[PROPOSAL] Set Max Inflation at 10%

[vixcontango]

So if we assume that inflation remains 20% forever and ATOM value goes to zero over time in your view that makes the Cosmos Hub secure because all the tokens are staked. Fine.

But you sold ATOM tokens for a positive price to investors and supposedly they made a rational decision buying this token expecting a future value of zero, correct? If that is the case, you might want to get ready for lots of lawsuits and jail.

I need an explanation of how you envision getting a larger than $0 price for the ATOM token. I would normally ask you how envision to get the ATOM price higher than my entry point, but I am engaged in a conversation here where you are telling me that token’s design has a future expected value of zero. What am I missing?

[vixcontango]

Ok, smarty pants.

I am intelligent enough to buy something for a positive price and then experience a substantial loss and think I have been defrauded no matter the numbers and percentages being put thrown in my face by some genius like SBF or Do Kwon.

Oh yes, it is absolutely my fault as an investor and I can take my losses, but… the people who put ATOM out for trading have to also think about how they will stay out of jail.

Jae will have to explain in a court room where ATOM derives its value from and somehow I don’t think 20% inflation forever to “secure” the Hub is going to fly.

[jaekwon]

We raised $17M in a fundraiser in 2017.
Get a grip. Do you understand what a unicorn is?

[vixcontango]

A job subsidy scheme for unemployed devs?

[serejandmyself]

You have to understand the logic of these props. Alas, they usually come from lack of wanting to think outside the box or similar (no offense to anyone here, apologies if it comes across as such - not meant to). The change won’t do anything short term or midterm, as such monetary mechanism as inflation reduction have literally 0 short term effects. BTW, 10 year observations of open and verified systems, seem to hint that such mechanisms also have 0 midterm effect and only come into play when systems are more or less grown and have clear usability.

Alas, the proposed monetary policies (including the ones in effect) so far played 0 effect on ATOM and probs will carry on that way. The irony here is that none of these policies will actually change anything. What will is the growth of the ecosystem and carrying making ATOM similar to ETH and BTC, which btw, it is already is.

Anyhoos. Just another unheard 5 cents over the last 3 years of ATOM policies. But reducing the current inflation will have 0 desired effect (overall, it’s the right thing to do. I’m just against taking away training wheels from a 3-year-olds bicycle, when that 3-year-old clearly ain’t showing signs of knowing how to ride)

[vixcontango]

World’s monetary aggregates (USD + EURO + YEN + POUND) grow about 4-8% per year.

ATOM token inflation is higher than that - let’s say 14 or 20% per year as it is currently designed. Let’s assume that ATOM is about as big as it is going to get. Let’s say it has 1 billion consumers and can’t grow anymore. At that point, ATOM prints 14% per year while monetary aggregates print 4% per year. Mathematically, ATOM price will be trending down towards zero.

So far ATOM has had adoption (one fool after another buying it) that has resulted in its price going up. But if its adoption stalls, then given the 14% or 20% inflation rate, the token is bound to lose value vs the fiat currencies. And when it loses value people don’t want to stake it or own it at all.

As such at some point you need to fix the tokenomics and get them inline with the growth rate of the project and the global monetary aggregates to where the token can have stable value. Without it having a stable value, the system currently implemented can’t work. 20% inflation is NOT doing its job as an incentive to stake the token. The incentive system that ATOM uses only works if ATOM has a stable price.

[nonswad]

“The temptation for a ruler to debase coinage is too great to overcome, because it’s usually the path of least resistance when faced with a problem. If the king knows that paying for a war by outright raising taxes would likely lead to revolution, but that paying for the war via gradual debasement of coinage will not, he can justify paying for his war by relaying on that second method.” - Broken Money, Lyn Alden

I fully support the idea of reducing ATOM inflation. Over a longer time period it is much better for an investor to hold a scarcer money/asset. High inflation period we live in made people afraid of those assets, making them undesirable to invest. Last cycle showed on many coins from Cosmos Eco how high inflation hurts the project.

The idea I’m looking into when investing is whether the project is bleeder against BTC and ETH. Why would you take on a more risk just so your investment gets outperformed by BTC or ETH?

For a long time I was looking at the ATOM/ETH and ATOM/BTC price charts. Situation is not looking good there, as ATOM is putting a lower lows against against both blue chips.
However isn’t a market cap more reliable valuation for a project as the supply is also a function of time? Looking at those charts I saw a more promising outlook as ATOM is putting higher lows against ETH and BTC.

If we look at the chart of ATOM/ETH PRICE we get lower lows on a macro scale and lower lows for this bear market. Both are bad signs as they show ATOM as a bleeder against ETH:

However if we look at ATOM/ETH MCAP we get higher lows on a macro chart and higher lows for this bear market so far. Those are good signs as they show our investment isn’t bleeding against ETH, a more safe play:

There is a similar situation for ATOM/BTC pair.

If we look at ATOM/BTC PRICE we get lower lows on macro chart and lower lows for this bear market so far:

However, on ATOM/BTC MCAP we are getting higher lows on macro chart and higher low for this cycle so far:

Conclusion: I think high inflation is really bad marketing PR. It is both:

1. Undesirable for investors.
2. Hides the strength of ATOM MCAP and dilutes the value from the ATOM’s holders.

I find it remarkable for ATOM to put higher low against both blue chips by MCAP. Not many altcoins are able to do that. We should embrace and market it. It is even more remarkable to have positive MCAP outlook with high inflation and constant selling pressure.

Let lower the inflation and make ATOM’s price as good as its MCAP.

[zisequkuai]

great point，I support you！

[Kamikaza731]

Insted of decreaseing max inflation could we adjust time it takes to reach minimum inflation?
Could we set the parameter to decrease inflation faster?

Currently we are at the very edge of 2/3. We are at 66.63 % of bound tokens. So in realaty we could be going back up or remain at current inflation.

What I am sudgesting is to make transition to lower inflation faster maybe to reach min or max in 6 months.

As for minimum inflation maybe lowering it to 3% or even to 0%. Don’t know if deflation is possible on the blockchain

[Santorini]

Hi all, first time posting here, which I regret not doing earlier.
Im no validator/dev/gigabrain just an average user/staker.
But, I can share what atom community wants:

1. Reduce inflation
2. Set annual limit on funding/grants (users/stakers r bored seeing ambiguous props all the time)
3. Set max supply on atom (at some point MC will stop going up as supply of atom increases and price will go down, why? simple inflation dilution of an asset).
4. Atom utility (staking/LS) seems not doing the job.

Its not my job to solve above issues. I can give ideas, but technical knowledge I don’t have.

[Govmos]

CONTEXT:
Inflation is probably the most misunderstood economic mechanism. We believe this is mainly due to the fact that it has been a politicized over the recent years and mostly turned into a bad behavior: inflation dilutes the supply. Most of this problem actually comes from mixing price and value in a sense that for the same value any increase in supply will results in reducing the price of the underlying asset. What people need to understand is that inflation is nothing more than a redistribution mechanism. the question they might ask themselves is who gets the profit from that inflation. In the case of ATOM this inflation is distributed to stakers. Therefore it is basically a tax to non stakers who gets to profit stakers instead. It uses the supply to create a staking incentive mechanism, by varying price. The price variation involves diluting the value of token holders, but increases the value held by stakers.

ANALYSIS:
We think this whole inflation discussion is a distraction. The real debate instead should be focused on the Cosmos Hub’s value. Therefore we should all be focused on the ATOM’s market capitalization, not it’s price, which will only vary function of the inflation and staking rate.

To this particular point, we would like to note that the actual marketcap values on TradingView and many other platforms are wrong. We can hardly explain why the data isn’t gathered correctly by these providers. A simple example of this is to look at the marketcap divided by the token’s price on Tradingview to see that something doesn’t play out right.

SOLUTION:
Instead of caring too much about inflation, we should try to solve the number one problem we face, the inaccurate market data sent to the general platforms. Then we can focus on teaching people how to look at value, instead of looking at price. Professional traders know that, everyone should do too.

–

Thanks for reading ! If you like our job, you can support by delegating to PRO Delegators Validator

[Cosmic_Validator]

@vixcontango

So if we assume that inflation remains 20% forever and ATOM value goes to zero over time in your view that makes the Cosmos Hub secure because all the tokens are staked. Fine.

Do you understand that if most tokens are staked, and only a few not staked, then if an attacker tries to buy these tokens not staked to perform an attack price will increase a lot quickly since he is trying to buy all the little unstaked supply. Furthermore, assuming two thirds of supply is staked, even if the attacker somehow manages to buy one third of supply he could only do a liveness attack not a two thirds attack. For this two thirds attack he would need to buy all unstaked supply and in addition somehow get control also of a large portion of staked ATOM.
Inflation is not 20% currently, if a lot of ATOM are staked then inflation goes down to 7%. If % of ATOM staked goes down then inflation increases to encourage staking and increase security. Look, we have an example of a token in theory with much bigger market cap than ATOM before and more inflation, indeed going to zero overnight, but this had nothing to do with the inflation but with other very different reasons. Also, central banks increased in the last year rates super fast and a lot, since 40 years ago this didn’t happen, so of course this affects the macro economy and crypto as well. Wait a few months until BTC halving and the pause/decrease of rates and we will see if ATOM price is so related to inflation or to other factors

[Cosmic_Validator]

@vixcontango

20% inflation is NOT doing its job as an incentive to stake the token

It does its job, earlier this year the staking ratio was lower around 60% or less, inflation increased and the ratio increased to over 67%, then the inflation started to decrease and it is much lower now.

@vixcontango

World’s monetary aggregates (USD + EURO + YEN + POUND) grow about 4-8% per year.

ATOM token inflation is higher than that - let’s say 14 or 20% per year as it is currently designed. Let’s assume that ATOM is about as big as it is going to get. Let’s say it has 1 billion consumers and can’t grow anymore. At that point, ATOM prints 14% per year while monetary aggregates print 4% per year. Mathematically, ATOM price will be trending down towards zero.

The ATOM printed go to those staking ATOM, the around 67% of supply staked. These ATOM holders have chosen to stake so it is likely that the new ATOM received from inflation would be staked too, not sold. If all new ATOM from inflation received by this 67% of ATOM holders were all sold and not staked constantly, then over time the total supply would increase as well as the liquid ATOM supply and the staking ratio would be constantly going down. This is not the case, the staking ratio has stayed around 67% over the years, this means that wih the inflation the total supply increased but also the total amount of staked ATOM. A high staking ratio means higher security, but also less liquid supply, this means that any buying pressure would always have more positive price impact in a lower supply.

[Santorini]

@Cosmic_Validator

Do you understand that if most tokens are staked, and only a few not staked, then if an attacker tries to buy these tokens not staked to perform an attack price will increase a lot quickly since he is trying to buy all the little unstaked supply. Furthermore, assuming two thirds of supply is staked, even if the attacker somehow manages to buy one third of supply he could only do a liveness attack not a two thirds attack. For this two thirds attack he would need to buy all unstaked supply and in addition somehow get control also of a large portion of staked ATOM.

Linking price action with an attack doesn’t make sense, since won’t happen. But still this is what we aim to?
Security reasoning part agree.

[RoboMcGobo]

Strongly supportive of this move. To add to the discussion about encouraging LST adoption, one other benefit here is that lowering the staking rate also lowers the hurdle rate (the yield that LST holders need to get in defi to make up for the costs of holding the LST).

Lowering the hurdle rate decreases the operational costs of the Hub’s LST service providers, meaning that defi incentives could potentially be allocated across a broader suite of products or, at the very least, acts as an additional incentive to convert your staked ATOM to LST-denominated ATOM.

Would be keen to get @effortcapital ‘s opinion on this though. I think it’s important that we don’t have multiple parties trying to make the same changes and negatively impact eachothers’ work. This happened on Osmosis with sudden and radical incentives changes that interfered with existing initiatives.

One other more controversial opinion. I think that this change should be accompanied by a reduction in the size of the Hub validator set by, at minimum, 30 validator slots. The size of the set is too large already and this is a great opportunity for the Hub to make a clear, unequivocal statement of that fact, while also meaningfully reduce the operational costs of ICS and increase validator revenue for the remaining validators. This change will reduce validator revenue by 50% while costs are already unsustainable for most, so a reduction in the size of the valset makes sense to increase these revenues (although it likely won’t move the needle by a ton here unless the size of the set is reduced by more than 30).

Reducing the size of the set could be done over multiple proposals in order to reduce the impact on affected validators or give people time to buy more ATOM to make the bottom of the set more competitive.

[Flamester]

You have to realise that there is a lack of liquidity in global markets. People will start investing in crypto again when the Fed cuts rates and gets the old money printers out again. Bitcoin will pump and alts will follow. The bear market is for building the functionality of projects. 20% interest on ATOM is amazing and probably the only thing keeping its price up as well as it is. It is currently only 85% down from the all time high compared to other projects in the top 50 that are 99% down. Buying ATOM now is very attractive with its 20% interest rate knowing that when the bull market comes back it will pump once again. That pump will flow money down into all the other parts of the Cosmos ecosystem. I’m a buyer of ATOM at the moment but I wouldn’t be if the interest rate was halved.

[jagachu]

I agree with this proposal and suggest it be reduced to less than 10%.

ATOM inflation should be halved, then halved again, ideally between 1.75% - 5%.

Small verification nodes can receive subsidies from the community pool to subsidize system maintenance.

The community pool should no longer fund projects that have nothing to do with the Cosmos Hub itself, but should instead prioritize economic development that benefits the Cosmos Hub.

20% of ATOM has high inflation, and the final result will be its own destruction.

[Pookybear]

Maybe a more gradual approche would make more sense. For example: gradual 2% decline in max inflation every year till 0% => which will make ATOM fixed max supply in 10 years.
or 3 or 4 % each year maybe to speed things up a bit till 10% and then see how to go from there.

BTW, actual inflation atm is already lowered to around 14% and ATOM didnt crash. So, worries about sell presure for ATOM when max inflation set to 14% inflation is unfounded and also when inflation lowered to 10% gradually it will not create problems imho.

[Santorini]

ts not my first 4year cycle and I understand btc dom/alts blood etc.
Money will flow again in crypto, but its not 2017 with 1000 tokens, but 2023 with 10K tokens + 10K meme coins. Buyers now have more options than before.

Proof of stake are suffering from inflation unless a hard supply cap is placed.

[Sephiroth]

Completely agree with all points. A strong NO or even No with Veto.