Potential Solution to Inflation Controversy

Hub Proposals
1

There’s a lot of controversy around the recent proposal, but I think everyone can agree that high inflation rates are bad for long term growth & sustainability.

Some argue that the 20% staking reward is too high & scares of serious investors, while others argue it’s better for network security by attracting delegators interested in passive income. In both scenarios high inflation rates are a problem.

Potential solution: Maybe I’m being naive, but it seems like a less controversial solution would be to implement a burn mechanism to transaction fees…

This would be the best of both worlds as we could maintain attractive staking rewards around 20% while minimizing inflation and potentially becoming deflationary depending on the burn rate & network growth.

Why aren’t more people discussing or better yet, pursuing this as a possibility?

There’s already a proposal to increase transaction fees, which will help minimize & potentially eliminate the impact a fee burn mechanism would have on a validators bottom line. I’d love to see someone throw up a proposal to introduce a fee burn mechanism.

The only issue that needs to be resolved is a numbers game… What % of fees should be burned & how much should fees increase to prevent validators from losing revenue?

It makes sense to me to increase fees by 50%, while adding a 25% burn mechanism. In this scenario, validators will actually pull in a net gain and investors/delegators will benefit from lower inflation rates.

Example:
Old fee = 10, Validators earn 10
New fee = 15 + 25% burn = (-3.75), Validators earn 11.25

Those #’s are just me spitballing, but I’m sure it’s possible to analyze on chain data to find the percentages that create the most impactful & mutually beneficial solution… I’ll let people with better technological & economic backgrounds figure that out.

Does this make sense?

  • If so, can someone create or help me create a governance proposal?
  • If not, can someone explain what I’m missing & why it wouldn’t work?

Any & all support & insight is greatly appreciated. :pray:t2:

2

how is inflation bad? you stake and make your capital illiquid for 21 days and in return your liquid capital is returned to you through inflation. the higher, the faster you get made liquid and capable of putting capital back to use around the ecosystem.

what is the benefit of lower inflation when you are trying to get people to risk their capital and lock it on chain?

the underpants gnome business model and arbitrary parameter changes are unlikely to attract investors.

step 1) lower inflation
step 2) ???..???
step 3) Profit

3

Inflation is bad because over time it dilutes the value… Simple supply & demand economics.

Saying people who lock up funds deserve to be rewarded implies you think I want to lower staking rewards to combat high inflation, but that is not at all what I suggested.

In fact, my point was that by implementing a burn mechanism we could maintain 20% staking rewards while potentially leading to deflationary tokenomics.

4

im saying that it is the fact of the matter that people are/were/have been incentivized to lock their capital for 21 days in exchange for staking yield and potential for airdrop exposure so you could try out new projects and allocate accordingly.

Arbitrary parameter changes that allocate an increasingly larger cumulative share of inflation through various taxes, CP spends, lower inflation and higher minimum commissions that they then fund themselves at high market rate multiples it has made it so you would have to be a fool to trust these validators with your capital and risk buying ATOM.

5

The transaction fees generated by the Hub and consumer chains is less than 1 day worth of inflation.

Even with increasing tx fees this won’t make a meaningful change to the current situation.

5 Likes
6

It’s a great idea, provided the transaction volume is big.

The average tx per month is 1M, which makes $12M a year, if you charge a $1 burn per tx you get 12M, that is still marginal compared to Cosmos’ $3b MC inflation.

2 Likes
7

Inflation dilutes the value of those NOT staking and weath is transferred to those staking. Inflation punishes those not staking and rewards those staking, is it so difficult to understand this concept? When the Fed prints money (inflation) and injects this into the banks, the general population is being diluted, this printed money is a subtle way to steal from the general population. The idea of ATOM 2.0 was the same, increase inflation a lot initially and all this directed to their ATOM 2.0 pockets only to fund some treasury, basically trying to do like the Fed, a subtle way to steal from all ATOM holders, both staking and not staking. In the case of ATOM staking even if inflation is high those not staking are just penalized more, because all these ATOM are received by those staking, it is just a wealth transfer process from those not staking to those staking ATOM, and the magnitude of this wealth transfer depends on the inflation and bonded ratio. For those securing the Cosmos hub, ie. those staking, inflation is a reward for securing the Cosmos hub. For those not staking, dilution is a penalty for not securing the Cosmos hub

1 Like
8

High inflation is one of the biggest barriers to people joining Cosmos.

People don’t like locking up there tokens to avoid being dilution. Most of us don’t recognise this because we are surrounded by people (like me) that are happy to stake in exchange for rewards.

Importantly the data says that the rate of inflation has little effect on 2/3rd bonded rate. Confidence in the value of chain is more important.

One option to reduce inflation would do to liquid stake some/all of the community pool. It would still take ages for inflation to fall (approx a year to get to under 10%) but it would have the added advantage of increasing the value of the CP.

2 Likes
9

so atom inflation is bad because there will be more atom and that is a barrier to people joining cosmos because why? that is a barrier to people holding idle ATOM and encourages staking.

if the above were true wouldnt we see demand for LSDs other than from CP spends and compounding LSDs?

10

@common_spelling vs the world.

lol

11

LSDS are bit useless. Everyone will stake his atom because of airdrops. And will not put atom to lsd, because of the loss of a potential airdrop.