Thank you for compiling all the tokenomics propositions into a single, comprehensive summary. With various entities, teams, and individuals coordinating research from different angles, having a complete overview is crucial to grasping the big picture.
Quick Note: We welcome these reforms with excitement, but there is one important caveat. It is evident that the Hub has learned from past proposals that attempted to pass “bundled” reforms. Therefore, we hope to see this complex reform process refined and rolled out over multiple quarters, with each part subjected to individual on-chain votes to allow the community to vote on each aspect independently. Gathering as much feedback as possible before proceeding is also essential.
A second important takeaway from recent tokenomics reform relates to the inflation modification fiasco. We hope lessons have been learned from this painful experience. The key takeaway is that tokenomics reforms have many interdependencies among the parameters we seek to adjust, necessitating a global perspective rather than addressing them piecemeal. Assuming we can’t bundle them in a single proposal, it is clear that ordering them correctly is of utmost importance.
Our Suggested Order for the Reforms:
1. Vote Power Tax + Cubic Delegation
We believe this should be the first piece presented to governance because it has the simplest design and the fewest dependencies. This presents an excellent opportunity to kickstart the reform process. Additionally, this feature is relatively neutral: it serves more as a decentralization safeguard than an actual modification of the token economy itself. We also believe this proposal should pass governance easily if the initial parameters are defined through extensive community debate to ensure a common consensus before proceeding. We also stress the importance of passing this proposal quickly to align with an on-chain deployment alongside ICS v2 or Partial Set Security (PSS) expected with the v17 upgrade. PSS will introduce validator-specific rewards, potentially causing new centralizing forces, making the Vote Power Tax a timely preliminary safeguard.
2. ATOM Alignment Treasuries (AATs)
Introducing new consumer chains will significantly amplify partnership opportunities within the Atom Economic Zone (AEZ). Each new partner entering the AEZ creates exponentially growing cooperation opportunities. Therefore, AATs are essential to regulate and formalize these agreements in a scalable way.
3. Liquid Staking Tax
Following the addition of a validator centralization protection mechanism and programmable contracts to regulate economic cooperation, the next major task should be activating safeguards for liquid staking before we face a surge in demand. This reform will take time to fine-tune, and waiting to see the problem before acting would be risky. Currently, there is a fixed maximum limit on liquid-staked tokens, but research from @effortcapital and Blockworks shows we can take a more dynamic approach. We support this idea and believe it offers a durable way to control liquid staking.
4. Inflation Reforms
After the debacle of previous attempts, we hope a comprehensive debate will be reactivated on this complex topic. We also encourage the community to wait a few quarters after the introduction of PSS and the rise of Liquid Staking Tokens (LST) usage in the Cosmos before tackling inflation. We proposed long ago that the amount of liquid-staked tokens should be factored into the inflation formula, which could complement the Liquid Staking Tax. This is why we deem it reasonable to start this inflation reform right after. Moreover, validator economics will be transformed after PSS, and moving inflation without a comprehensive understanding of validator reward economics could disturb their ability to operate profitably, with potentially devastating effects on decentralization.
5. Community Pool Reform (Dynamic Tax + Reserve Management)
These two elements are intrinsically related and should be grouped in a single reform, even though we still encourage passing two individual on-chain votes to avoid controversies. This part of the Hub’s economy is the most sensitive to tackle, as balancing revenue and taxes is complex. Therefore, we believe it is necessary to wait until we have a fully functioning economy of PSS and liquid staking. We also think that some of the previously introduced taxes (vote power and liquid staking) could be redirected to the community pool. Being able to size these flows before a comprehensive reform makes sense.
6. Developer Revenue Incentivization Program (DRIP)
With all safeguards and dynamic taxes in place, the final piece of this puzzle is one of the most difficult to design: a new model to fund the Hub’s dedicated development for the decades to come. To quote the author @Noam: “development will likely only be completed somewhere in 2024.” This is why we think this is the least pressing issue on the list. It is still very important, but we believe the other reforms should be addressed first.
Conclusions:
In summary, we believe it is important to prioritize the tasks we face. Some need urgent attention as they are essential to the release along with the PSS introduction. This should be our immediate call to action to finalize specifications and vote on the Vote Power Tax as soon as possible. After the V17 release, the most needed feature is to get the AATs up and running to structure economic coordination effectively. In parallel, the community should quickly iterate on the vote power tax discussion and work to fine-tune the liquid staking tax parameters and specifications following the Cosmos Hub Improvement Proposal (CHIP) process. Only when these core new components of the economy are fully designed do we believe a real inflation debate can begin. Lastly, once safeguards, taxes, and inflation are sorted out, we should focus on reforming how we finance our community pool and support our builders and other public-good contributors in the AEZ.
Thank you for your attention! We look forward to gathering community feedback on our proposed order of reforms. We also welcome other ordering proposition to confront against ours.
Govmos
