Polkadot's Economics Parameters: Proposal 2 (8% constant total inflation)
Overview
The Wish for Change (WFC) referendum is part of a series of referendums aimed at probing token holders' sentiment regarding proposed updates to Polkadot's economic parameters. The key changes include implementing a fixed treasury inflow, removing the adjustment of staking rewards based on the discrepancy between the ideal staking rate and the actual staking rate, and potentially reducing overall inflation.
There has been extensive discussions in the community about this topic leading up to these referenda. Here is a reading list:
- Implementing a fixed treasury inflow
- Necessary upgrades to allow for governance changes of inflation
- Livestream with discussion on inflation
- Forum discussion on inflation
Rules
- Only a WFC that is executed can be considered a candidate (i.e., it must be gathering enough approval).
- If one or more WFCs are accepted, the one with more AYE votes (weighted with conviction) is considered the preferred candidate.
- Ideally, WFCs should be run mostly in parallel.
Important
The WFC referendum cannot be binding, i.e., there is no mechanism to force the chain to update the parameters to the one specified in the WFC. Instead, it is a method to aggregate the opinion of voters through OpenGov and offers some commitment of the community to one WFC on the social layer.
Ways forward
The goal is to put forward a root referendum after the WFCs ended that implement the logic of the winning WFC. The proposed parameters in each WFC would achieve their goals but it might be that it's more efficient to implement the code otherwise. Importantly, we agree on the outcome as stated in the REMARK of the winning referendum.
This WFC
The following parameters would achieve that:
MaxStakerReward: 85%
max_inflation: 8%
min_inflation: 6.8%
REMARK: 8% constant total inflation (on current total issuance) with 15% to Treasury
Comments (3)
Confirmation Period
3
of 3Decision Period
28 / 28 days
Confirmation Period
0 / 1 days
Summary
0%
Aye
0%
Nay
Aye (19)0.0 DOT
Support0.0 DOT
Nay (87)0.0 DOT
Voting Data
Approval%
Support%
Threshold0.00%
Threshold0.00%
GM Guys.
I am voting NAY on this proposal due to the fact that I am voting AYE on Ref 1139.
Reducing inflation will destroy the price. Go tell a real-estate investor that his 100 properties will now yield 50% less rent.
He's not going to buy more properties, he's going to dump properties and swap the capital for stocks, bonds or whatever to earn more.
There's no difference here. Telling exchanges (who recently were supporting price at $4) that their yield products are now worthless is going to force them to look for alternative yield-bearing financial products for their customers and they will dump DOT into oblivion to buy these alternatives, helping competitors as a result.
What community don't understand, is that DOT is currently an investment product - whether you like it or not - as majority of buyers (at this current time) are buying DOT to earn yield and future cap gains. They're not buying to pay for CoreTime or network fees. If you attack the main feature (i.e. the ability to earn) it will HARM the product and potentially kill it off entirely.
Also, exchanges offer yield products for their clients and DOT is used as part of that financial engineering in the backend. Exchanges were supporting the price at $4 recently because it's part of their financial backend to satisfy customer yield expectations, which are mostly re-invested. Those customers don't know that their capital was converted to DOT in the back-end and then back to USDT/C in the front-end when they cash out. If you now tell exchanges that their DOT yield is halved, they're going to look for alternatives and I predict they will dump DOT into sub-$1 territory where it will live for a very long time (2030 - due to vesting schedule) because that's the true demand for CoreTime sales (and network fees).
The people who want to reduce inflation falsely believe that the dumping is being caused by staker yield, but yet completely ignore the vested unlocks from the ICO which are higher than the stake yield. Over 400k DOT is being unlocked every single day from vested ICO funds, and the whales who bought that ICO and auctions (at an effective price 20c - 50c) are happily taking profits from $4 all the way to $1. Retail stakers who earn a poultry amount compared to ICO investors are compounding and re-staking, not selling.
To make things worse, the minor inflation sales that are occuring is THE ONLY MECHANISM to distribute the DOT currency to the non-ICO hands and decentralize the cryptoeconomics. Currently 70% of circulating DOT was premined (for pre-launch ICO/auctions), which means 30% of circulating DOT was yielded from that 70%. This is too centralized and IT NEEDS to distribute to retail hands in order to build a strong decentralized community. Reducing inflation ironically centralizes more DOT for longer as distribution stays within insider hands.
If you want price to go up you need to, counter-intuitively, RAISE inflation which means more people will buy more DOT to earn more yield -- because DOT is an investment product for the market right now and people want to earn money (despite what the narrative from the tech team is). This has been proven in crypto time and time again - high APY coins pump hard and they dump as APY goes down. Solana's effective inflation is higher than DOTs and it's HELPED Solana, since pumping price attracts degens and speculators, memes and hype and creates positive snowball effect. Obviously there is a sweet spot with inflation but Solana proves current rate is not even close to it.
Sorry to say but DOT community have proven to be economically ignorant by believing the baby narrative that "less inflation = higher price". This is the "Peter Schiff" school of rekt-onomics and it doesn't work like that. Nations reduce inflation when economies are too hot and they increase inflation when they're too cool. The complete OPPOSITE of what is being proposed here.
Messing around with the cryptoeconomics at the fragile lows and right before a big bull will potentially go down as one of the dumbest moves in crypto history.
Hope people with a brain read this because I'll likely be reducing my DOT exposure if this happens (guess what, many investors will and it will be a rush to the exits).
SAVE POLKADOT AND VOTE NO ON ALL 3 OF THESE BAD PROPOSALS