Adaptive inflation

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.

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

  1. Pereclit

  2. 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.

  3. 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?

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.