Reduce staking rewards

A proposal to reduce inflation rewards is necessary.

According to CMC, the current supply metrics are:

  • Circulating supply: 377,250,000 NU
  • Total supply: 1,047,192,417 NU
  • Max supply: 3,885,390,081 NU

For the first five years, the max inflation rate is ~366M NU per year.

This inflation schedule is overly aggressive, especially in the short-term. There aren’t enough new buyers to meet the increasing circulating supply, which is causing downwards pressure on the token price. A reduction in staking rewards via an inflation burn or other approach is necessary.

How can we start scoping this proposal? It would be ideal to receive input from the core team.

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The Staking Protocol Economics considered what this proposal is trying to do and explains its consequences pretty clearly:

A counter-balance against centralizing dynamics of this sort is the incentivization and enrollment of new service-providers, who commence staking in later epochs (i.e. not at network launch). If issuance is at its highest in the earliest days of the network, but falls rapidly, genesis service-providers are granted an significantly greater head-start over newer entrants. This relates to an underlying rationale for the work token thesis; the expectation that would-be service-providers will purchase the network’s native token in order to stake and earn revenue [5]. With a token issuance that decays from genesis, later-joining service-providers are doubly disadvantaged – they must pay the market price to acquire tokens, plus they receive a diminished subsidy.

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An initial daily supply of about 0.1% relative to the current created supply is not sustainable because … a project (unfortunately) attracts more interest and talent with an increase in marketcap while keeping supply low.

Yes projects are fragile early and initally , but agressively inflating supply in the early part of it is also subject to its own critism of early centralization . Which is something that Phase 2 in the tokenomics tries to address , but by then it will be late because 5 years is a shorter term for people to hold on to value as opposed to 10 years (for example). And to grow organically we need a larger window for people to stake and accumulate as oppossed to giving stakes to the early stakers .

Here is my suggestion to sustain the inflation rate .

1.Increase the constant issuance supply from 5 yrs to 10 years thus reducing the daily supply by half ( to approximately 500.000 nu’s)

2.However as soon as eth earnings kick in by virute of the projects success, start dynamicaly changing the nu daily supply such that ( nu + eth ) earnings are constant (Relative to a fixed value denominated in eth) . This is assuming that eth achieves a stable vaule relative to your favourite fiat .

The daily supply of nu would also need capped to 500.000 (for the first 10 yrs) . After which we can cap it using the Phase 2 model as described in the tokenomics.

This can be formalized as is or with tweaks from various community members .
Please feel free to poke holes into this as these are soley my opinions and I may be missing some variables.

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2nd point hard to implement because different nodes will have different numbers of policies and policies have different duration. Also nu/eth rate can’t be naturally get in smart contract (only using oracles). So probably this point can be achieved only by manual changing of issuence by DAO.
Anyway 1st point is feasible.

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@antjos raised a relevant concern about the disproportional impact of reducing inflation on small stakers (https://t.me/nucypher/204605). It costs at least 200k gas/day for a node to make the daily commitment transaction and reducing inflation rewards may make this financially unsustainable for small stakers.

We’ve previously discussed reducing the commitment transaction frequency from daily to weekly (https://github.com/nucypher/nucypher/issues/2226). It may be worth considering pairing a proposal to reduce inflation rewards with a proposal to extend the period length.

An initial step would be to run a testnet with longer periods (e.g. weekly) to gather data on how this impacts the rest of the system. This is something @arj has been recommending for a while.

Regarding the feasibility of the specific implementation suggestions mentioned by @richVaas, @vicky.z (primary author of the StakingEscrow contract) commented above.

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@maclane is articulating the situation for those of us who are using market tokens for the nodes. I’ve worked my commitment to running three nodes based on @kvn highlighted Staking Protocol Economics (all with 365 lock, restake and no wind down). I will admit, that I had underestimated the gas costs on the commitments, but that was alleviated with larger stakes against the nodes (with 365 lock, restake and no wind down) predicated on current inflation. I’m supportive of moving to a weekly commitment.

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@Bill what’s your motivation for running three nodes instead of one larger node? This 3x your gas costs without making a difference to your rewards. Do you have a staking strategy (e.g. one node restaking another node not) that requires multiple nodes?

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Three different funding sources (custody of assets) with, yes, different long term goals for each. [As an aside, the overall ‘investment’ is more about the technology and what it means as opposed to the economics on the nodes.]

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Slightly tangential to the main discussion point, but @richVaas’s proposal overlaps somewhat with an old idea to calculate and distribute NU rewards/subsidies based on earned ETH fees, thereby strengthening the link between useful work and compensation. See links below. This approach similarly assumes, as @vicky.z warns, the presence of a reliable NU/ETH price oracle. However, it accommodates the diversity in the number of policies and their durations that are assigned to stakers at any given compensation round.

Sybil/collusion-resistant subsidies based on fees/work
Sybil/collusion-resistant subsidy formula draft I

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Having read the comments in the thread, I’m a NuCypher token holder and like the Idea. I’m wanting the project and token to grow. The idea around keeping its value growing must be an important part of any project. That’s aswell as being more active online in social spaces and ‘bragging about what has been build’ build on it don’t let the token and ability to earn / stake/ invest be for the few, wider adoption is the way to grown. You need to be knocking down doors to out there in wallets and exchanges.

Looks like the team is killing the project with this kind of inflation. People get the tokens and dump the price or manipulate it. Investors loose faith and stay away. In this rate, the project will be dead in a short time. Just saying…

Inflation is really good to have many nodes early on, and having those decentralized. Node operator community gives a significant portion of the value NuCypher has.

Reducing inflation may please speculators but IMO it will harm the project long-term.

Also, if there are node operators (who are the ones having voting power)… Would you vote to reduce the inflation or not?

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All these questions have been anticipated at the time of the mainnet. Saft 1, Saft 2, Worklock. Please get femiliar with what has been done before going live. Nucypher has close to 2000 nodes working due to an excellent infrastructure set up including well thought out “issuance”/“inflation” reward. This is of the utmost importance for the business development. If somebody bought few K of Nu on the market and wants the Nu to moon it should first read what is the circulating supply. You will realise that the vast majority is locked inlcuding new accrued issuance. Existing inflation is not the cause of the market volatility. Dont confuse market price with the inflation! It would be better for the 15 k + purchaser to stake. Its a better risk/return then trolling around.

Cannot agree more. Adoption beyond the innitial “start up” stage is conditional to a well functioning infrastructure. Without infrastructure, there is little beyond and adoption will not follow. Being an infrastructure provider requires capital commitment and consequent risk. If there is a capital commitment only to speculate on price, thats not an infrastructure provision and it is not a condition to a project success.

So, my vote is absolutely no.

What is the staking reward on 15k nu tokens? I didn’t know/realize I was trolling by pointing out the importance of retail investors. If you lose retail investors, you won’t be able to sell the tokens you earned from node operation. There is a delicate balance you need to watch. Maybe you got that balance right maybe not, time will tell. Crypto industry is not mature so unfortunately utility comes after price action.

only had my node running for 2 days, but …unless I’m doing something completely wrong…even with my gas strategy set to medium, I’d have to say cutting rewards wouldn’t make sense for smaller stakes.