This is a temperature check to change the max inflation parameter on Cosmos to 10%. This would instantly drop the inflation rate to 10%.
AADAO grantees are working on more in depth changes to the ATOM tokenomics. I believe that all empirical evidence shows that Cosmos is over paying stakers substantially for their services. Months of high inflation in the bear market have barely budged the staking rate.
Reducing the staking rate should be a boost to LSM adoption and will hopefully drive more users towards Mars, Inter protocol, Levana etc for higher yield.
This is just a param change proposal.
This will impact the rate of growth of the community pool and a separate proposal to increase the community pool take should be considered.
In my opinion, this question is overrated. Stakers are basically only rewarded with the difference between staking rewards and dilution from inflation and one could criticize the amount of expropriation of non-stakers, who should, however, be motivated to stake. DeFi could work largely with stAtom. I imagine what is still holding many stakers back is the (yet) unclear procedure regarding airdrops for Liquid staked Atom. However, since lower inflation makes historical price trends look better, a corresponding marketing effect in this regard might be an advantage. It is difficult to say whether this is sufficient to justify the risk of a change, which could again provoke criticism of the unpredictability of future developments.
Before I play red team, Iād like to say I support this and plan to vote yes. This combined with raising fees (a discussion for another time), is a start towards a simple, serious, sustainable future.
My only hesitation would be the realization that there may be a certain amount of stakers that are just permanently interested in milking staking APR, currently one of ATOMās few use cases.
Obviously, the rational solution is that these stakers would simply just use the LSM and then get some additional yield via multiple farming and DeFi options across Kujira, Neutron, Osmosis.
Alas, people arenāt rationalā¦and this is really just taking current staking APR from ~19% to ~13.5%. Iām interested to see how that will be received. Will those people use the LSM, or will they leave?
On the other handā¦if they leaveā¦do we care?
Overarching summary:
I think this a necessary change in the grand scheme, but donāt think this will have any material price impact outside of a marketing/narrative shift, it might even have the exact opposite effect near term.
IMO, question has been underrated since June 2021 when Osmosis launched. The atom staking rate is basically the āārisk-freeāā yield in and around the Hub. Lowering it makes it easier for defi to lift itself up from the ground (where it currently resides).
example: Would you provide atoms to be lent on mars at a rate of 5.79% ? Most probably not, as you can get 19.13% simply by staking.
example : Would you LP into an Osmosis pool if the yield is less than 19.13% ? probably not, as you can get it simply by staking
ATOM being widely used in all the chains that welcome it is a desirable future and good for its reputation as IBC-money (which is only my vision).
I am in favor of a massive reduction of the inflation rate, max 10% is a good start.
As I wrote, the staking rate is not real yield because of dilution. I probably wasnāt clear with my comment about using LS-Atom in DeFi: if mostly LS-Atom is used in DeFi (like bCre in Crescentsā DEX) the inflation does not hurt. I am not against reducing the inflation rate, but I donāt see overwhelming benefits from a financial mathematical perspective compared to the marketing aspect and I have a hard time predicting the reaction to changes that are not clearly necessary. You are right, before LS-Atom, it would have been much more beneficial to reduce the inflation, but now we have LS.
I donāt see how reducing inflation increases LSD adoption.
There needs to be more/better options for what you can do with LSDs. Currently thereās no real home for any meaningful amount of stATOM. The theory that you can generate additional yield with LSDs in defi simply isnāt true from what I see around the ecosystem currently. Not with size anyway.
Also sceptical that the other theoretical benefits of reduced inflation will materialise.
I suspect price doesnāt double simply because inflation halves.
Lower inflation probably disincentivises staking so the bonded rate probably comes down and apr finds a new equilibrium some where north of 50% of the current level.
What happens to this unbonded atom?
What does this do for ICS?
Should the validator set be trimmed in sync with the max inflation rate?
Why does the community tax need to increase if weāre confident that inflation has a positive impact on price?
I tend to think a gradual reduction is more sensible than a halving.
What are we trying to solve with it? Yes in theory it looks good but it does not work like this in crypto, especially in the cosmos. Juno. OSMO and Stargaze have made similar changes and nothing has changed positively on the price side.
I guess the main motivation of this comes from the continuous sell pressure but shouldnāt we add utility for atom instead of doing the number game?
If we are so afraid of the selling pressure because Atom lacks utility why donāt we set the inflation to 0 once and for all?
''Historically, and I donāt mean only crypto but with other monies too : itās not really about the price but more about liquidity. If you have a big and constant flow of newly minted tokens hitting the markets at some point there isnāt much bid interest to sustain the market and it has to reprice lower. This doesnāt mean that less supply means a higher price, but just marginally better market conditions.
There was a time when big supply and big APRs were the trend (especially in the 2018 era of masternode coins). What would often happen would be that the bids to buy more of the coin would rapidly disappear, leading exchanges to pair the coin against litecoin (litoshi markets) leading to even less liquidity.
Stable, predictable rates of inflation are also necessary for defi to work efficiently.
Osmosis did reduce their inflation rate, but they did it at the same time they reduced the liquidity provision incentives.āā
About Juno, Stargaze and others : Once the coin has hyperinflation (+50% supply growth in a year) itās hard for it to repair its reputation imo.
plus iāll add:
I donāt really know what to add to highlight that high inflation and a high staking yield will lead the ecosystem to stay in paralysis. Even LSDs donāt work well with high yields because theyāll never trade at NAV because of the unbonding time * yield.
If you advocate for the status quo and atom maintains a 15% inflation, this is what happens.
From 370 million coins today to 2 billion in 2035. Not sure the staking rewards would be worth it
Again, why focus on price, mainly? What matters is the market capitalization/the value of your portfolio. Iām not a fan of technical analysis but rather a fundamental investor, so I can live with a stable price if I get inflation and a premium as staking rewards and even DeFi yields on top. Depending on the mood in the market, often it is easier to keep the price in a constant range than to enforce a price increase for psychological reasons.
Not really relevant for long term investors and this should be even improved in connection with Babylonsā lower unbonding time.
I am for a change in inflation, 10% seems like a good start. A lot people are naive to think the L1 situation is āgrow the pieā tell that to companies trying to compete with amazon. We need to be realistic and business centric and more focused on making due with what we have with ATOM. The community pool discussion can come at another time, but I agree as a staker, the yield is making the asset worthless. Its not sustainable, and we have seen far too many situations where high inflation bootstrapping is a timebomb. This is a good start to get the ball rolling
I think the goal is around 2-5 % inflation + whatever fee revenue the chain captures.
To draw a comparison people may be familiar with, Anchorās 20% UST rate made it nearly impossible for other apps on Terra to attract UST deposits. In ATOMās case, yes we could just use LSDs but 1) that adds another layer of DeFi risk, 2) ATOM liquidity is way deeper than all LSDs combined which is important for efficiency & alludes to the increased trust base ATOM has.
Realistically what is a high APR doing for the Hub right now? At most its for stakers to have an income which is reliant on the market to continue bidding the assetā¦people wonāt burn their money forever.
Imo first good point, I would agree to that - hopefully it is only a small additional risk for using LSDs.
But but in terms of liquidity, liquidity of these assets could also be compared only for DeFi attracted Atom, where the same opportunities exist for each Atom as well as LS-Atom, there LS-Atom usually even has deeper liquidity.
And to your comparison of a 20% real āstableā coin yield with a much lower yield, diluted through inflation, I donāt think this is fair. (I used āstableā for UST, back then this was widely accepted)
The numbers have to represent something in reality. Math isnāt just some random numbers a crazy person puts in a notebook. They are supposed to represent something, model some real world process.
20% is supposed to incentivize increases staking percentages during a bear market. It is not accomplishing the task because if it did, staking percentage would go up and then inflation would decrease. If it isnāt then it means we are issuing too many tokens (overpaying for the desired behavior)
Decreasing the amount of tokens for sale will definitely have impact on the price. I agree with increasing utility but when you canāt increase increase utility, you have to decrease the supply to get the price under control.
Imo first good point, I would agree to that - hopefully it is only a small additional risk for using LSDs.