If there is 1,000,000 TEZ of circulating supply at 1$ market value at the hands of the participants, and we print an additional 1,000,000 TEZ, and rewarded back to the participants, the market value of TEZ may decrease, but they are compensated with more coins. At the end, that “inflation” was not diluting for the participants.
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But that’s not neutral, because it affects the agreement between bakers and delegators regarding how rewards should be split, whereas the other one is neutral.
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Both are diluting inflation neutral, but B) allows the baker to choose a baking fee for the 1,000,000 minted TEZ.
What you mean it affects the agreement between bakers and delegators? The voluntary agreement is the baker fee! If you burn it, you affect that agreement, you force bakers to distribute it with 0% baking fee.
I allow you to take 95% of these freshly minted 2.5 tez per block as a baker fee
You operate under the assumption that all inflation that doesn’t go to bakers is taken from them. There is no reason to think that. Inflation is taken from token holders. The reason bakers receive a reward is to help secure the network, that’s also something paid for by token holders. The fraction of the reward that bakers typically keep for themselves is related to the cost of capital and operations that they incur, not to the total amount of the block reward.
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I think the most likely scenario is that this will end up being quite popular and extended by further protocol amendments, but if it ended I think the liquidity would migrate out over a period of months, not hours.
There’s no reason to believe that the people minting tzBTC and the LP are going to be the same people. They might be, but it’s also likely that LP simply buy into their position by purchasing tzBTC on chain and that minting of tzBTC is done by arbitrageurs.
It could but I would like to emphasize as hard as I possibly can that bootstrapping liquidity in an asset pair is NOT the purpose of liquidity baking. That may be a value prop, but it is a vastly less compelling one. LB is not about helping DeFi.
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All I know, is that there are new minting of TEZ, that is not passing through the baker fee filter. And if they were passing through the baker fee filter, incentives of bakers would increase. Whether you believe that it will increase or decrease the baker incentives, that’s up to you.
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You don’t have to directly increase bakers’ incentives with every proposal
However it’s beneficial for bakers because it would be easier to buy/sell their bond once LB is live
If that were true, then why not raise the baker reward a billion times?
The inventive of bakers comes from the security deposit, not so much for rewards which are competed away and end up paid to delegators.
The reason the baking reward is what it is, about 5% of supply a year, as opposed to 0.5% or 50%, is to balance two things
- one the one hand, even if the cost of capital is huge, it should still profitable to validate blocks. If a baker decides to keep 100% of their baking rewards and pay out next to nothing to their delegators, they can currently receive around 60% a year.
If somehow the necessary payout to attract bakers were over 60% a year on their bond, the system wouldn’t function. Thankfully, it’s a very high ceiling.
- on the other hand, you want the rewards to be as low as possible because it otherwise creates inefficiencies, such as potentially disadvantageous tax treatment.
Given that bakers currently return nearly 90% of the rewards to delegators, this tells up that the ceiling is about 10x higher than it currently needs to be.
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You don’t have to decrease them, either. A new proposal with the gathering of TEZ from the trader fee, going back to bakers, will not increase them, it would maintain the status quo of bakers incentives intact. (If the trader fee gathers enough TEZ vs what it was printed).
it’s not decreased, you still get 40 tez which is 100% of rewards for baking a block
2.5 tez is not a reward for producing a block,
if trading fees went to bakers that would be an increase
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It is a decrease, the new printed TEZ is not passing through the baker fee filter. Where before, 100% of the minted TEZ were passing through the baker fee filter.
If the trading fees were given back to bakers, supposing the trading fees gathers the totality of the TEZ that it was printed (which did not pass through the baker fee filter) bakers would get back the 100% control of the new minted supply (as they had control before LB) from which they can apply the baking fee. The trading fees doesn’t add bakers more incentives when there was equally the same amount printed. Unless trading fees gathers more than what it was printed. It just maintains the status quo.
And yet you are again claiming that BitcoinSuisse is the issuer in a new thread.
I support the idea of competing proposals, I support a healthy debate, but it is disappointing to see you resort to lying, whatever your objective might be.
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If your logic is correct, then, Why not create 80 tez instead of 5 and have much more liquidity?. I tell you why, because it is detrimental for bakers and for tezos economics, but is more visible when you print 80 tez than when you print only 5, but the result is the same. That is the reality wether you want to see it or not. This proposal WILL affect all bakers.
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Because it would be costlier for tez holders who would get diluted. It makes sense to pay for some liquidity but not to buy more than needed. It’s hard to know what is the right amount to purchase, but the amount proposed is fairly low, making it a cheap way to gather data.
And yes, of course the proposal will affect all bakers as they also happen to be tez holders via their safety deposit.
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this proposal will affect bakers because apparently bakers are tez holders.
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Yes, and if another 80 TEZ were printed, a total of 160 TEZ per block, and burned 80 TEZ, then bakers would only be able to apply the baker fee to the half of the minted TEZ, the other 80 TEZ would be distributed to all participants with a baker fee of 0%.
Yes, now instead will be costlier for Bakers to maintain their baking operation because now they will be diluted 
But that’s already accounted for in what they are paying as token holders. You’re double counting.
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Not only will affect bakers via their safe deposit, they will be affected by not receiving the fees on the new minted 6%. Instead, that 6% will be equally distributed.
