But why we couldn’t just run baker nodes with transaction fees as the only incentive? Monetary emission is basically inflation net 0, there is no really a “profit” or real incentive in monetary emission, the only real income/incentive is transaction fees. Why people are willing to run NANO nodes without block rewards neither transaction fees? Their only incentive is basically the bags they hold. What would be wrong about proposing to get rid of all monetary emission which makes everything more confusing (and “inflation” also gives a bad image in the crypto sphere), and leaving transaction fees as the only incentive? You will still be able to charge a baker fee on the transaction fees of your delegators.
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I am leaving this here for you:
I think the measure of profitability that people have is fees burned or returned to stakers. Those can increase with scale, if there’s a lot of unmet demand, but as scale increases, the total amount of fees collected starts going down.
At that point, you either
Pereclit
Restrict supply and bank on network effect to ensure applications don’t move to cheaper platforms. It works better if there are lots of high value very low fee transaction where users are price indifferent.
Become a macro asset / SoV
Thanks for the tweet, but can we just be profitable, and when there’s huge demand, we scale accordingly? Not too much, not too little; just enough to remain competitive? Then if demand increases again, we scale a bit, and so on? And if demand ceases we “unscale” back. This is why we have On-chain governance no? We adapt to the conditions of the market. I still don’t see the usefulness of monetary emission (inflation), is basically net 0 inflation for bakers and a little bit inflationary for delegators.
Edit: People are attracted to platforms with limited supply and even with a deflationary aspect, that alone may incentivize dapp consumers to transact. Maybe burning 50% of the transaction fee and the other 50% for bakers? Also stopping monetary emission completely?
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I would never intentionally hold back innovation in order to keep up high prices for gas in order for bakers to survive. Also because it is extremely difficult to find balance or the equilibrium - especially when you acknowledge that the innovation in Tezos comes with the on-chain governance process in ~3 months cycles. On the other hand you could just make a “gas prediction” and make it more expensive to create transactions when there is less demand but that feels very counter intuitive for me…
I think it is not a bad thing to acknowledge that there are “common goods” of a system that are payed by the everyone in the system - in this case everyone who is a stakeholder. The censorship resistance, security of the network is essential if you are a Tezos holder. You should have an interest in paying for it. You have to pay for it in any way. Through gas it is just more on the user instead of the holder. In our case now there is “base costs” keeping up the system that is paid by everyone and variable costs that are paid by users in the form of gas.
I think people need to understand that supply caps are not that important: On Supply Caps | ex.rs
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Thanks for the reply, I’m just philosophizing here. People not only value to transact in chains that are cheap, some people have other standarts of value, some people prefer to transact in a more expensive chain if that leads to a more secure and descentralized chain. At the same time, if the chain is secure and descentralized there will more demand for the cryptocurrency, since people value it more as a secure asset. I don’t think we should compete for the supremacy of the cheapest chain to transact, that is my personal opinion. For instance, we have around 129 public bakers, and some solo bakers, IF we could get around 1000 public bakers in example, people might value/trust more the chain to transact, and that might lead to an increase of demand for XTZ. An example of people valuing security and descentralization over scalability is bitcoin, both in terms of transacting in the chain, and in terms of demand for BTC. Altough Tezos depends on locked capital in bonds for security rather than hash rate, but it should have the same effect than in bitcoin, if there’s a increase in security and descentralization, that alone can attract more people to transact on-chain and demand for XTZ.
Now about the monetary emission, monetary emission in tezos is really inflation net 0 for bakers, a little bit inflationary for delegators, and super inflationary for non-stakers.It requieres XTZ hodlers to participate in order to achieve net 0 inflation. So is really not a problem for stakers. But we can’t deny also that supply caps have a psycological aspect that drives demand, and i’m no saying to place a supply cap, but having a gradual reduction in monetary emission yearly will have the same effect but never to the point to have a cap.
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This is a superior proposal and the pros are outweighing the cons without a doubt. But it shall be considered more and maybe think about 2-3 different adjusted models? Its definitely being positive and I am surprised that this is not discussed more. In Ethereum ecosystem such a proposed changes are discussed thouroughly. What are others thinking about it? Please share your opinion and thoughts people! 
@fredcy @d4hines @rafoo @KevinMehrabi @Alex @germanD @Milfont @meb @tulpenhaendler @simonmcl
As mentions is limited to ten…
@trolleps @keefertaylor @sophia @Primate411 @lyoungblood @Lindw0rm @Eguzki @Blindripper @iguerNL @nicolasochem and also others please! (thats it from my side no more tagging, sorry and thank you!)
Inflation, financial strategies and Tokennomics aren’t really my area, thats why I didn’t comment. I’m in favour of anything that the brains behind Tezos can demonstrate will be a net win and improve the protocol / network.
From my limited understanding, i’ve seen people on twitter breaking down the “real world” inflation and its drastically smaller than some of the voices screaming in all capital text, would have others believe.
My belief is that a stronger focus needs to be put into developer tooling to onboard teams and help teams with upgrades. We’ve seen many projects leave because they couldn’t get started, or the burden of upgrades was too much. I think these issues are a far bigger risk than a small amount of inflation
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At the end of the day, Tezos is overpaying for security and of course a bear market always makes this painfully clear. Even a slight source of sell pressure can have disproportionate impacts. Not only is this proposal a step up in a technical manner (better composability of Tez is a massive improvement), in terms of narrative price action will always beat out nominal staking returns.
From November 2021 highs, ETH is down less than BTC in this brutal bear market, an unprecedentedly strong resistance that is at least partially due to its merge to proof of stake in September (+ existing token burn mechanism). ETH is proving this model to be the right one (it will become obvious to everyone in the next bull market), what are we waiting for? How to give this proposal more momentum?
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One way to do this without having to have long discussions delaying proposals or contentious proposals would be to ship it in a protocol upgrade, disabled by default.
Then, if 50% of blocks signal, and 80% of those signal in favor for 5 cycles at any point in the future, it kicks in.
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I like reduced emissions + burnt too (if combined with eip1559 - but it can be done independently), seems like it’s a good recipe for eth.
I have asked couple of fairly big tezos bakers to join the discussion here and express their opinions to get this moving
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It sounds great. Once inserted proponents can proselytise on their favourite social media and we can get some good discussions going with bakers (I’d try to throw in my 2 cents). If you have further thoughts, a blog post from you could be interesting to help explain the merits of this significant change (this topic is already a good reference of course).
Is the proposal sufficiently advanced for insertion though? Is there code for fee burning (I believe some fee burning mechanisms are already in force)? How about the issuance curve? From what I could find there was a bit more discussion on the merits of the formula itself on Ethereum when it switched to this model. To my understanding, Ethereum went with an inverted square root function, whereby total issuance increase along with the total amount staked, but individual returns decline, among others to guard against discouragement attacks (whereby a malicious actor seeks to lower the revenue of other validators, to make them drop out and ultimately increase its own revenue). Are there good reasons to stray from this approach, particularly given that it has by now been (somewhat) battle-hardened?
I also still wonder about on-chain governance. Adaptive inflation as proposed would change the power balance between bakers and delegators, as bakers would earn more from their own stake and there would be stronger incentives for baking directly (rather than delegating). While this is no bad thing, it remains true that bakers are not the only category of Tezos users with an interest in the protocol. Should this proposal not go together with the ability for anyone to vote on proposals directly, whether baking, delegating or simply holding Tez in a wallet?
Personally, I would rather see inflation go to 0% and then bakers just make APR off of the fee’s. No need to waste time on a complicated inflation algorithm. Focus on adoption, not on this excess fluff.
There was a good discussion between Arthur and others in Tezforce Chat in Telegram. I believe its a good discussion that will add value to the thread - anyone that wants to read it feel free to join the chat and search the discussion. The name of the chat is @ TezForce
Initially I planned to add a transcript from the discussion here but I guess its easier to link to the chat and maybe others do not want to have it displayed here.
I am in strong favor of supply emission change instead of the fixed 42 for a long time. And its great to see the discussion. I also like the idea for upgrade shipping disabled by default. However this might be indeed be opposed by bakers so I am a bit afraid to never see it.
But we are at a point where the fixed emissions seem a bit useless or out of date now.
Lets add this (disabled by default) in one of the upgrades asap.
Why not use the adaptivity of Tezos and utilize it with a tokenomics change too?
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you may get in a situation when no one bakes.
the adaptive inflation has the upside of low emission but can adjust if security of the network is not enough
I dont think it was mentioned so far, or maybe its a given, but the main driver for the adaptive inflation is the price action.
I am not saying that the 42m of baking rewards every year all end up being sold on the market, but its a use case of the baking rewards. For example I buy NFTs with them, XTZ that goes in the artist pocket that directly send them to Coinbase to swap them to USD (or to ETH).
With the following assumptions:
- 1B XTZ
- AMM like with 100M XTZ in liquidity (in a pool like quipuswap or uniswap x*y=cte)
→ 42m tokens (5% baking rewards emissions) added and sold to the market along the year nuke the price by 50% (try swapping 42% of a quipuswap pool to see)
→ 4.2m tokens (0.5% baking rewards emissions) added and sold to the market along the year only decrease the price by 7.8% (try swapping 4.2% of a quipuswap pool to see)
This is not exactly the market scenario because:
- Majority of liquidity is on CEX using order book (lower slippage)
- Liquidity of tez is much lower than 100m tez (much worse slippage/price impact!), probably closer to 20-30m tez in liquidity.
I suspect a lot of users/holders to assume that “if 5% tez is added every year, the price may decrease by 5%, but not a biggie since the bag is 5% bigger”. Unfortunately this is not how it works as shown above 
I am not saying that unnecessary baking rewards is the main culprit for tez price action either, lots of L1s have higher token emissions that tezos. However, this is part of the pumpamentals, if you cant improve the buying pressure, you can look at the selling pressure, and if you do something about it, maybe that will also bring buying pressure?
Why do we need a better tez price?
Since the ecosystem is mostly funded from TF and the Tezos entities, if XTZ goes from $0.75 to $3, then we can fund 4 times more projects with the same XTZ budget 
Now, given the amount of changes on delegations, governance, custody etc, I think this change would ideally come after “super easy tools to self bake” are made available. I believe BakeBuddy is doing a great job in this regard but it can always get better and easier!
And lastly, tezos is the blockchain that evolves, changing the tokenomics is good PR stunt prove once again that things can change
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Personally I still think there is way too much focus on the “may become” issues. Isn’t it better for the core devs and Arthur to focus on current issues, rather than looking into the far distant future? If we never even get to the point of this becoming an issue because we don’t solve our current issues, then isn’t this just wasted tech and time?
Price action would come from the foundation turning off their bakers like Arthur promised the community a long time ago. Also increasing the fee’s a bit and paying bakers with that rather than mainly baking rewards.
This proposal Arthur made would give them even more rewards on the network and incur even more dumping if they keep mis-appropriating funds.
Inflation is a problem right now, not a problem of the future
Paying bakers more won’t change anything at all
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You do realise that the foundation is what is keeping Tezos afloat, right? Successful projects like Ethereum, Polkadot and Cardano also use inflation (or funds raised through ICO) to fund protocol development. We should do everything in our power to increase the sustainability of the operations of the Tezos foundation. Adaptive issuance as proposed here would contribute positively, since the foundation’s real returns from baking would increase. That’s a win.
keeping redbull and manchester united afloat
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