We’re basically gonna have to deal with it with every defi farming out there. a rational investor’s going to stay on ethereum where the yields are higher than this 10-15%
what exactly is decided by bakers? bakers decide whether the proposal is gonna pass, you’re correct
Great, now solve for the equilibrium.
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yes, then the block rewards are baker’s rewards. Because they have absolute governance control over it, whether you or @murbard say the opposite.
It seems inevitable that we’ll probably try this anyway due to the way the current vote is shaking out, so it might be more productive to steer this conversation towards ways we can improve liquidity incentives in H.
In PoS networks with active DeFi communities, there will always be tension between allocating the base currency (Tez) to secure the network through consensus and using the base currency to provide liquidity for other financial use cases, such as borrowing, lending, market making, etc. The question is how do we properly balance these two?
One way to consider it is the ETH2 model, where they only expect 10-20% of the currency to provide security guarantees for the entire network, but require you to completely lose all liquidity for your ETH while staking. I’ve always admired Tezos liquid staking design, where my Tez can be securing the network through staking while remaining liquid. It’s a brilliant design and solves one of the hardest challenges in PoS.
The current path of LB most likely takes us there over a long period of time. It means the network should still have good security guarantees, but centralization concerns become even more prevalent. Large bakers like Tezos Foundation, which currently controls ~27% of the network, will now control an even larger percentage.
With that in mind, I have a few rough ideas to help with this, but they would need further economic research:
- Make baking rewards scale proportionally with the size of your baker. A high number of rolls receive a lower amount of rewards and lower number of rolls receive a higher amount of rewards. This penalizes excessive centralization economically, but would be a very controversial proposal and would not be likely to pass a governance vote, IMHO.
- Allocate liquidity baking rewards only to pools that DO NOT have Tez in them. This means a pool like USDC/tzBTC would be fine, but an XTZ/tzBTC pool would not receive rewards.
- Figure out a way to delegate rolls from liquidity pools to bakers fairly so that the Tez can still provide security for the network while it is also providing liquidity.
One of the key design choices we made for Kolibri was to enable ovens to still participate in baking so that it didn’t harm the overall security of the network. It would be nice to consider ways that liquidity baking can achieve a similar design goal.
P.S. I admit these ideas are somewhat rough, but would prefer to have a constructive conversation about improvements as opposed to unproductive ad hominems.
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Socialism? Redistribution of income, no, thanks, it means expropriation for the “common good”. This will penalize genuine BIG bakers that actually bought XTZ from the markets, just so exchanges and TF can get fewer rewards. Genuine BIG bakers have their right to have more because they invested more than small bakers.
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Isn’t the point to increase liquidity for XTZ?
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This sounds interesting, OR just instead of burning the 2.5 generated tez, just transfer fairly back to bakers, so they can apply the baking fee to that 2.5 TEZ, like I have been saying for the past 15 posts and accused of being greedy.
This is immediately gamed by splitting your stake and appearing like you are multiple small bakers. It’s great to see ideas being put out there, but you clearly haven’t given this much thought.
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Not really. Again you are drawing from Tarun’s paper but with a shallow understanding. There is not need to balance anything. Staking must be competitive with sources of yield for security, and the paper argues that naive policies, such as keeping a flat returns to staking won’t work. In that respect it is correct. Tezos sidesteps the problem by setting a very high ceiling and letting the market decide on the actual rate by having bakers adjust how they pay their delegates. It was designed to do that in 2014. Other approaches involve bonding curves (Eth 2.0) or reverse auctions (polkadot). Higher yields in defi means a higher cost of capital and thus that security becomes more expensive in PoS. There is no escaping that. But it’s not like there is a “balance” you need to maintain.
On a positive note I really appreciate your comments around DeFi, financial modeling and PoS as they really help contextualise the rest of your comments, so please keep them coming!
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I’m aware of that, however, splitting delegations is very hard, and balancing the bond for every delegated pool is also very hard. Convincing delegators to change delegations is next to impossible. Do you have any thoughts on the other ideas I proposed?
I agree with this. @tezoswakenbake is making a valid point, I wonder why he is being ignored. LP is going to reduce incentives for bakers and we don’t want that. We want more bakers, not less, and that is what is going to happen. I know the proposal has good intensions, but from the economic point of view is not good.
Once you have an established baker maybe, but over time you would see everything dominated by small looking bakers which are actually part of the same operation. It happens all the time in DPOS. Besides, generally speaking, you don’t want your network security on such flimsy guarantee.
I do not unfortunately have time to explain the various ways in which all the ideas you’re posting don’t make sense because you keep posting a ton of stuff and move on as soon as you’re challenged on the coherence of it all.
To be constructive could you select what you feel are the strongest, most well thought out ones and I’ll look at them later?
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IF LP’s couldn’t be funded by distributing this paying fee, I would say, well okey let’s tax it to us, to build the roads. But this is not even like that, the scenario would still happen with the borrow was paid back to us, instead of burned. We would still distribute at least 90% of that to delegators, and incentives wouldn’t be reduced. But @murbard is okay with the culture of self-sacrifice. But when we propose to expropriate his DSL stake along with TF, he jumps all call us all a bunch of socialists because we want to expropriate him for the “common good”. This double moral standard is what I don’t like about him. At least I’m firm with my beliefs. Let’s propose to expropriate the block rewards of DSL for the common good, he will be the first one to jump.
No offense @murbard
I do not have the time to give away good ideas for free and suffer repeated ad hominems and other attacks.
This is a fair request, but I’m not feeling particularly charitable based on recent interactions with you, and I’m frankly not motivated enough to find the activation energy to write this document and champion it through what is likely to be a grueling and demotivating process full of additional ad hominems and other attacks.
I hope at some point you’ll reflect on the consequences of your particular communications style, but for now, I have a lot of other projects that I can engage with that provide more meaningful rewards for me, both financially, professionally, and personally.
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Strongly echo Luke’s sentiment.
It’s exhausting to debate someone who behaves and attacks in this way when legitimate disagreement is brought up to them.
I’m not going to engage on the topic of your behavior further, but I do hope in the future the community will read this thread and judge your behavior accordingly.
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Amen to that.
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Oh, sorry, let me correct this statement, is true, block rewards are not ours, are TF’s because they have VETO power. 
Let’s make a proposal to burn their coins for the “common good” then and DSL to see if they vote nay.
There’s obviously no perfect solution but there is a best available path given the available options.
I agree that the tone is not great but I do empathize with the frustration that these plans have been public for months and that those voicing concerns didn’t voice them until the proposal was injected.
Still, this is a learning process for us all and these late concerns don’t necessarily warrant thin patience as we build the norms around proposals.
Coming from a big tech PR perspective, I wish that we could productize these proposals by holding briefings with live Q&A sessions for bakers, ecosystem developers, and press/analysts before the proposal injections. IMO, these would serve well to better educate and understand possible misconceptions and objections earlier on in the process, in addition to giving Tezos greater visibility to the wider crypto industry. Maybe something for TQ and Blockhaus to consider moving forward…
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It’s being ignored because the logic doesn’t make sense and it has already been explained to both of you many times already. The reasoning has fallen upon deaf ears hence people have moved on.
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What part of this logic and numbers you don’t understand. IF the trading fee was retributed back to bakers instead of burned, they will be able to apply a baking fee of that 2.5 TEZ per block, a baker charging 10% fee, would get at least 0.25 TEZ of that per block. This is the whole truth. We are being ignored because you and @murbard and the other developers of these proposals, can’t grasp this simple fact. Come on, call me greedy, but this is an undeniable fact. And the worst of it, is that LP’s can still be funded this way. Without bakers being sacrificed.The reason you guys are ignoring it is that you don’t have contra arguments and have that battle lost.
I for one genuinely appreciate all that Luke and Keefer have contributed to the Tezos community and I hope that they will not feel discouraged from doing so in the future. This Granada debate has been a shit show and is exposing reasons why we are barely a top 50 coin when our tech is top 5.
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