Redistributing inflation

1yr ago

11 Comments

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Zeitgeist plans to add additional functionality that does benefit from using inflation as incentive to the runtime, such as the Court pallet, which is close to being included into the main branch of the project and thus becoming a part of the runtime. To be economically sustainable, the decision to increase yearly inflation further (currently it's 5%) is not an option, quite the contrary; a reduction would be adequate, since the mint to burn ratio is completely out of balance due to a continuously low usage of the system.

The discussion I want to open here is about how much we can reduce the inflation caused by the collation system without harming the network. Collators should be rewarded appropriately in a way that covers all cost and provides some attractive returns for their service. On the other hand, delegators should receive an attractive APR, such that staking in Zeitgeist is lucrative from the perspective of a delegator, effectively ensuring that delegators don't simply withdraw their ZTG and stake on other platforms.

Here is a document that describes the yearly inflation to reward (in USD) ratio for collators: https://hackmd.io/@lZVVinJVS6WI4IpRgmbsLA/BygeToqf3
Currently Zeitgeist plans to release two more pallets that benefit from inflation, both having a higher risk involved than collation and staking and thus should receive more inflation. Even when splitting the current yearly inflation of 5% evenly amongst the three pallets, it would result in 1.66% yearly inflation per pallet. In that case, the formula derived in the document estimates a monthly return of approximately $90. As the price of ZTG rises, the monthly return would increase and inflation could be further moved to other parts of the system that involve more risk but encourage direct interaction with the core protocol.

In terms of delegator rewards, the current average APR is 20% as stated by https://stakeztg.com/. decreasing the yearly inflation caused by the collation system to 1.66% would result in an average APR of 6.6%, which is not very competitive. To provide about 8% average APR, 2% yearly inflation have to be allocated for the collation system. In that case, the collator reward would be approximately $110 / month.

Consequently, I propose that we reduce the yearly inflation caused by the collation system to 2% and allocate 3% inflation to the court system, until either one of those events occurs:

The ZTG price rises enough to further justify a reduction of the inflation
An additional pallet is included that benefits the protocol by utilizing tokens minted through inflation.

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Comments

dDzM...mZuw

I'm afraid I cannot give a valid comment as I don't know how important the other pallet incentives are and how high they need to be to work correctly.
From a collator perspective I don't like it too much because my expanses alone are around $150.

On the other hand, to be at least a little constructive, one solution comes to my mind and that is temporary lowering the requirements for HW specs and location so we could run on cheaper machines. It would be also more appropriate for the current network load! Once the market conditions get better, we could go back to high performance standard.

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SAXEMBERG

It doesn't sound sustainable with the current spec requirements.
Just with a little market hiccup, the formula right now yields monthly 184.27$ with the current inflation and with the adjusted inflation to 2% (not 1.66%) to 73.71$
It's not like collators are making so much bank that needs to be trimmed, basically you just pay the server bills and taxes and that's it. This is what our collator has made this year.
https://zeitgeist.subscan.io/account/dDyKB2kbsf2rDWuK4LnQ1PU9HbM1oyqXvuiwMuwAwA1cnuSic

Basically, we'd like to second Curu on lowering the spec requirements DRAMATICALLY so that collators can operate without too much loses. Preferably without lowering the inflation to 2% because in this case each percentage point makes a difference.
A related alternative could be, lowering the ratio progressively as follows:
from 1% Court - 4% Collators in 6 months time
from 2% Court - 3% Collators in 12 months time
from 3% Court - 2% Collators in 18 months time
this should give collators some room to breathe.

Alternatively, a delayed implementation of this plan for a year while the court pallet gets a subsidy funded by the Zeitgeist foundation instead, equivalent to the 3% that's meant to have. Or an immediate implementation with a collator subsidy equivalent for the 3% lost for a year. Why a year? Because the cryptocurrency market is still tied to "Bitcoin Halvings" and that's the best next opportunity for the ZTG token price to gain traction and to be economically viable on all fronts.

PD. there is a typo in the latex formula on "Current collator rewards" on the hackmd doc. It has to be 0.08861 and not 0.8861

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dE4U...auxm

The cryptocurrency market is unfortunately tied to global macro and specifically to SPX. I am in favour of opening a trading channel in discord where we can further discuss and deal with the market hiccups, even liquidity provision to DEXes will help balance the inflation model since it can create new income for the protocol and create incentives for token holders as liquidity providers. I believe protocol inflation at 5% is not unreasonable, and the demand/supply balance will further shift towards increased supply if collators decide it is unprofitable to collate (thus deciding to sell at a loss to avoid further losses). Probably a 4% inflation could be better, no formula comes in mind. As for making the hardware demands less, i have no opinion at all if it is a viable solution or not. More discussions for increasing protocol demand is better imo. Inflation could be reduced as price rises instead.

dE4U...auxm

Btw, staking rewards are also a bit high, i don't understand 100% the mechanics on the competitiveness of the collator game, but this part of the inflation could be easily reduced to 10% (noma). If protocol inflation is at 5% and staking rewards are at 20% on average, doesn't this make it still profitable (or bearable) for the ZTG holders in the short term?

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dE31...fCU2

one solution comes to my mind and that is temporary lowering the requirements for HW specs and location so we could run on cheaper machines

we'd like to second Curu on lowering the spec requirements DRAMATICALLY

While I am very much in favor of this solution, from my knowledge lowering the hardware spec requirements is not possible as collators have to run a relaychain (Polkadot) full node to receive, verify and build upon relaychain blocks. Consequently the minimum hardware requirements that we can establish must be equal to or greater to those on Polkadot. This is already the case.

A related alternative could be, lowering the ratio progressively

I think this is a valid approach, as due to the low number of participants during the initialization of the new features a relatively huge amount of inflation (even 1%) is shared amongst a relatively small set of agents (jurors and delegators). This will attract participant up to certain degree, until the risk outweights the potential reward in comparison to the risk-free participation in the collation system. I like the progressive approach, I think this is part of a sensible solution.

I am in favour of opening a trading channel in discord where we can further discuss and deal with the market hiccups

I will carry that request to the broader team.

liquidity provision to DEXes will help balance the inflation model

Do you have any specific approach in mind that could be implemented? I would highly welcome if you could kick start a discussion about these kind of things in this forum. It is technically possible to automatically adjust the total ZTG liqudity in other protocols that are advanced enough to support remote dispatchable calls via XCM, i.e. remove liquidity and redirect it somewhere else, like the treasury on Zeitgeist, or move it from the treasury to DEXes at given situations. I think this is an interesting topic and we should continue in a fresh discussion.

If protocol inflation is at 5% and staking rewards are at 20% on average, doesn't this make it still profitable (or bearable) for the ZTG holders in the short term?

We have to move inflation from one part of the system (collation) to other parts of the system. Thus we have to find a balanced way to remove inflation from both the collators and delegators at the same time. When we reduce the inflation, both the APR for collators and delegators is reduced. Besides lowering the total inflation, we can also rebalance how much (percentage) of the inflation goes to the collators and the delegators. So we could reduce inflation and increase the collator rewards, effectively keeping all the collators in the profitable zone but reducing the delegator rewards in the collation system to unattractive values. At this point delegators probably want to move one, but one question I am not able to answer right now is where do they move? They could delegate in other delegation systems with zero risk like on Zeitgeist but higher rewards or they could delegate in our new Court system with relatively low but existant risks but higher rewards.

Edited

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Gokhanrahat

The constant increase in the number of tokens is a very negative situation. Instead of increasing the number of supply, the burning should be as it should be. I think the number of supply of Ztg coin must remain constant. It makes the token more valuable

Edited

dE31...fCU2

In case you are running the Zeitgeist node using an external relay chain node (--relay-chain-rpc-urls), then the minimum hardware requirements for the Zeitgeist node reduce to:

CPU: At least 2 cores with a signle core performance similar to or greater than AMD EPYC 7601
Memory: 8GB ECC
Storage: 100GB SSD

You can use https://www.cpubenchmark.net/compare to compare the single core performance.