[PROPOSAL #88] [ACCEPTED] Increasing Hub Community Tax

Hub Proposals Parameter Change
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Thanks for the reply @Adriana good to see you are supporting the draft.

I agree with your analysis about the dynamic parameters that affect the community pool tax. In its current form, the likelihood that further adjustments might have to happen to the tax rate every so often can be quite high especially considering if a large shift occurs.

I personally like the idea and agree with you on the 10% community pool tax. Initially I think it is a good idea to front-load the community pool so that it can reach a somewhat reasonable level of tokens to support funding endeavours. And plus, as I mentioned in a reply earlier on, if changes were to occur it will most likely be for a lower tax rate and most likely the community will be open to lowering the tax rate if deemed necessary.

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In the current game of chains, there are 4 projects: Stride, Duality, Neutron, Apollo.
Stride is already live and raised money, Duality raised money as well, Neutron raised money from the Hub to cover dev cost (prop 72 - we voted yes) and is raising, however I don’t know about Apollo - but this is still 75% of the current chains that don’t start from 0. I think it’s very important to help ICS chains, and depending on the conditions we will support them of course

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Hey @Damien!

Yes that is right, on our side we’re totally open to any suggestions - what’s great with the tax rate is that it’s very flexible, let’s find something that suits most of us and go with one unique proposal otherwise it would be way too confusing.

It’s right that the current state of the community pool is alarming: starting with a high rate first to fill the pool and then reducing it when time comes is a great option.

@RobbStack
The current bonded ratio is ~60% according to Mintscan. If we decide to go for a dynamic rate with a 10% tax rate at the current bonded ratio, then the formula to get a linear dynamic tax rate would simply
be:
Tax rate = Bonded ratio/6

With a tax rate moving between 0% and 16.7%. For example, if the bonded ratio is 50, the community tax would be 8.3%.

I think I may be more aligned with increasing the tax first at 10% to fill the pool asap and reduce it once we believe that the pool is large enough. As we need to act asap, increasing it now to a fixed number might be the easiest solution. Let me know!

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I’m very much in favor of this. I would propose to increase the community pool tax to 10%.

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Tax raise is definitely a discouraging change for delegators and validators, but I agree that it is something that we need in order to move forward. I think we need to secure some funding that can be deployed for ICS development in a month or so. We can’t wait a full year for the community pool to be topped up.

Considering that we want to deploy 4M throughout the year, what about mixing the idea of community pool tax increase, foundation donations, and minting?

For example, let’s say we secure 2M through community tax raise; 1M through foundation donations; and 1M through minting new tokens.

This way, all groups of interest evenly share the pressure. Plus, we can secure some immediate funding from the donations and minting while preparing community pool for the future.

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Hello Damien, tax rate may be one of the good options that we can suggest. However, we first need a place to gather real cosmos hub contributors to sit down and discuss on the tax rate before we submit a governance proposal. What is your opinion on gathering the contributors first?

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Am in favor of increasing tax rate to 10% and frontloading the community pool. It’s true that any increases will be harder to justify than any decreases.

Starting now would give us approx another 1M ATOM by mid Q1 2023, coinciding with the launch of ICS. Once ICS launches and we see how the economics behave, we might see an increase in teams applying for funding, it would be good to have some dry powder.

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Agree.

Although it may not be easy to agree on a new tax rate, bottle line is that a tax increase proposal should have a much higher chance to pass than minting new tokens.

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Hi Jay, can you please be more clear on this point?
What more than the forum should be the place to gather Contributors’ opinions and feedback?
You seem to hint with your comment that the people commenting here are not real cosmos hub contributors. Differently, I think that people to rightfully call themselves real cosmos hub contributors should be actively involved in the convs that take place here, the temple of the hub governance.

Imo there seems to be a fairly good alignment towards the draft proposal, it’s more a matter to identify the percentage (5,10 or else)

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I agree with your points regarding @Jay_Lee point. Contributors and everyone should make use of the forum to voice their opinions. This is the place where discussions should take place.

There is the option of having some sort of community call however I think the forum is sufficient to gather everyone who wants to have their say here.

Regarding percentage of the rate I think the ideal step forward, from what I have gathered, is that 10% should be the figure that goes onto the proposal. I believe many people here are in favour of front-loading the pool.

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we can set up a Twitter space if you think might be beneficial to bring more awareness/reach a wider consensus :3

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Its either mint or tax, since tax has more consesus we would like to support upto 10%.
We can always cycle back in a year and reduce this if this is not becoming usefull.

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We agree with this proposal. It is good way to secure the funding and can be easily adjusted in the future.

No reason to push it to the max (10%) immediately just because you can. Secure the needed funding only. 7% should be enough.

Bit more modest proposal also gets through easier.

How about some cap for it in USD also? If 7% gives more than needed funding when ATOM is $10, is 4x more funding needed when ATOM is $40?

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Thanks for the feedback. Just have a couple of questions;

  1. In relation to the suggested 7% instead of 10% to secure the needed funding, what do you mean by needed funding? Is there a figure? The point of the Community Pool in my eyes is to have a sufficient amount of funding available for any type of project/grant/etc. that may need.

  2. Relating to a previous post I made, having to raise taxes more than once in the short-to-medium term wouldn’t sit well with people hence why a proposed 10% was floated around. Wouldn’t it be best to again, front load the pool and then reduce to accommodate?

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What a wonderful post. Thank you for caring enough to formally start this conversation.

@Damien A front loaded community tax that’s dynamic and goes down over the next several years makes sense to us too. If it’s automated and decided ahead of time vs governance votes down the road it might make the most sense. You said, “having to raise taxes more than once in the short-to-medium term wouldn’t sit well with people hence why a proposed 10% was floated around. Wouldn’t it be best to again, front load the pool and then reduce to accommodate?” We agree completely, but worry that 10% up front is unpalatable too.

The concern with going up to 10% is that it’s a 500% tax increase from current levels and that large of an increase on a percentage basis won’t taste good to those who oppose the idea. It’s an easy way to attack and one that proponents of a 10% tax should be prepared to defend.

@Instafinanzas made the point that managing those funds must be discussed too. @FrancescoSVC also said, “A lot of work still needs to be done around deploying these funds.”

So we believe some serious thought and preparation needs to go into a follow up signaling proposal or conversation. How the community pool is overseen and who directs the funds has to be largely hashed out before this community pool tax proposal hits the chain. Opponents of a higher tax or mint will use misappropriation of community pool funds as a reason to speak out.

@ala.tusz.am said, “we might ask ourselves why is the usage of the community pool so low on the chain that provides public goods for the ecosystem? Answering that question will help us further define an appropriate sized community pool for the Hub.” We agree and would love to see in-depth conversation around this.

@ebuchman said, “I’d also love to see both AiB & ICF (and other major ATOM holders!) commit resources to the community pool as well.” We’d love to see conversation around this before a tax increase proposal goes on-chain.

@BendyOne said, “I would like to see us review the tax rate at a frequency tbc to ensure we reach the target set in the initial wp within a year. If we are tracking behind tax should go up and if we are tracking ahead or the pool is not being spent then the rate should be reduced.” Love this idea.

@zaki_iqlusion said, “Teams who decide to partner with the Hub instead of being sovereign are going to need substantial amounts of bootstrapping funds and skin in the game from the ATOM stakers that will indicate likely passage of their deployment governance proposals.” As entrepreneurs who have never asked anyone for funding, we hesitate to agree. No doubt Zaki has more experience than we do, has a much better idea how much ATOM is required and we’ve not been here as long, but we’d want to know more about who controls the funds. Is it the scheduler and allocator, or some other way? If not, maybe there’s already a plan for a council that directs funds, but if there is we’re not aware of it. We’d be super cautious about conflicts of interest here. There should be a watch-dog of some kind to catch and punish back door dealing.

@Adriana said, “another solution would be to have the community pool collection tax be dynamic or at least for the community to be opened to reconsider a new adjustment of the community pool if the dynamic parameters ( Bonded ATOM and Staking APR) will suffer important changes as part of future implementation proposals.” We totally agree.

@RobbStack said, "A community tax could incentives users/stakers to participate in Defi, in particular with upcoming launch of more Liquid Staking Providers that will likely set high early incentives.

The system prevents users from tagging more than
10 people in one post so gotta break it up into 2 replies.

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@common_spelling said, “is liquid staking popular amongst validators? i dont really see the appeal of LSDs for most people. i know people say its liquid and you can earn more yield or whatever, but it is a bit of a pyramid scheme.” and “LSD providers will strand enough votes to more heavily subsidize themselves by delegating to “incentive aligned” validators to vote for bulk printing or other restructuring of the monetary framework. I dont think that atom holders get enough out of the deal to compensate for the high risk of governance centralization under an LSD regime.” We think these are pretty good points to discuss. We’re not sold on liquid staking yet either. When leverage goes against you, it’s a waterfall down to the bottom and we care too much about the Hub to ignore this.

I come from the world of traditional finance. The other half of Blocks United comes from Silicon Valley big tech. I perceive the sound money philosophies of @jaekwon’s followers to be important. Their view that if you’ve never managed money professionally, you don’t have enough experience to decide the fate of the Cosmos… is worth serious consideration. These huge decisions that the community is about to make must include those who have managed money professionally, not just people from tech. Encouraging people to liquid stake and then LP their tokens to support the ecosystem has risks beyond those that have been considered.

@Kam said, “what’s great with the tax rate is that it’s very flexible, let’s find something that suits most of us and go with one unique proposal otherwise it would be way too confusing…starting with a high rate first to fill the pool and then reducing it when time comes is a great option.” We agree.

@Gorany said, “Considering that we want to deploy 4M throughout the year, what about mixing the idea of community pool tax increase, foundation donations, and minting?” We would be open to this idea but then people will argue over what percentage comes from each and will use those percentages as targets of opposition.

@catdotfish suggested setting up a Twitter spaces for the community to learn about and discuss it. We think this is a great idea and should be ASAP.

Anyways, you all rock. Appreciate you!

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(first post ) Well, i wonder if it can be possible to make a proposal in the others chain (like osmosis, juno, evmos, etc) to give a special “grant” or “subvention” for the hub development.
I think as atom holder, i am also a juno, osmosis, evmos holders, etc then i will no mind.
I do know they are sovereign chain but that doesn’t mean their holder (or community) dont want to contribute.

Also a tax that is flexible might be the best option with fews conditions like :slight_smile:

If % of atom staked is inferior to 60% = 10% tax or will stay at 10% for 3-6 months to increased community pool if atom staked < 60% then will decreased over time.

LS will make % of atom staked increased then we might not keep tax % at 10%.

We just have to figure it out the numbers.

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Great Post, you most certainly looked into all the sides of the argument and summarized them all here!

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I agree. There will be oppositions and disagreements over the percentages. But isn’t that the reason why we are all here having open discussions, making compromises?

Some of us think 10% is too high, some of us think 5% is too low. So maybe we start with 5%, but supplement the community pool with a little bit of minting or foundation contributions just for the initial stage.

Minting might be against our initial opinion, but I think making compromises are important in governance.

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Hello catdotfish. Sorry if my words were not clear enough and somehow misleading.
First of all, I feel like I need to clarify on this to make one thing super clear. You mentioned that

‘You seem to hint with your comment that the people commenting here are not real cosmos hub contributors.’

I didn’t hint or even say that people commenting here are not real cosmos hub contributors. I think people who are commenting here are the real contributors and I really appreciate everyone here who are actively discussing about the proposal. One thing that I wanted to suggest from the previous comment was to have a conversation where it has separate channel for topics. Maybe something like discord.