Update 28/11: After seeing that consensus is pretty much reached, we are pushing the date of when the vote goes on-chain to Monday 5th December (7 days from now).
Update 25/11: We are hoping to put this proposal On-Chain by the End of Year 2022 (could be before) with a proposed Community Pool tax rate of 10%.
Over the past couple of weeks, there have been a lot of fruitful yet sometimes heated discussions regarding the ATOM 2.0 tokenomics.
‘Why do we need to create a treasury’ was asked regarding the proposed overhaul of the tokenomics model of the Hub and oftentimes the general consensus would be that it’s to future proof funding for the Cosmos Hub and anything that would need to be built or funded. The proposed solution was to have a direct mint of tokens to a treasury pool.
However, the Hub already has a Community Pool that has been used in the past for various community spend proposals. This pool is funded through taxation on a per-block basis. The current tax rate (as will be discussed further below) is 2%. By increasing this we can achieve a similar outcome of expanding the pool of funds available for public good funding, without the immediate creation of a new entity or the bulk minting of ATOM.
This proposal aims to increase inflows to the Community Pool to make it more in line with what we see around the ecosystem and to ensure that funding for future endeavours are secured.
As a chain, the Cosmos Hub has a fairly small community pool compared to its market capitalisation:
Cosmos Hub - 1.24M ATOMs ~ $13M / Market Cap $3.1BN
Osmosis - 52.13M OSMO ~ $60.4M / Market Cap $560M
Juno - 15.73M JUNO ~ $37.3M / Market Cap $150M
Stargaze - 445M STARS ~ $20.5M / Market Cap $60M
Looking at other projects across the Cosmos Ecosystem, one can note that the Hub has a small community pool compared to its market cap at just 0.41%. What is even more surprising is that all other projects have a larger community pool in terms of monetary value. Take Stargaze for example, which has a market cap 1.95% the size that of Hub, yet, it has a larger community pool at $20.5M compared to $13M of the Hub.
Looking at other ecosystems similar to that of the Cosmos, we can find Substrate and the Polkadot (DOT) ecosystem. Polkadot has a market cap of $6.7BN dollars with a treasury pool of roughly 38M DOT which equates to $230M. This figure equates to 3.4% of its total market cap. This large pool of funds is used to fund the growth of the ecosystem through grants, development funding and also community building.
The Cosmos Hub these sorts of proposals are hard to come by due to the limited amount of funds of its community pool, and also social cost required to engage with the community. The ATOM 2.0 proposal suggested that a Treasury be created and be bootstrapped with 4M tokens every year for 10 years. Ultimately the idea of minting 4M to the community pool came into the limelight. However various community members were still uneasy about minting such an amount due to dilution effects.
The system as it is currently has its flaws but also works. Therefore, until a solution and consensus on that solution is found regarding the future of inflation and if / when ATOM becomes deflationary,
We, Simply Staking, are proposing to open a discussion for increasing the community tax from the current 2% to something that will help bootstrap the community pool organically without too much compromise to inflationary yield. This should be done sooner rather than later, to ensure the network starts accumulating funds into its pool as soon as possible.
Current rate of Issuance: 9.6ATOM per block according to x/mint
Current amount of blocks per year: 4,360,000
Instead of the current 0.192ATOM (0.02*9.6) being transferred to the pool with the 2% tax, a proposed 0.67ATOM (if 7%) will be given to the community pool per block. Per day this equates to (according to minting parameters) ~8,025 ATOM directed to the community pool.
Yearly would add up to ~2.9M ATOMS to the pool which is significantly higher than the roughly 850K ATOM added yearly (according to current metrics).
If the community tax were to go up to 10% we would see around 11,460 ATOM per day (0.96 ATOM per block) get moved to the community pool. Over a year this would allocate around ~4.2M ATOM to the community pool.
How will this increase affect staking rewards?
With every block, staking rewards are minted. A percentage of those rewards are diverted to the community pool and then the rest to the stakers. Increasing the tax rate from 2% to 7% - 10% will decrease the rewards that stakers will receive by around 5-8%.
The premise here is that the value generated by a strong community pool, public good funding and ecosystem development will vastly exceed the yearly single digital % loss in rewards by stakers.
Looking forward to any discussions and suggestions.