[PROPOSAL] Set Min Inflation at 0%

EDIT: PLEASE STOP MAKING RELATION BETWEEN THIS POST AND JAE VISION
THE CURRENT PROPOSAL IS BASED ON NATURAL ECONOMIC NEED TO REDUCE THE EMISSION
AS PROPOSAL 848 PASSED, WE ARE PRETTY SURE THERE WILL BE A NEED TO UPDATE THE MAX INFLATION IN FEW MONTHS TO ADJUST AGAIN

Regarding the proposals discussed in the Cosmos community forum [PROPOSAL] Set Max Inflation at 10% and the current proposal found on Mintscan, it’s essential to address a specific concern. While setting a maximum inflation rate is a valuable parameter for encouraging staking and ensuring network security, the primary issue lies in the proposed minimum inflation rate of 7%. This minimum rate implies that, theoretically, even if 100% of the token supply were staked, the network would continue to produce an additional 7% of tokens annually. This situation raises concerns and, to my knowledge, doesn’t align with any other functioning blockchain model (even outside).

The rationale behind setting the maximum inflation rate at 20% is to generously reward those who contribute to the chain’s security, especially in scenarios where a significant number of participants decide to leave the network. This encourages new participants to join and incentivises existing stakers to either increase their stake or remain actively engaged.

Additionally, we must consider the introduction of consumer chains and the potential revenue they could bring to ATOM token stakers. This introduces a new variable that we should take into account. It may not make sense to maintain a 7% annual emission rate (assuming 100% bonding, which is unlikely) if the revenue from consumer chains becomes substantial.

One potential solution is to adjust the minimum inflation rate to 0%. This adjustment offers flexibility and allows stakers and investors to fine-tune the total percentage of bonded tokens based on the incentives provided by the emission rate in the absence of specific revenue from consumer chains. Alternatively, stakeholders can choose to allocate a higher weight to staking if consumer chain revenue turns out to be significant.

Cosmos has a strong and dedicated community of believers. While some might no longer align with the project’s initial vision, it’s worth noting that Cosmos is designed to accommodate such scenarios. If individuals find themselves diverging from the core narrative, they have the option to explore other blockchain projects, such as Bitcoin Cash or Bitcoin forks that have undergone similar plan changes (lol).

The positive aspect of Cosmos is its adaptability, allowing users to easily generate their forks or chains and pursue their unique visions. I’m open to further discussions on this topic over the next week, after which we can proceed with deploying the proposal on the chain.

Best regards,

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aree with this proposal, the best way

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Good ideas. Because I can say anything here like how many people support this proposal that on ground team.

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CONTEXT:

In response to the recent proposals regarding setting the maximum inflation rate at 10%, there is a crucial concern about the proposed minimum inflation rate of 7%. While establishing a maximum inflation rate is important for staking incentives and network security, the suggested minimum rate poses an issue. The concern is that, theoretically, even with 100% of the token supply staked, the network would continue to produce an additional 7% of tokens annually, a situation uncommon in other functioning blockchain models.

ANALYSIS:

The rationale behind setting the maximum inflation rate at 20% to reward contributors and incentivize staking is valid. However, the introduction of consumer chains adds complexity to the equation. The proposal suggests adjusting the minimum inflation rate to 0% for flexibility. This would allow stakeholders to fine-tune the percentage of bonded tokens based on emission rate incentives, especially in the absence of significant revenue from consumer chains.

CONCLUSION:

While the proposal acknowledges the adaptability of Cosmos, it is crucial to consider a more comprehensive approach to the inflation debate. The current focus on minimum and maximum inflation rates might oversimplify the issue. There’s a need for a global inflation reform centered on a formula for adjusting inflation, backed by competent economic knowledge, data analysis, and mathematics. This approach would ensure a more nuanced and informed decision-making process aligned with the reference quality expected in Cosmos governance.


We invite the governance to start a dedicated topic on the formula’s reform instead of adjusting the parameters independently without a comprehensive framework. We think this reform should be data driven.
Thank you for reading,
pro-delegators-sign

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why you don’t just copy/past the 3 or 4 Jae’s sentences saying “yes to min at 0” and “if you don’t like the current model, leave”

would be much simpler and people could see where your alignment goes

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So if Jae leads a drive to lower Min Inflation to 0% we would have a situation where Min Inflation is 0% and Max Inflation is 20%. This makes the range of possible outcomes for the 10 year supply picture of ATOM even larger making it impossible for investors to plan ahead. In addition, he has expressed support for more rapid changes of the inflation rate. This increases the volatility/turbulence levels of ATOM supply making it more event driven. This event-driven 0% to 20% inflation range is basically what the Fed does to set interest rates for the US dollar. The Federal Reserve has a monetary policy making committee called the Federal Open Market Committee (FOMC) that sets interest rates. The committee is made up of representatives of the US government and the US banking industry. In the case of ATOM, the monetary policy making body (the FOMC equivalent) are the token holders like Jae and big validators who can determine whether inflation is 0% or 20% by bonding and unbonding their stake around the 66.67% threshold. Let’s not forget that Jae is one of the largest ATOM holders and he singlehandedly can move the staking ratio depending on his own bonding and unbonding decisions effectively making Jae a chairman of this monetary policy making committee.

Making the supply completely uncertain and centralizing decision making in the hands of a few large stakeholders and delegates who are using other people’s money as voting power is a direct copy of the Wall Street’s Federal Reserve central banking model. The users and investors in the currency (ATOM) are completely at the mercy of this central committee of big validators and large token holders like Jae. The top 10 addresses holders of ATOM control 25% of the stake with the very top one holding more than 5% alone (or nearly 20 million ATOM).

One of the core principles of Bitcoin (and crypto in general) is supply certainty. Everybody knows what Bitcoin’s supply schedule is. Crypto is not just about decentralization but also about supply certainty. Jae Kwon routinely changes his mind about supply issuance. He makes promises about something and then changes his mind later based on some reason. Now his latest bait-and-switch is who he will grant GNOT to. He was going to take a snapshot of ATOM stakers in Prop 69 but now he doesn’t want to do that. Jae is also running at the moment what is traditionally known as a short selling campaign by actively taking advantage of low prices to discourage other holders of ATOM and accumulate their stake. He has repeatedly called for other people to sell their ATOM and leave. He didn’t do that in 2021 when ATOM prices were high near $40 but he is doing that now when prices are low. Jae will retain firm control of control of ATOM supply issuance by backroom dealing with large validators. He has been doing that since ATOM was created. ATOM’s monetary policy decision making is thus about as opaque and “corrupt” as it gets in the crypto industry. Jae Kwon simply wants to be the central banking chairman of his own currency. The only sad thing here is that neither Jae nor his validators have anywhere near the economic competency of the FOMC committee.

If this proposal passes then ATOM becomes even more of a pump-and-dump token.


2023-11-24_191642

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So is it like, whatever Jea says is wrong and harmful for the Hub?

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Endorse setting Min Inflation to 0.

Consider this to be part 3 of the Halvening trilogy.

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Love this plan. This combined with changing the inflation rate of change with compliment other changes beautifully.

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Stopping wallet providers from running validator nodes may be too ambitious, but we think if the community votes and approves something that says wallet providers must display validators to delegators lowest stake at the top of the list and highest total stake at the bottom of the list, it would be a great first step toward decentralizing the voting power.

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People often think that validators with lower stake are more “unreliable”. They assume it’s probably some guy with a computer at home and who knows how good of a computer admin they really are. As such people think there is a higher risk of slashing. They would rather go with a validator that sounds more professional that probably has some IT staff that keeps the machine up and running at all times.

Ordering by stake from top to bottom is likely to lead to less staking or lower bonding ratio. I have seen similar attempts at other chains (Avalanche) and I was turned off. Avalanche pretty much made it impossible to find the holders of the highest stake in wallet. It was a just a random list of unnamed validators - their identification was their blockchain address.

I understand your intent and welcome it. However, I think to get this done you need to solve for people’s perception of validators with lower stake being unreliable. Maybe some uptime statistics can be collected and then the display shows an ordered list of highest uptime and then validator stake. So something like

SORT BY Uptime DESC, Stake ASC

I think that would work better at decentralizing stake. I think Stride selects the liquid staking providers based on their 6 month uptime. They have some criteria. That same criteria can be used by wallets.

If the wallet list recommends a low staking provider and then some noob selects that and you have a slashing event and the noob loses some ATOMs, they are going to rage quit and smear the wallet and the network online. I think that is why wallets show the biggest validators on top. People naturally have a notion of quality/hierarchy and they tend to select the top of the hierarchy. I don’t think it is a good idea for wallets to recommend and steer users to bad quality validators.

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You need the equivalent of $95,000 to get into the active set, so I don’t believe there are very many low quality Hub validators. There are very few maybe even none that are just an address.

In the forum post I linked to we pointed to Polygon MATIC as a case study. Their staking dashboard default is to display the validators with 100% uptime first from lowest stake to highest. As validators miss blocks they descend down the list and work their way back up over a 2 week period. Their dashboard also has the option to click a dropdown box and sort the validators based on several different metrics, including total stake.

Educating delegators is key, but not easy.

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Minimum Inflation Rate : A 2-3% minimum inflation rate could be more appropriate. This ensures a steady token emission to incentivize staking while limiting inflationary impact.

Dynamic Inflation Mechanisms

  • Inflation Rate Adaptability: we could Introduce a mechanism that dynamically adjusts inflation based on the staking ratio and the economic performance of consumer chains.
  • Reference to Ethereum EIP-1559: let consider mechanisms like Ethereum’s, where inflation is offset by token burning, for a balanced approach.

Incentive and Revenue Diversification

  • Incorporating Consumer Chains: If consumer chains generate substantial revenue, these revenues could be shared with stakers, offsetting potentially reduced rewards due to lower inflation.
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Yes. I think Effort Capital wanted a 1.5% tail emission. Or maybe that was the ATOM 2.0 proposal? The 0% min rate is Jae’s idea that he mentioned in a Twitter discussion with @effortcapital. I personally am more of a tail emission guy. But that is for blockchains with set monetary policy. In this case we have programmable rules-based monetary policy. If we set the Min inflation to 0%, I highly doubt when reached this value would stay pinned at 0% forever. If it does stay pinned at 0% that means fees are good enough revenue for the stakers. So I am not opposed to a 0% threshold in principle, although at this stage in the game I think 7-10% inflation range is the correct range (around 8.5% average inflation over next 2-3 years). But you know, if we set the min threshold to 0% then we let the market determine the value. Until fees from consumer chains ramp up, I think we’ll be hanging out around 10% for a while.

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I think setting 0% min inflation effectively creates a mechanism to discover when AEZ revenue has become sufficient that the ATOM supply can become fixed.

If ATOM holders feel incentivized to stake at 0% inflation, it means that revenues from AEZ activies have become sufficient to secure the network.

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The token inflation rate is the price of decentralization. If you get out of staking and securing the network, your governance power is inflated away—this is a powerful way to keep a public network resilient against takeovers by the indifference of concentrated wealth. (The BlockWorks research on lower inflation rates on other chains fails to properly factor the level of centralization those other chains have relative to Cosmos—when you depend on lots of widely distributed individuals, inflation is the only way to coordinate them.)

Setting a 0% minimum inflation rate effectively means that ATOM has reached a final (or foreseeably final) level of decentralization that everyone is happy with. This, coupled with 848’s inflation reduction, simply restricts further decentralization.

In point of fact, the ATOM supply should never become “fixed.” Such an agenda simply turns ATOM into a speculative asset or security, not a governance token—or, for that matter, even a monetary token, which supply/demand do not affect the purchasing power of, only the rate of interest on borrowing against. Hoping to fix ATOM’s supply is a profound misunderstanding of the very technology being discussed.

A potentially better solution might be to reduce staking rewards to non-voting stakers and/or validators, to further incentivize decentralized participation while cutting overall issuance.

I don’t think meddling in supply issuance has anything to do with the Hub’s market cap and won’t magically create more purchasing power for the token without delegitimizing the Hub and ecosystem, similar to kings clipping their coins and hoping nobody notices. History seems to indicate that people do eventually notice this monetary meddling, and those kings are not fondly remembered in our time (or their own) as economic leaders.

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@Lil_D
Wasn’t Jae making the argument that high inflation transfers ATOM coins from weak hands (non stakers) to strong hands (stakers). That was the whole point of the high inflation he had implemented. That is an argument that inflation is increasing centralization - putting more of the ownership of the network in the hands of the large stakeholders. Validators are able to acquire even more stake than large stake holders because they skim 5% of the rewards of their delegators in addition to whatever they have themselves at stake.

Generally speaking, inflation without active fiscal policy centralizes monetary power. This is called the Cantillon effect. Decentralization is only accomplished through some form of redistribution - the newly printed inflation is given to non-stakeholders (by law or “fiat”, hence the name “fiat currency”). This is certainly not happening in the programmatic rules of the Cosmos Hub where inflation goes entirely to the stakers. Jae made the good point that people are miscalculating the return. If the inflation is 20% and about 2/3rd is bonded, only those 2/3rds actually gather the inflation benefits and as such the return-on-staking (ROS) is actually 30%. Let’s give a simple example of 100 tokenholders and 66 bonded, each one owns 1 ATOM. Next year, you print 20 ATOM and you give them to the 66 bonded. The total network is now 120 ATOMs, but the 66 have 20 more among them. 20/66 = 30%. The 66 now have 86 ATOMs vs 34 unbonded. Their ownership in the network went from 66% to 71%. Voting and ownership power definitely gets more centarlized in this system and if any of the 34 sell their tokens on the open market to stakers due to dilution of value, the network gets even more centralized.

In other words, lowering inflation weakens the centralizing forces currently in play.

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@zaki_iqlusion and @vixcontango bring up excellent points. I fully support the 0% min inflation floor.

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Currently, I cannot say I support this proposal.

In theory, this sounds great, but…

  1. ATOM is a governance token. This time last cycle, ATOM was a little below half the price it is now. If the idea is to one day have such low inflation that demand outweighs supply, the price will go up. This is problematic for voting rights as the barrier to entry to have any voting power will be much higher. If we think we have a problem with whales throwing around their weight now, wait until ATOM never dips below $20-$35.

  2. This isn’t to say that shared security one day can’t become the gold standard of staking and staking rewards - but I don’t see a world where I stake my ATOM and I get back very little or zero ATOM. While the rest of the basket of tokens maybe super great, if I stake ATOM, I want a percentage of ATOM worth my stake as a reward.

While I am not against lowering the minimum inflation, I do not believe 0% is the number.
I am thinking 2%-4%.

  1. Individuals who stake ATOM will always see some level of ATOM rewards worth staking for with minimum inflation at at least 2%-4% of ATOM + the basket of other tokens. If I stake ATOM, I want ATOM.

  2. It will keep a check on price growth. We don’t want the price of ATOM to become so outrageous, people can’t afford the right to vote. The Cosmos Hub would be controlled by a few whales and be very centralized.

Let me know if I got this right as my current assumption is, “a zero inflation rate = zero ATOM staking APR”. I do know getting down to the minimum of zero would be very difficult, but inflation anywhere sub 2.5% doesn’t seem like a good idea. Change my mind.

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  1. I think right now every account can vote regardless of ATOM amount. I am actually of the opposite opinion that minimum economic interest should be present to vote. Let’s say $10. If you have that as a threshold, you can always configure the setting to be that number regardless of ATOM price.
  2. You can always convert your rewards to ATOM. Maybe at some point having an option to receive rewards in ATOM (ie automatic swap from token to ATOM on an exchange) could be made once that becomes a real issue.

Getting down to 0% inflation and replacing inflation income with fee income is hard for standalone chain - even the best ones - but with ICS, ATOM has the best chance of pulling it off, imho.

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