Updating Mina’s planned inflation and block reward schedule from the original tokenomics

Economics Idea
#7

I am also supportive of this proposal but I have 2 concerns

  1. The significant reduction of supercharged yield which advertised and documented higher for some period of time

  2. The fee burning mechanism and possible aim for negative inflation. It’s set for years later while that requires significant on-chain user activity. That will only happen after building and utilizing a huge ecosystem. While making assumptions are ok the negative inflation part will be taken out of context most of the time. It will hurt the ecosystem if it gets forced into before the ecosystem settle. You mentioned a more complex fee structure etc while we need to see that system work before. The existing fee snark system is not working at all.

2 Likes
#8

I agree with you. We need to slowly reduce the block reward and disable the super-charged block reward.
I also agree with you that the burning fee is a good idea but it has to be considered, reviewed, and researched carefully and any mechanisms should need to be tested on devnet/testnet before it can be implemented on mainnet. We need more user data to analyze and choose the right method.

One thing I think it’s also related to the tokenomic is the address creation fee. Is it burned, right? It also affects the users and developers, who directly create and use Snapps. I think we also need to talk about it here?

It seems that my proposal is also your init idea, but I want to refer to it again at here

Another thing is the snark fee. I think we need to have a mechanism to let the blockchain manage it automatically instead of manually set by node operators. I saw there’re snark fee shocks sometimes when there’s a high demand of txs and snark jobs, but low demand of snark workers and the difference of snark fees are too high.

2 Likes
#9

The proposed reward schedule looks good. Mina Protocol has a very competitive reward tokenomics. MHO.

1 Like
#10

I agree with the proposal. It’s really original.

I support disabling supercharges and gradually reducing the block reward to such levels. Keeping unnecessary inflation at an acceptable level is good for the project.

#11

Thanks everyone for the feedback! I was trying to keep in mind all the different criteria across the community, so glad that it is sounding good.

To reply to some specific questions:

  • @EmrePiconbello the supercharged reward schedule here is intended to be the same as was in the original token economics, I didn’t want to change that too much. Let me know if that matches out, or where you’re seeing the difference
  • @BeaconChain That’s a good point re account creation fee, I think I was imaging it would become recoverable as you mention in that thread at some point, so I wasn’t thinking about it burning any supply. I don’t think it would be necessarily be that impactful though, especially if we go ahead with reducing the amount burned per new account as mentioned on that other thread - if it goes down to 0.25 Mina, at 1 million new accounts that’s still only a small fraction of supply (250,000 Mina) burned / locked up. I’d be curious on snark fees too, I haven’t seen any deep analysis of that market, but I’d be also interested on things like fee shocks.

I’ll try making a quick poll here too, if people prefer that way of giving input.

  • I think Mina’s tokenomics should stay the same
  • I think Mina’s tokenomics should adopt the schedule presented here
  • I like the tokenomics proposal presented here, but we should not include fee burning until that mechanism is better understood
  • I like a separate proposal not mentioned here (please comment below)

0 voters

I’ll mention as well a pet peeve I have on polls, you never learn why someone thinks what they do about something, so if there’s disagreement, its harder to find out why and understand concerns (I feel like US politics for example suffers from this problem). That’s why I think potentially pol.is and other tools like that could help giving more insight, but for now discourse’s polling tools are so convenient (and we don’t have that many participants commenting yet), so might as well use it for now.

1 Like
#12

Maybe, rewards for soft staking could be reduced, and at the same time locked staking with higher rewards could be introduced to have the desired effect with lower deflation.

I am sure everyone agrees on the benefits of soft staking. It’s a good incentive for the investors to stay in MP, it creates a positive social perception and also sometimes results in free advertisement (coming on top of staking lists). Yet, it comes with some disadvantages as well. The most obvious is, soft staking doesn’t convince the market participants that the staked supply will remain still if the price surges. Therefore, high staking rate might be looking like a masquerade ball to some. This alone is repressing the token price quite a lot, imho.

Should MP introduce locked staking with supercharged rewards (nothing extra in reality), I bet a big portion of the existing investors would take that deal (just like the ETH staking craze) as the community truly believes in the future of MP. This would reduce the de facto circulating supply immensely and give confidence to the market. Those who choose to continue with soft staking would get the reduced rewards and at the end the inflation rate of MP would be pulled down in real numbers as well.

If I am not completely mistaken, market participants really like projects where some of the once-freely-circulating supply is being locked (not the early investors’ and team members’ locked tokens) by their holders purely for their faith in the project. It creates a strong conviction and leads to more adoption.

6 Likes
#13

@evan I read the timeline wrong that’s mistake on my end while I believe if we are trying to cut the inflation we should aim the locked stake since that’s actually the majority of the inflation came from. The unlocked token amount should be still very small % considering whole supply. Also I am not sure exactly what’s the aim here while I believe locked stacking is likely to help. At the current state I don’t believe staking is creating any effect happen with staking considering other chains while doing that integrating dynamic reward % according to stake % would be cherry on top. Snapps are close I hope these can happen with on chain rewards.

To start with I believe our inflation is high overall. From my point reason is very high number of locked supply generating significant mina. Outside all I like these stuff considered as ecosystem improvements, considered more broadly and carefully vs cutting out inflation because when we just focus on inflation you can always go down while majority of the community never going to be happy with it no matter what (In short we mostly follow the whitepaper which should be know for majority of the community. From most people when they see no price increase in time frame. They just go for inflation so whatever we do majority of that group never going to be happy). Even we reach unhealthy levels which I already did see happen on other chains.

1 Like
#14

I agree that we need to reasonably reduce block rewards and disable the super-charged block reward.

However, for fee burning, we need to carefully analyze and research.
Fee burning may easily create the illusion that it can wait for the value to rise as long as it is passively held. In the early stage of ecological development, we need to keep users able to enter mina world at low cost and encourage users to participate in mina’s ecology. After all, the increase of users and ecological development is the basis for mina’s value growth. Therefore, if fee buring is applied, we may need more data support and scientific mechanism design.

3 Likes
#15

I agree with you Comdex / Currently Minas low cost of participation is one big advantage we cannot lose by introducing high fees. Additionaly, my understanding about Snapps, is that at some point MP will be included, thus high cost of the same, might block large adoption of this new Technology.

1 Like
#16

I agree with this update. But we need a more data for apply the mecanism for the inflation now. If we decide use the mecanism inflation can create a lot of speculation and we can lose a lot of user in world. If we imagine Mina is equivalent of Android and we need a lot of participation from user.
For the rewards, i think we need to apply 2 mecanism ( lock 1 month and openworld ) for all user, we need a lot community in dev .

#17

Staking percentage will probably stay very high no matter what the supercharged rewards are, but I wonder if token distribution would end up being more centralized. As a passive staking delegator, I am getting diluted by vesting mina with or without supercharged rewards. But it’s slightly more tolerable if I can achieve a higher staking reward than unvested mina. Token holders want to lower inflation, but in my experience, what they mean by inflation is vesting mina entering the circulating supply, not the actual inflation on total supply.

I’m not voicing a specific opinion on this, other than a general sense that if the only lever to combat inflation we have is to lower staking rewards (BR or SCR - so assuming that burning locked tokens, removing locked tokens from eligibility to stake, etc… is off the table), and the community continuously votes to lower them, then normal crypto investors might choose to leave mina, and sell their tokens back to whomever will buy them. I suspect those people would be the type of people that already have many tokens and are heavily involved in the community/ecosystem.

Generally, I think as circulating supply approaches total supply, reduction in rewards will be more palatable to token stakers.

2 Likes
#18

if you are always staked, why do you think you would get diluted either way? If your coins are locked then you won’t be if there was no SC rewards. If your coins are unlocked then your % of ownership of the chain should increase slightly.

#19

In terms of total supply, you are absolutely right.

But in terms of circulating supply, it is my understanding that backers will be unlocking 10m mina per month for many more months: https://minaprotocol.com/blog/mina-token-distribution-and-supply

That combined with locked tokens vesting for core team, MF, and 0(1) absolutely dwarfs the additional 1440 mina per block that supercharged rewards offers.

I agree that if the only metric is staking percentage, then lowering SC makes sense, and you might as well make it 0. It’s stupid easy to stake, there’s essentially no barrier to entry. But to combat inflation, I think we must think about 2 types of inflation. There’s circulating supply inflation, and there’s total supply inflation. As long as circulating supply inflation dominates total supply inflation, total supply inflation doesn’t bother me.

Struggling to attach an image here, but some “rough numbers” might look like someone buying 1000 mina at a circulating supply of 100m mina. They get 24%, 24%, 23%, 10% apy, and after 4 years the circulating supply is 1b mina. They have 2100 mina. They started with a thousandth of 1% share of circulating supply, they ended with 21 ten-thousandths. If instead they get 24%, 12%, 11%, 10%, then they end up with 1700 mina, or 17 ten-thousandths of circulating supply. Crude numbers, but the broad strokes are there.

I guess my point is either way, there’s insane downward pressure on price for people who just buy and stake the token. SCR give that group a little something for their trouble, and their trouble is making the market for insiders to sell into, so they are certainly providing a service. Since insiders earn BR, but not SCR, it’s easy to vote to stop offering SCR. But while millions of mina per month are being released into circulating supply, I think it’s a little penny wise to be thinking about the inflation impact of thousands of mina per month. I wonder who will be buying this millions per month, knowing that there is millions more coming next month, and as a token staker only, every other demographic in the mina ecosystem is on the dole, except yourself.

I’ve long-been an advocate for the good sense this tokenomics espouses: productive members of the ecosystem get grants, salary, etc… and token holders get diluted but to an acceptable amount after staking rewards and the economic value the other members provide. I think the original economics whitepaper SCR makes sense. I’m just providing the devil’s advocate here, and the case against thoughtlessly lowering SCR. SCR are an incentive module to buy up investor tokens as they vest and sell. It’s another form of community reward for a different kind of community member. Inflation hawks could come here and propose burning community grant funds to raise token price, but I doubt that would be so unanimous as reducing rewards for the “public investor” class, since people on this forum are recipients or hopefuls to receive that money.

Edit: I wrote “thousands of mina per month”, which is not accurate. SCR are also millions per month. But that error does not affect the napkin math of stakers getting diluted by locked shares vesting. As the circulating supply goes double or triple per year (for the first 2 years mostly), people growing their stack by 24% are getting diluted in terms of circulating supply. That is clear. Though in terms of inflation, it is obviously relevant that SCR are on the order of thousands per hour, not thousands per month.

3 Likes
#20

Very thoughtful and informative post, thank you! I guess what we are after are conflicting in some sense: as you said, SCR is needed to encourage people to buy and stake Mina, in part to combat the inflation of circulating supply; on the other hand, the SCR and BR are themselves the reason of high inflation, and they are what this proposal are aimed at addressing, albeit with a smoothed, long-period adjustment that conform to the original tokenomics to a large extent.
Either way, the downward pressure will still be there. I guess the most efficient way to combat that is through tech and ecosystem development on the mainnet. Solana and Avalanche have both achieved 100x in price, with the former having a massive token unlock and the latter 10%+ inflation.

2 Likes
#21

Not totally Agree, I’m ok with some parts like fee burning. This is the new trend in crypto and helping pressure on supply. But just cutting down supply is not helping to more price up. At the same time, we should see use cases on the mainnet. Except the current community needs reasons to buy and spend mina and we cannot create a new tokenomic scenario based on the current community. The community is already believing Mina. That’s why more than 90% of staking and supercharge rewards are boosting their thoughts. If we remove supercharge, I believe, we’ll see a lower delegation rate and that will be a reason for the increasing circulation supply and the price will be under sell pressure. We should not remove supercharge rewards till we see real-world use-cases on the mainnet. But I’m ok with reducing Supercharge rewards a little bit more and the most important one, what will happen when we reduce block rewards? People will buy more mina? will it create new cashflow ?

Also, I’m not believing in a periodic check of 82.5% and fine-tunning on tokenomic. This is not looking sustainable and manageable. What we’ll do if we see under the threshold? are we gonna change tokenomic again? We should not periodically change tokenomic. not looking professional.

By the way, These are my thoughts. But the Turkish community has different opinions. They are always complaining about like supply is too high. People are just checking current supply, speed of increase, similar projects supply. They are missing the use case factor which we saw in the other projects that are currently created ecosystem.

in a nutshell,

  • Apply fee burning ASAP
  • keep current BR as is
  • Reduce a little bit more SCR but not totally remove till real-world use cases
5 Likes
#22

I don’t know if it is feasible, but what about the solution to have a second token on the Mina blockchain ? For example $MINA tokenomic could be modify to have a deflationist token, and the new token could be use to remunerate the block producer and staker for example ? Or maybe a stablecoin could be used ?

#23

I am a long-term investor in mina, the first reason is that I believe in the project, the second reason is the promised rewards. I think that every mina that comes when I spread it over a long period of time will be very valuable after 3 or 4 years, and I do not want my rewards to be reduced by embarking on an adventure whose outcome will not be known. Those who don’t want inflation can stop staking and sell them :slight_smile: sorry for my limited english. thnx.

1 Like
#24

Awesome to see this conversation and very thoughtful contributions throughout!

On whether Mina’s staking rewards being competitive in the market, it looks like we’re roughly in the middle of the pack both in pct of the protocol supply and dollar cash flow. I pulled a few comps from StakingRewards.com.

Screen Shot 2021-12-15 at 7.46.28 PM
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I think we’re in a reasonable place there and wouldn’t consider that a strong reason to change the tokenomics independently.

One good reason might be that every time staking rewards are paid, they lead to some downward pressure on the price, since some of that reward must be liquidated to pay for taxes. If you assume taxes are 25% and the price is stable, that would be about $100M of forced selling pressure each year. So if we, say, half the rewards, then it could save maybe $50M of forced sales each year. Not sure that’s a ton, it’s about 2/3 of the daily average volume.

Just throwing around some ideas and data, once again it’s awesome to see such a lively discussion.

Thanks to @evan for the proposal.

6 Likes
#25

I doubt whether mina’s economic policy really needs an update. people are currently buying it just hoping the price will go up. but when that doesn’t happen, they think it’s because of current supply rates. As a result, such complaints arise. people need to use and spend mina. snapps yes, but smart contracts are urgently needed. people will forget these complaints when they start using defi tools. mina’s primary goal may not be to produce decentralized financial solutions, but it has to do it somehow.

12 Likes
#26

I dont like either the fact that you start changing things. Many invest believing on the original vision and economics. I invested planning to accumulate x amount of minas on x time. Is not fair now to be forced to see that reduce or to hold even more time.

If you create the use cases there shouldn’t be the need to reduce the initial economics so work harder on creating the ecosystem instead of reducing your promises