[PROPOSAL] Set Max Inflation at 10%

Hub Proposals
84

You are assuming price stays same when supply cut in half. Price could more than double and validators would be making more. Think of ‘btc halving’ narrative.

Current model is broken either way because: infinite supply pushes price to $0. Meaning stakers will exit slowly and won’t restake which is happening already. Validators just selling tokens or will sell when prices improve. But little new stakers if we inflate to infinity. Meaning we are going to have bonded rate moving to 0 as well.

While some are trying to ‘save’ small validators and picking on maintaining short term bonding rate, others are thinking long term design issues and how to solve that.

1 Like
85

Let’s summarize: you suggest a major reduction in ATOM inflation and you are certain this will lead to a significant ATOM price increase. But, what if you are wrong and the opposite happens?

-We have many recent examples and data proving that major inflation reduction doesn’t lead to price increases: multiple Cosmos ecosystem projects did major inflation cuts this year, much bigger than what is being suggested for ATOM, being certain that a great price increase would follow, they were all wrong. You say that for ATOM it would be different, an exception? I remember Sunny saying on twitter that the major reduction in OSMO inflation should naturally lead to a good price increase, since less supply, well we have the data about OSMO after the major inflation reduction, and for many other Cosmos projects

-So, if ATOM price doesn’t increase as you suggest, or even drops further, after the inflation reduction, what will happen? Many validators will leave for sure, making the Cosmos Hub less secure and with less talent. Many investors would sell and invest in other tokens with better yield. Many stakers would unstake since the rewards wouldn’t be enough for the risks involved in staking, so the staking ratio would decrease well below 67%, making attacks increasingly likely. Since now the max inflation would be much lower, even if inflation raises to this value to encourage staking, it would likely not be enough so the staking ratio would continue decreasing. Then people would get very alarmed and regret it, how to increase the staking ratio back to 67%? and propose to increase the max inflation again so the staking ratio increases, and even if this is done it might be too late at that time

1 Like
86

I am not looking for major price increase but for PRICE STABILITY. In other words, I am fine with 20% or 10% yields so long as the token price remains the same. I am investing in ATOM for the yield first (income) and for the capital appreciation second (growth). I view ATOM as an income investment. The problem here is that that the token price is not stable. It is decreasing. I am trying to fix this decrease and get a 10% to 20% yielding instrument. I am simply trying to balance the supply and demand for the token to a where the price is stable.

Sentinel went through 2 inflation reduction initiatives, just did a 3rd one and it price bottomed at 0.00018 and is now at 0.00030. As far as I am concerned, they are are working on achieving price stability and accomplishing it. Another token that took care of its inflation problems was Akash. Akash is one of the best performing tokens out there this year with 300% returns. Its efforts to fix its tokenomics definitely brought supply and demand in balance which resulted in the token being investable.

I am trying to do the same exact thing with Cosmos Hub, but this is a bigger community with different characters and motivations in it. On one hand you have Jae Kwon and his team of adherents trying to build a super secure bridge hub using a novel incentive scheme which through inflation redistributes tokens from weak hands to strong hands/people committed to his vision. On the other hand, you have devs who rely on ATOM community tax contribution for their living expense. And on the third hand, you have crypto hedge funds like Effort Capital who are trying to get a 10x out of their investment. I am yet a 4rd type of participant who views this IBC bridge investment as a dividend utility/income investment (similar to getting dividend out of Shell). I think 3 groups here want inflation reduction and know how it can be accomplished. Jae is pretty convinced of the opposite and he had 33% veto power last time we did something like this.

But as far bring supply and demand in balance by reducing supply, pretty sure that will work if Bitcoin or Ethereum is any indication. When ETH started talking about sound money it was like $200-300 and couldn’t get above $600-700 for years. Look at it now. 2 years into a bear market and still at $1500. Controlling the supply works (it’s Econ 101. Thank you John Locke!).

4 Likes
87

Makes sense you think about yourself and what’s best for you. But for most validators, such a big reduction in revenues is a very serious issue especially in the current circumstances, so it should be compensated with a price increase, which is not certain at all whereas the revenue reduction would be certain. Now you say you don’t want inflation reduction because price will increase, but because price will stay ‘stable’.

You avoid discussing the example of Osmosis price after the major inflation reduction, and you reply with examples of much smaller tokens such as Sentinel, or tokens like Akash where price increase was mostly related to new tech developments rather than just inflation.

There is also demand in this equation. Assuming demand is constant, if supply is reduced makes sense price would increase. But if demand also decreases as the supply decreases? Even if there is price stability, now the yield would be much lower after the inflation reduction, so previous demand may leave since they look for higher yields.
Also, higher risk higher rewards is also finance 101. You want high yield on an asset with price stability? Sorry, but if you want high yield you have high risk. If you want stable yield in an asset with stable price, buy a flat in Switzerland and get rental income with a ~2% yield

1 Like
88

Comparing atom with osmo inflation just because they both have inflation doesn’t make sense imo.

Osmosis even if inflation goes to zero majority won’t buy to use it but only trade it.
CT has doomed it for upcoming months/years.

  1. Many people got burned at the pools (begun with UST, not osmosis fault that one)
  2. Devs/vals selling below May '22 ATL
  3. Devs/vals shitposting for atom and all cosmos
  4. Kuji (too many parameters here)
89

Cosmos is bigger than small validators that can’t meet ends. Mid size and large validators + atom stakers benefit from reduced inflation longer term. Small validators is a cost for decentralization which is excessive at this level of economic activity. Overpaying for decentralization/security.

90

I gave AKT and DVPN as examples because I understand the utility of these tokens. These are true app chains and their tokens have a very well defined purpose and market.

I really don’t understand the utility of the OSMO token. I understand Osmosis as a product (an IBC token exchange) and it is a great product I use all the time. But I don’t understand the utility of the token. As far as I am concerned Osmosis is something that should be secured by the Cosmos Hub, part of the AEZ and ATOM should be used to pay for transactions. Cosmos had this project Gravity DEX a few years ago and basically Osmosis is the new and improved Gravity DEX. I have always agreed with the idea that Cosmos Hub should have an IBC token exchange but for technical reasons it should be a different chain (if it fails, the IBC transactions on the Hub are unaffected).

BTW I don’t understand the utility of the Uniswap (UNI) token either. I generally wouldn’t invest in pure DeFi tokens. In ample liquidity conditions, all kinds of non-sensical things can get priced at high valuations. In scarce liquidity conditions, if the token doesn’t really serve a real world purpose, it’s price goes to zero. You could make the case that OSMO token secures the chain, but now that Interchain Security is here (ICS), you can secure OSMO with the Cosmos Hub and the token loses value. I think that’s why it is going to zero. Basically the market is going to force Osmosis into the bear hug of the Cosmos Hub.

Speaking of Finance 101, high yield is not high risk. High yield is high utility. Energy investments are not high risk - they are high utility - you need gas to get from point A to point B or to run a machine in a factory. Treasuries which now yield 5% are also not high risk - in fact they are the very definition of AAA low-risk security. The yield is derived from the importance and centrality of the commodity.

High capital appreciation is what is high risk :slight_smile:

1 Like
91

Seems like “pro traders” areshorting the hell out of atom because of its declining value deriving directly from its inflation.
But yeah sure…Reeducate them…It worked well in the past

1 Like
92

With all due respect, I think you’re just wrong. The value of ATOM in terms of marketcap has remained steady and is actually on of the rare assets which managed to maintain the june 2022 lows even during FTX in november. Now if you looked at ATOMUSD, it seems more depressed indeed, but once again, you’re not looking at the right picture there. If you think the smart money makes such mistakes you really need to review this assumption imho.

93

TL:DR (at $7/ATOM and 10% max inflation, 5% commission, 67% bonded, and ~$600/mo to run a validator per chain):

Validators 1-89: Profitable or break-even if this went through running 2 consumer chains

Validators 90-115 would break-even or run at a slight loss since they cant soft opt-out with 2 consumer chains currently active

Validators 116-160: Can soft opt-out and are profitable running just the Hub

Validators 161-180: Unprofitable today and would be slightly more unprofitable if this went through

I am in favor of this. The Cosmos Hub is overpaying for security relative to its peers and it is ALSO distributing this security budget poorly where top validators are making out handsomely while some validators in the lowest quartile of the active set are running at a loss at current ATOM prices (but not all).

image
image1600×630 53.2 KB

With the recent increase in minimum commission to 5% and a drop down to 10% max inflation at 67% bonded, all validators with >150k ATOM delegated to them (160 out of the 180 validators in the active set) would STILL be running at a profit at current ATOM prices if they have opted out of running the consumer chains (any validator with less than 288k ATOM delegated, aka bottom 5% of VP, can opt out).

The validators right on the border of the soft-opt out (in the top 95% VP) that cannot opt-out of running consumer chains are the ones in the worst position, but would STILL be break-even with running 1 consumer chain but would be currently running at a loss of ~$7k/yr. We are in peak bear market conditions, and in my opinion, guaranteed profitability should not be expected by everyone (stakers, validators, etc).

This is also assuming validators don’t own any ATOM personally (which is likely not the case).

The right path is to lower inflation AND introduce a Vote Power tax that aligns validators and also can generate a baseline of earnings for all validators. Please see my post here that outlines how this VP Tax would work, if implemented.

In conclusion:

  1. Hub is overpaying for security
  2. Hub is distributing this inflation poorly due to poor distribution of staker
  3. Overwhelming majority of validators would still be PROFITABLE or BREAK-EVEN with this decrease in max inflation when you consider the soft opt-out and the new min commission
  4. Lower inflation and implement VP Tax
14 Likes
94

Osmosis post-inflation price action was debunked in earlier comments. The reduced inflation was mostly reduced incentives which meant reduced liquidity & since most liquidity is in OSMO that means selling OSMO, so not much actually changed for supply dynamics.

1 Like
95

People are focusing a lot on this as an aims to increasing LSD adoption but I’m not sure where that started. LSD adoption is aided by high staking yields so in reality this would decrease LSD adoption. If the Hub is going to limit LSD adoption by capping total supply, it needs to allow liquid ATOM to be viable for non-stakers, which means reducing the long term dilution.

On a related note, stakers aren’t the only “aligned” participants in the ATOM “network”. Holding ATOM even if liquid is putting your capital at risk, staking just adds another layer of risk. If we are forcing new holders to stake then there will be less new holders. The first step can’t be the riskiest step, liquid ATOM holders are still beneficial to the ecosystem.

Price will lag, that’s not a good short term indicator so let’s not throw this out bc “we won’t see an immediate price change”.

2 Likes
96

With all due respect, I know you’re wrong…This is a simple ATOM/BTC chart…ATOM is going for its 2021 low (beginning of 2021), he’s not holding anything. It’s getting killed. Pl

image
image1587×891 52.5 KB

1 Like
97

With all due respect, I have 13y+ experience in full time trading and without any pretention, I think I know what I’m talking about. Professionals will look at the market share, both in general terms (ATOM.D) and in a competitive environment (against DOT mostly). It will ALWAYS be measured in market cap terms, not in dollar denominated price. None of these charts shows weakness to me, support areas instead are there. But I agree with you that supports can be broken. On that front this is a matter of risk management, which I’m not going to get into here.

image
image3209×1824 385 KB

image
image3209×1824 259 KB

1 Like
98

Lol…Okay, pro trader. Everything is a okay in ATOM kingdom I see.
Will keep my ATOM short open.

99

Let @effortcapital cook :fire:

3 Likes
100

Why not Implement VP Tax first and then lower inflation contingent on VP Tax proposal passed and implemented? Think about it, what if it is the other way around, inflation is lowered and then VP Tax is not approved? If to lower inflation the implementation of VP tax is a requirement then both proposals would likely pass. Otherwise, the likely outcome is inflation is lowered and VP tax forgotten or not approved. Or another option, add the change of parameters both to lower inflation and for the VP tax in the same proposal, so if it is approved both the VP tax is implemented and the inflation lowered at the same time

101

Regardless of VP Tax or not, overwhelming majority of validators are still in good shape if this passes.

If you are in the bottom 5% VP and are not opting out of running consumer chains, that’s a personal business decision and shouldn’t impact the wider Cosmos Hub inflation schedule.

IMO the VP Tax is not ready to go forward yet, but will be soon. It will not be thrown to the side regardless if this change of inflation passes or not.

4 Likes
102

What the hell is voting power tax? Tax that will urge big validators to launch another copy to distribute their stake among 2-5 their new additional validators? This idea is even more awful.

103

Push the prop asap please.

1 Like