[PROPOSAL] Set Max Inflation at 10%

Hub Proposals
104

Here is the idea presented by EffortCapital: Cosmos Hub Tokenomics - Fiscal and Governance Policy (Blockworks Research)

Please consider also that the cost for your calculation is only the basic infra cost, but you need people to manage and run nodes, perform upgrades, study and vote on governance proposals and a lot more, so real costs are much higher than those in your calculations. Considering the real costs only a few of the biggest validators are profitable now and after the inflation reduction. Most of the other validators are in a big loss today and would be in an even worse situation after the inflation is lowered

105

Everything that goes beyond not getting slashed is discretionary to each validator. Props to you if you offer extra services though.

2 Likes
106

Thanks. What I meant in the previous message was not about extra services which of course are additional costs, but ‘everything that goes into not getting slashed’ is higher costs than just the basic infra costs. Furthermore, you suggest that all validators stick to the bare minimum and stop participating in governance, improving the infra, performing upgrades fast, etc., since this goes beyond not getting slashed?

107

Some thoughts about the idea. First point is that I’m not sure if current market conditions are favorable to implement this change. I’m referring to other Cosmos projects that had a kind of halving this year, and the token price is suffering. In addition to that, this change would keep adding financial pressure on small validators.

However, such a change in economics under better market conditions could be an interesting idea.

There are different scenarios to consider with this change.

Worst case scenario:

  • The Cosmos DeFi landscape is still not well developed, with not many interesting things to do with your ATOMs and not many use cases
  • The staking yield is now low, leading people to start unstaking their ATOMs to sell the token and leave
  • Validators do not earn much money anymore and still have to run ICS chains, which are costly: too many are not profitable anymore and decide to leave and sell their remaining tokens
  • Price decreases and economic security decreases, leading to a vicious circle
  • Cosmos Hub becomes a ghost chain that no one cares about anymore

This scenario could happen only if nothing is done on the other side to bring more use cases to the ATOM tokens.

A good scenario would be:

  • More and more DeFi use cases are developed around ATOM
  • More users are onboarded and use DeFi apps
  • The price of ATOM increases as demand increases
  • Transaction fees and ICS revenues offset the loss in inflation

I agree that Cosmos Hub has a hyperinflation issue, but we also need guarantees on the other side that we have many more use cases for ATOM than we have now, otherwise I’m not sure if it makes sense.

Based on one of our studies that will be published soon, the Cosmos Hub is currently minting $367,361,725 annually for its security (assuming a price of $7 and inflation around 14%). This of course leads to a total supply that keeps increasing and a token price that would converge to 0 if demand remains stable. This hyperinflationary system pushes other projects to offer yields that are higher than the ATOM staking yield, forcing them to spend a lot of money and create an overall hyperinflationary ecosystem.

Of course, we need to change that. I personally don’t think that we have to maintain a 67% bonded rate. If we bring more use cases for ATOM, the demand, and hence the price, would increase, improving the overall economic security even with a bonding ratio lower than 67%. ETH has less than 20% and is one of the most secure chains.

Regarding this sentence:

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.

I would tend to disagree and say the other way around. Because the staking yield is high, I would be more willing to use the LSM and stATOM in DeFi to capture both staking and DeFi yield. But if the staking yield is very low, I would be more willing to unstake ATOM and capture a higher DeFi yield with my ATOM without having to accept liquid staking risks. I’m not sure if it will really boost the LSM, whether that boosts native unstaking.

1 Like
108

By discretionary I mean that it is not directly demanded by the rules of the protocol.

When it comes to what’s ‘‘socially’’ acceptable, I wouldn’t expect a small validator to do more than the bare minimum while a top10 validator should probably be more involved than that.

And I think that demanding perpetual 2 digit inflation so validators can cover their activities is trying to solve a problem with the wrong solution.

2 Likes
109

TBH I find this hard to believe, but I’d also be lying if I said I knew for sure (as I don’t run a validator).

Since Chorus One, a large institutional-grade validator, says it costs them $1200/mo to run a chain, and then you have validators like Larry0x who says it costs him $15/mo/chain.

You should be able to amortize the labor cost (more chains doesn’t necessarily mean more labor at a 1:1 rate).

The truth is somewhere in the middle and I doubt the truth is higher than $600/mo for a majority of validators but would love to see evidence to the contrary

5 Likes
110

Thank you for link. If you want to see results of such idea with VP tax you can check Moonbeam or Moonriver staking where validators launch multiple nodes just to get higher APR and kick normal validators out of active sets because of that. This is what will happen with Cosmos if this idea is implemented.

111

I replied to you already in the other thread here (Cosmos Hub Tokenomics - Fiscal and Governance Policy (Blockworks Research) - #22 by Cosmic_Validator), the formula created by EffortCapital prevents what you mention both in the case of large validators mostly with self-stake and also validators with low % of self-take

1 Like
112

Replied you there as well. If we take numbers from that screenshot with numbers in proposal I am not sure how it will be prevented.

113

This needs to be YTD performance of bags that are as fully staked as possible for each asset.

APY counts as performance.

Market Cap would probably be okay too.

But token price by itself is not a good metric for comparison.

Also BTC should be the base denom not fiat that gets central bank inflated w/ zero staking.

The resultant chart would be much more ‘actionable’ for Atom, whatever it looks like.

114

It’s not the inflation.

It’s the lack of unified vision. All the Hub has is governance. And it’s an ugly mess.

Literally any unified vision with broad community support would shoot the price up at this point.

Is low inflation going to attract billions in new capital when it starts flooding into the next bull run? No. That won’t excite anyone.

But a place to stake for security that protects its users, protects its community, has a warm fuzzy UX, has a long lock-up & low volatility, has a “Chamber of Commerce” that Joe user can understand, whitelists dApp urls, maybe offers member wallet insurance, sponsors tutorials, funds trusted user support channels, partners w/ tax reporting tools, owns mobile, and basically looks like all the good parts of Binance w/o the exchange -

That would absolutely Dominate.

The inflation would only bother “non-members”.
Inflation would come down and staking would go up because staking would mean access to services that ppl want.

Security as a Service is a whole suite of opportunities.

But honestly if Hub governance all came together to fund a deep sea vessel or a line of really good toasters the price would still go up.

Because not coming together has been the main problem. Nobody wants to invest in random chaos & mudslinging.

4 Likes
115

remove min limit and decrease max inflation rate to 12 %

we got it :slight_smile:

116

I am sorry but it’s the inflation.

If there is a “unified vision” obviously the community is not very decentralized. What passes for “unified vision” in ATOM these days is turning the Cosmos Hub treasury into a decentralized venture capital fund that is blowing ATOMs on every crazy idea out there (ie Cosmos mafia’s friends)

The only difference between the Cosmos Hub venture capital fund and a real one is that there will be zero accountability to the ATOM token holders for the massive losses.

4 Likes
117

Top 15 validator proxy voting is far (far far) more centralized than any broad community consensus & collaboration will ever be.

Capital flight from Atom to speculative app chains won’t return just to chase lower inflation.

“Less inflationary” is a good goal but it sure isn’t a value proposition to anyone staking or looking to stake. Current state of things - it’s more of a value proposition to ppl looking to sell $ATOM for a higher price.

You want to make the price go up real quick? Roll out an update that makes 100 proxy votes = 1 direct Atom vote.
If Binance & Coinbase & Everstake want 40m votes instead of 400k, they can buy 40m Atom.

118

Agreed on this point. More taxes = I’m out.

119

Dude honestly most of this stuff wouldn’t matter if we didn’t have such a doomer community. Look at Solana, the chain doesn’t generate profits and was unprofitable for validators below the 30$ range, still the whole community kept shilling the chain and the stack and it pumped, look at LINK, the price action was even worse and the LINK foundation sold all the way to the bottom, did the Link community fud the chain or the tech stack? NO, they memed about it and continued to shill → one of the biggest pumps

Kuji is literally doing the same stuff in the Cosmos community and it had the best price action…

I personally think that a lot of the people joined during the 2020/2021 bullrun and they don’t have a lot of experience with bear markets ->doomerism. Right now we have to fix the narrative game, every mechanism/measure which improves the narrative is beneficial.

If we had the shillers we would definitely be above 10$

4 Likes
120

None of these chains have 14% inflation. Solana is at 7%. LINK has max supply of 1 billion. KUJI has max supply of 122 million. The supply pictures matters A LOT. The Cosmos Hub is very unique in that it doesn’t have max supply and moreover its inflation rate can vary greatly over 10 years making it very hard to calculate FDV and thus to assign valuation. All professional investors make calculations based on a 10 year horizon. That’s why the 10-year Treasury Yield is such an important benchmark.

For price to go up, you need big money to buy the token. Professional money needs certainty. Demand is not certain so they crave supply certainty. They can’t buy the token at 7% inflation and 70% bonding rate and then a year later discover that inflation is 20% because some other big players unbonded, then go through 20-30% losses in the time it takes to unbond the token. In its current form and in tough liquidity conditions, the token is bottom of the pile in investment priority. People would much rather buy the bigger caps, more liquid, more certain supply picture.

I will give you an example. I recently put one of my houses for rent. Couldn’t rent it for 3 months. 30 people came over. “It’s on the main road”, “It’s too loud”, “The wind doesn’t blow from the West”. It’s doesn’t tick all the boxes for people so they rent other house. Had to drop the asking rent $2,000. Still wouldn’t rent. 2 years ago when everybody from New York was moving to the suburbs, I’d get 3 offers $1,000 more than asking rent within 24 hours. The liquidity conditions have changed and in those conditions weaker properties no longer trade at a premium. They trade at a huge discount. That’s basically ATOM right now. It’s simply not the best house on the block in crypto land.

1 Like
121

That’s literally not how it works in crypto, narrative is everything, we had 2 years of memetoken mania, the market cap for SHIB, Doge is still in the billions, useless ghost chains like LTC, XLM, BCH still have billion dollar market caps. ATOM can literally have 100% inflation and people would still ape with the right narrative.

And my point was that we should lower inflation, even if it is just for the narrative…

And the inflation argument is irrelevant if you compare the chains, Solana is not profitable… the validators were not profitable, so how do you think this business model is sustainable? I think LINK generates less fees than the HUB right now, it is all based on speculation and that they will succeed with the integration of tradfi, Kuji… it probably wasn’t profitable in itself, my guess is that the validators subsidized the costs with the HUB profits, this is how it works with the smaller chains, they run at a loss and subsidize the costs with the hub.

Imo this is a reason why we should introduce a validator/chain bond mechanism. Chains which use HUB validators have to bond ATOM, validators which subsidize other chains have to bond ATOM

4 Likes
122

Right. Speculation.

Atom is worth it’s potential voting power.

Which is currently given away freely.

123

great sir
Will the fact that inflation drops to 10% also lead to a lowering of staking rewards?
thx :blush: