XPRT inflation reduction discussion - change the minimum inflation parameter to 6,25

Dear community,
BTC halving is just around the corner and that’s a great time to talk about another inflation reduction/halving for XPRT.
The current XPRT inflation reached the miminum parameter set at 12,5%.
What results in total monthly xprt emmision on Dexter pools about 150K and 2,1 mln coming from inflation.
The Team has done a lot to improve XPRT tokenomics and address community feedback so far. Since the parameter reached the minimum rate set that’s great opportunity to discuss about next steps.
It looks logical and beneficial to continue the path decided couple of mounths ago towards further tokenomics improvement and change the minimum inflation parameter to 6,25%.
There are a couple of rationale and open topics behind it.

Leading Cosmos chains Inflation reduciton
It would rezonate well with other leading cosmos chains tendency to cut inflation rates significantly.I believe the inflation reduction would benefit all parties, usually high inflation leads to undesired economical outcomes.

BTC Security
Considering new security solutions like BTC security via Babilon Persistence needs very minimal inflation to pay for security. Integration with Babylon will cause the split of staking rewards with XPRT stakers and BTC stakers.

Validators economy
The inflation change impact validators economic situation where the cost vs payment ratio will be different. It could cause the situation where the business model would be no longer viable for all the validators (especially the ones in the lower half) but the impact of having lower set of validators can be balanced by additional BTC security.

Let’s discuss and confirm if there is any room for another inflation reduction proposal (halving?, - 33% or more?).

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The idea of adjusting the inflation parameter in line with other leading Cosmos chains & considering all the changes on the horizon like BTC security integrations is good.
Let’s just explore a bit more if 2nd halving so soon is needed yet & how these changes could affect everyone, from validators to token holders. Keen to hear more thoughts on this,

Cool to see that the minimum inflation is hit, by having such a high percentage of XPRT bonded. I was not around in the period of the previous halving, so I don’t have any experience with the times before it.

From a delegator point of view I think it would be better if the change would be combined with other means of value accrual for XPRT. I don’t think that holders will be against it, but it can be more easily digested if the value accrual for holding and staking XPRT is upgraded at the same time the emission is going down. Then it becomes more like a balance.

From a validator point of view I think it would be good if the combination is sought with some more spreading of the VP over the chain. Right now the top validator has now nearly 10% of the Voting Power but it is questionable how much this validator contributes. If the VP would be a bit more evenly distributed it becomes already less of a worry for a validator if the inflation is cut.

From an investor point of view it would be good if there would be a plan / roadmap behind inflation corrections. Is there a set timeframe for assessing the inflation? Or is it just because the inflation has now reached the minimum inflation parameter which triggers this? Predictability is a good thing to have.

Predictability is a good thing to have. :smiley: :+1:

Here are my thoughts:

  1. We should wait for the integration with Babylon Chain (BTC security) to occur before we discuss cutting XPRT emissions.

  2. I’ve seen chains cutting emissions in half (and even to 0%, look at Kava) while not having much if any impact on the token’s value.

  3. XPRT halving will occur in one year either way.

  4. As LeonoorsCryptoman mentioned, if we minimize XPRT’s inflation we should explore additional ways of covering for the decreased staking APR (before we cut it).

In conclusion, Cosmonaut Stakes believes a reduction in XPRT’s inflation currently provokes more harm than good and must be well thought out before implementing the parameter change.

I’m not an expert in finance, sorry, just my vision.

Here is a graph with the XPRT price and events.

  1. Inflation has changed - everyone is starting to receive 1/2 of the earnings of tokens. The price is not growing at the same rate.
  2. Halving occurs - everyone starts earning 1/2 tokens. The price is rising slowly.
  3. Before these changes, the price of XPRT lived in its own way.
  4. After the changes, it started repeating the Atom graph.
  5. Our maximum price was on January 2, 2024 - $ 0.593. Do you think that this happened because of inflation and halving? I do not think so. It was a small bull run at the end of the 23rd and the beginning of the 24th year for everyone.

What I am sure of is that the minting will decrease, but the price will not compensate for this. At least until something positive happens to Atom.
Therefore, this discussion is not really a discussion, but the question “Are you ready to lose income? Because Persistence requires minimal inflation to pay for security.”
Of course, we all don’t want to lose income. But we have been cooperating for a long time and always support the initiatives of the team.
So, let’s discuss what can be done to ensure that validators do not lose revenue by supporting this initiative. I don’t have many ideas about this, just change the amount of FDP. Does anyone else have any ideas?

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Basically this proposal says the following…

Let’s reduce the staking rewards from 12.5% to 6.25% because it will:

  • “resonate well with other leading cosmos chains”
  • “we need minimal inflation to pay for security” and “Integration with Babylon will cause the split of staking rewards with XPRT stakers and BTC stakers.”
  • “it could cause the situation where the business model would no longer be viable for all the validators”

So, said another way, let’s drop the staking rewards from 12.5% to 6.25% and then split the 6.25% in half to 3.125% because we will need to reward BTC stakers when the Babylon integration occurs.

Effectively, it is asking for the reduction in staking rewards to approximately 3.125% without any proper analysis on why this will help the token achieve value.

From a token owner’s perspective, I see the following problems:

  • Existing long-term XPRT stakers are being penalized without any reasonable evidence that a reduction in rewards will lead to an increase in value. The current staking rewards at the current rate is the main value stakers receive today. Reducing that amount reduces current value for all existing stakers.
  • XPRT becomes less attractive for new owners to want to buy and stake at ~3.125% rewards as that is pretty low in the industry. By reducing rewards, you force yourself to have to increase XPRTs value in other ways, otherwise owners will evidentially abandoned a token that doesn’t have any meaningful value.
  • Potentially letting go of half of the validators may generate some ill-will in the community and doesn’t say much about loyalty to those who helped XPRT along the way.
  • If you look at paranormal’s analysis we see no clear correlation with a reduction in staking rewards and any increase in value of XRPT.

My honest opinion is that this proposal shows that XPRT doesn’t have a well-researched set of reason for making a change to the existing staking rewards. Proper research needs to be performed, value increasing options identified and implemented. Until these changes are in place and existing token holders see the new value accrual in action, I don’t think any changes should be made.

I agree with LeonoorsCryptoman that we need a much more researched and proven plan of attack. Why not apply a first principles analysis where we look at similar blockchains providing similar functionality and see what has happened to them when those tokens reduced inflation? Let’s also look at what similar chains have done to increase value. Let’s also look at any chain that increased value significantly and if that technique would apply to the XPRT business model.

Here are some random ideas…

  • If we reduce staking rewards, take that exact same amount and additionally incentivize the soon to be released XPRT/stkXPRT pool on Dexter. This keeps those rewards going to those staking XPRT that decide to support the PStake/XPRT liquid staking functionality.

  • If we think XPRT inflation is a problem (after performing the proper research), let’s also support the reduction of XPRT tokens through a token burn. Let’s figure out a schedule and burn X tokens on a regular basis (ex: every 6 months) until value increases to some determined target amount.

  • XPRT has very low transaction fees. I don’t remember how they are used, so please excuse me if I am stating things that already exist. Maybe we could increase the transaction fees and use the income generated from them to invest on a monthly basis into an XPRT liquidity pool. Then at regular intervals or under certain conditions in order to make sure staking and validation are being properly incentivized, we could make allocations to those areas if/when they are needed.

  • Here are two value generating mechanisms from April 2023 where I don’t believe the XPRT folks have given us an update in over a year:

  • (1) MEV-capture with Skip Protocol - Instead of an MEV bot extracting this value, Skip’s Proto-Rev module on the Persistence Core-1 chain can extract this value to be distributed to XPRT stakers finally. On-chain MEV will increase with the increase in on-chain activity (thanks to pSTAKE, Dexter, Bamboo, & other dApps in the future), resulting in a new source of yield for XPRT stakers.

  • (2) Bamboo - Earlier in Q1 2023, the Bamboo team came out of stealth with their vision of creating a borrowing/lending protocol for LSTs. Bamboo is still under development & is expected to go live in the coming months. What is the status of this?

In summary, until a complete and proper analysis in performed on how and when new value can be brought to the Persistence One chain, I don’t think we are ready to make an unsubstantiated change to staking rewards.

2 Likes

It couldn’t have been better said.
I absolutely agree that this proposal is situational in nature, and is not the result of some kind of research. And, what scares me the most, solves the problem with Babylon, but worsens the situation with Persistence supporters.

It seems necessary to consider the purpose of XPRT and then apply Burn to reduce inflation.

CAKE seems to be the most similar, but even though Burn has inflation reduction, its purpose is unclear, so it is difficult to reflect it in the price.

Noted, in case of INJ, they have lifted the limit on incineration bidding for each Dapp and this has been greatly reflected in the price.

Thanks @Pawel_PK for bringing this up. Following up on your post, I wanted to take the time to add some points.

Inflation, while necessary for certain economic dynamics, has hidden costs that can affect the overall health of our ecosystem. High inflation can lead to various challenges, such as a reduced incentive for long-term holding. By reducing inflation, we can address these issues and improve value for all stakeholders.

In fact, several leading Cosmos chains have successfully reduced their inflation rates, setting a precedent for healthier tokenomics:

  • Cosmos Hub (ATOM) recently adjusted its inflation model to balance rewards with network security (from 14% to 10%).
  • Osmosis (OSMO) also made changes to their inflation in 2023 (50% reduction) for more long-term stability of the token.
  • Injective (INJ) community recently approved the deflation of their token.

These reductions generally lead to more stable and attractive ecosystems for holders.

Benefits of Reducing XPRT Inflation:

  1. Economic Health: Lower inflation reduces the risk of undesirable economic outcomes (e.g. excessive token supply and devaluation).
  2. Staking Ratio: Our current staking ratio is great, indicating that the network can maintain security even with reduced inflation. A high staking ratio also suggests strong community trust and commitment!
  3. stkXPRT Impact: With the introduction of stkXPRT, the dynamics of liquidity and staking rewards have changed. Liquid staking provides additional flexibility and can support lower inflation rates while maintaining good network security.
  4. Security through BTC Integration: As Pawel mentioned, we plan to integrate with Babylon for BTC security, so the need for high inflation to pay for security is reduced. The split of staking rewards between XPRT and BTC stakers will balance the security needs without relying heavily on inflation.
  5. Validator Economy: While reducing inflation may impact the economic model for validators, especially those in the lower half, this can be offset by the additional security provided by BTC staking. Also, some consolidation of validators can lead to a more robust and efficient network.

Proposal for Inflation Reduction:

Given these points, it seems logical and beneficial to continue improving xprt tokenomics.

I strongly suggest that we consider following Pawel’s proposal, reducing the minimum inflation parameter to 6.25%, aligning with other leading chains, and ensuring the long-term health and sustainability of Persistence.

Note that if we maintain the inflation rate at 12.5%, over 25 million XPRT will enter the market annually. Given the current average trading volumes on both centralised and decentralised exchanges, this influx can significantly affect daily trading activities.

Proposal for Dexter to rebrand to Persistence DEX

Additionally, I propose that Dexter become more aligned with Persistence and even rebrand it as the Persistence DEX and share its revenue with the Community Pool. Having multiple brands is confusing and leads to additional user acquisition costs. Dexter & Persistence are already closely interwoven through XPRT governance, so why not go all the way and merge them?

Eventually, revenue sharing from dApps like Dexter can play a crucial role in countering the reduced staking rewards. However, this will only become relevant as the dApp matures and generates significant revenue.

In general, though, I would suggest collecting any future revenue for the Community Pool. The community can then decide what happens with it.

Happy to continue this discussion and explore the best path forward for Persistence and our community. Your feedback and insights are invaluable as we make these critical decisions.

@dneorej Nothing in your response has addressed any of the concerns from the community member’s posts above. If Persistence is serious about this proposal, someone from the team needs to read every post from the community and address each concern one-by-one. It looks like Persistence is saying we want to reduce the inflation rate because everyone else is doing it and that is not acceptable.

Besides, it’s crucial to carefully consider the impact on validators and ensure that the network remains secure and decentralized.

For the Persistence team to gain the community’s trust and effectively compete with other innovative chains, it’s crucial to develop a holistic tokenomics strategy that addresses the total net supply, not just the inflation rate.

Implementing mechanisms like token burns, enhanced utility, and cross-chain staking can help manage the supply dynamics and position Persistence as a competitive and trustworthy blockchain ecosystem.

Eth’s annual net inflation rate is -0.23%.
Let that sink in.

Hey @mishko, you’re absolutely right in the fact that I should have addressed concerns from community members above directly. Instead, I tried to mainly respond to the original post and share my way of thinking around inflation, hoping this would at the same time answer some questions, which was a bit short-sighted. Please find my further responses below. Hope it helps.

It’s very hard to estimate and assess the impact to everyone for something like this. Whatever we as a community choose (reduction or not), we’ll never know what the alternative choice would have yielded. From an economical viewpoint, I just believe less inflation is better than more for people holding the tokens, and if validators thereby lose income, there are ways to solve for that: there is a chain-wide minimum commission rate for example, which anyone can propose to increase.

My thoughts are quite similar here, which is why I propose that Dexter becomes the Persistence DEX and all fees are shared with the community pool as a first step. By becoming a more BTC oriented DEX, becoming a Babylon secured chain, continuous integrations and having a better brand image, the trajectory to grow fees to a meaningful level is quite clear. Besides, there’s another big idea we’re working on, which I’ll share shortly once we know it’s viable.

The original plan was to do it every 2 years, but of course no one could have predicted how things would change back when these parameters were set. The fact that the staking ratio has remained one of the highest in the industry, while inflation has hit the minimum amount, means that the market rate for inflation should actually be lower. The entire goal of having inflation dependant on the staking ratio is to ensure that economic security is covered. Currently with current inflation and staking rates, we’re overpaying for security, and that cost eventually falls on the community. With new security models popping up (ICS, Eigenlayer, Babylon, Ethos), security will get commoditised, which allows inflation to be reduced.

While I agree on your thoughts, they don’t explain how they would cause harm. Curious to hear further rationale for this.

Not sure what you want to show on this graph, but what this shows me is that XPRT has outperformed ATOM since inflation was changed.

Increase (double) the minimum validators commission so validators still get the same amount of rewards or even more, and even reduce the validator size set to be smaller. Imo it’s OK to have a slightly smaller, more competitive set. Block times can become slightly faster, which will optimise the trading experience on the DEX.

Just to clarify, changing the parameters does not automatically change inflation, it still depends on the staking ratio. The minimum can be set to 6.25, it will still take months to reach 6.25 (if ever). If people start unstaking, that liquidity will go elsewhere, which is exactly the goal of this mechanism. It’s weighing security vs liquidity. Currently XPRT has too much security, too little liquidity.

That’s definitely not the case, see above. Also, once Babylon security is available, that can be treated separately. This is still to be figured out.

Not sure to understand how you think stakers are being penalized? As long as you stake, you are not getting diluted, on the contrary, you’re getting a bigger % holding of the token supply compared to the people who don’t stake.

Please let me know what type of research you’d suggest and I’m happy to look into that. Based on basic economics, I believe the proposal makes a lot of sense, and I’m convinced it’s a net positive. I’m glad to be convinced of the opposite and be proven wrong.

I like this proposal and in fact - it’s what was done recently as well. Maybe the amounts were not exactly the same, but still it was worth it to LP in stkXPRT/XPRT. This, in combination with other XPRT pools is another good reason to reduce inflation, so liquidity can flow to these incentivised pools. Otherwise incentives are competing with staking rewards, which is a bit silly.

If Dexter starts sending fees to the community pool and the community decides to burn, then why not. I don’t understand how you can be in favour of a burn mechanism but against inflation reduction because effectively, they move things in the same direction as far as I understand.

That’s true, although the real problem imo is more in the limited amount of transactions it currently processes. We’re still in a phase of trying to find product market fit, and increasing costs for users might make that even harder.

This is live, although there as well, this only makes a big difference once there is actual solid volume on the chain, which I’m sure we’ll get to eventually.

Given market conditions in 2023, this was put on hold until further notice, even though the product was in its final stages of development and testing.

My basic assumption is based on economic theory that the higher inflation, the more it hurts a certain economy’s currency. Again, any specific research you think that is meaningful, please share here and we can deepdive or further discuss.

I hope I answered a lot of the questions and concerns here and shared some more insights on why I think this proposal actually makes a lot of sense to me. Do we have to do it and do we have to do it now? No, but what do we achieve by keeping the status quo? What’s the worst that can happen vs what are the potentional benefits? Overall I think it’s best for the community in the long run, and that’s what matters to me…

Curious to hear and discuss further thoughts.

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Totally agreed on never knowing what would have happened if another choice would be made. Thanks for the lengthy reply which covers a lot of the topics addressed.

In essence the proposal is ok (regardless whether I agree or not), but I believe it would be good to see a revised written proposal draft based on the discussion held here.
The reasoning “because other chains do it” would best be replaced by argumentation around overpaying security and such. That makes the case a lot stronger imo.

Hi @dneorej, I appreciate you taking the time to address everyone’s concerns. I believe it was important to make sure everyone in the community that took time to respond was heard and received a response. Thanks for that!

I agree with LeonoorsCryptoman’s recent idea that making a revision with all of your substantive responses to our concerns at the top of this proposal would be a great place to summarize these arguments prior to a vote. While I am the type of person who likes to see the value of XPRT accrue in other ways before reducing the current main way (staking), your responses put us at a place where a vote can be taken and hopefully those voting (token owners and validators), will read all of the arguments and be able to make an informed vote. Thanks again!