
qvuv05 opened this issue · 3 comments
We recently witnessed a contentious proposal, Atom #848, seeking to reduce the inflation rate from 14% to 10%. The prevailing sentiment in favor of this reduction is rooted in the belief that lower inflation is inherently advantageous. However, I find myself in disagreement for the following reasons:
Firstly, with the current inflation standing at 14%, staking offers rewards of approximately 20%. This significant disparity raises questions about the perceived benefits of reducing inflation, especially when staking already provides substantial returns.
Moreover, the assumption that lower inflation is unequivocally beneficial is challenged when considering an extreme hypothetical scenario. For instance, if inflation were reduced to a mere 1%, and staking rewards amounted to 2%, the calculus of participation changes. In such a scenario, the proposition becomes less enticing, as the marginal gain of 2% through staking is overshadowed by the potential "loss" of 1% in value annually. This analysis becomes even more pronounced when factoring in the inconvenience of staking, which involves locking one's coins for 21 days if a sale is desired.
To prevent this, We need an effective governance procedure in ATOMONE, and also need to help the community (token holders) understand the pros and cons of the ongoing proposal.
Maybe we should consider a token for governance, or no tokens at all.
A governance token that doesn't have a quantitative representation, meaning if an address holds 10 or 1000 tokens, it has the same voting power.
No token could mean that each active address is represented in the vote.
We should consider differentiating ATOM1 from the governance token.
with the current inflation standing at 14%, staking offers rewards of approximately 20%. This significant disparity raises...
the disparity naturally arises from the 2/3 we target.
questions about the perceived benefits of reducing inflation
what questions? since it is expected from the 2/3 target it shouldn't raise much questions, it is by math. And income/revenue should not be calculated by inflation, but by this modified math: https://allinbits.com/blog/nwv-to-prop-848-atom-must-not-be-money/
With a 20% annualized inflation, the reward is 30%, but because at the end of the year there is 120% the amount of atoms, the actual effective income is 8.33% transferred from non-stakers. The nominal "inflation reward" is a bad way to calculate "revenue" or "income".
For instance, if inflation were reduced to a mere 1%, and staking rewards amounted to 2%, the calculus of participation changes. In such a scenario, the proposition becomes less enticing, as the marginal gain of 2% through staking is overshadowed by the potential "loss" of 1% in value annually.
This would be because 50% are staked, and 50% unstaked.
2% compounded annualized gain isn't "overshadowed" by 1%, rather, ((1.02 / 1.01) - 1.00) == 0.99% is the effective income rather than 2%, and if this was the steady state, it means that the 0.99% effective income from $ATOM1 inflation (these are small amounts transferred from non-stakers to stakers) plus whatever % (like 80%) of tx fees going to stakers is enough to achieve a market balance, which means this inflation rate of 2% is more likely than not to be the right inflation rate to keep 50%; and judging by the 50% staked, it seems that there isn't a huge loss of confidence, which doesn't indicate by itself that it is overshadowed by higher yields (with different risk profiles) of other tokens/instruments.
So I don't think I agree with you.
We need an effective governance procedure in ATOMONE
I don't see why this follows either. We need to define a good constitution and get most of this right so that we don't need to change anything through governance. We need governance for somethings but the spirit of the constitution must not change. Therefore we need to get as much figured out as possible before we launch this thing.
Sorry for my English and I did not describe it clearly.
with the current inflation standing at 14%, staking offers rewards of approximately 20%. This significant disparity raises...
the disparity naturally arises from the 2/3 we target.
questions about the perceived benefits of reducing inflation
what questions? since it is expected from the 2/3 target it shouldn't raise much questions, it is by math. And income/revenue should not be calculated by inflation, but by this modified math: https://allinbits.com/blog/nwv-to-prop-848-atom-must-not-be-money/
With a 20% annualized inflation, the reward is 30%, but because at the end of the year there is 120% the amount of atoms, the actual effective income is 8.33% transferred from non-stakers. The nominal "inflation reward" is a bad way to calculate "revenue" or "income".
For instance, if inflation were reduced to a mere 1%, and staking rewards amounted to 2%, the calculus of participation changes. In such a scenario, the proposition becomes less enticing, as the marginal gain of 2% through staking is overshadowed by the potential "loss" of 1% in value annually.
This would be because 50% are staked, and 50% unstaked.
2% compounded annualized gain isn't "overshadowed" by 1%, rather, ((1.02 / 1.01) - 1.00) == 0.99% is the effective income rather than 2%, and if this was the steady state, it means that the 0.99% effective income from $ATOM1 inflation (these are small amounts transferred from non-stakers to stakers) plus whatever % (like 80%) of tx fees going to stakers is enough to achieve a market balance, which means this inflation rate of 2% is more likely than not to be the right inflation rate to keep 50%; and judging by the 50% staked, it seems that there isn't a huge loss of confidence, which doesn't indicate by itself that it is overshadowed by higher yields (with different risk profiles) of other tokens/instruments.
So I don't think I agree with you.
With the inflation and staking rewards example, I just want to emphasize if they are low then not many holders are interested in staking. The designed Inflation mechanisms of ATOM was good (at least in my opinion), it balances between incentive holders staked and punish who do not stake.
Although it is good mechanisms but majority of community, who have voting power do not agree with that and thought high inflation is bad.
We need an effective governance procedure in ATOMONE
I don't see why this follows either. We need to define a good constitution and get most of this right so that we don't need to change anything through governance. We need governance for somethings but the spirit of the constitution must not change. Therefore we need to get as much figured out as possible before we launch this thing.
Point is, how do we know everything in the right position at the beginning?
I believed everything no matter how carefully you design the system, things will need to be change in the future to adapted with the situation.