Increasing baker's annual deflation rate (ADR) to attract more people to bake so they lock their TEZ in Bond deposits to stimulate scarcity

Transaction fees are what makes TEZ a deflationary coin, we need to increase the on-chain transactions massively to increase the ADR, currently ADR is around 0.5% for bakers, if we increase the ADR to 5%, more bakers will be attracted to bake, maybe 10X the number of bakers we have today, and they all need to lock their TEZ in bond deposits, this will make their TEZ illiquid, and they won’t be able to sell whenever they want, more TEZ locked in bonds means less TEZ available to sell, means even more scarcity on top of the ADR, at the end, scarcity means TEZ dollar price to the moon + more security and decentralization due to the hypothetical 10X increase in the number of baking nodes.

It’s deflationary without factoring in transaction fees since not all tez are being staked.


Yeah, so, even with only 77% staked and transaction fees, we only are 0.5% ADR for a baker charging 10% baker fee, that’s basically negligible. As much, we have 300 bakers receiving delegations, the other ones are solo baking, we have been like that for years. We need massive usage, to increase ADR so more bakers join.

If the ADR becomes 5% instead of 0.5%, we would have no problem to share the pie with another 2000 or 4000 bakers, as long as they all provide bond deposits.

Liquidity Baking will increase ADR, unfortunately at the cost of a little inflation but hopefully the new ADR surpasses the new inflation.

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Yeah, it might increase (or decrease) general ADR. But, If the trading volumes of XTZ/tzBTC exceeds our expectations, perhaps we could raise the trading fee from 0.1% to 0.2% to increase general ADR?

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Maybe the fee could be programmed to automatically change depending on volume; the higher the volume the higher the fee and vice-a-versa.

Yes, but that would be a way to increase overall ADR, which is well welcome. But, similar to trading volume example, what i.mean is that, we could as well raise up on-chain transaction fees in the future (if the on-chain transaction volume exceeds our expectations), to increase ADR specifically for bakers (since bakers earn the fees), so it becomes more attractive to run a baking node. The criteria to raise up fees is always objectively, always respecting the fact that we must remain competitive with other smart contract platforms.

We are not getting more bakers, we have been stuck at 300-400 public bakers since mainnet started 3 years ago, and only around 200 bakers are active giving service to delegators. We need more people to lock their TEZ in bonds to avoid further dumping. But being a baker is not very attractive, it only gives you pennies in terms of ADR and lots of works and maintenance of the node and payment software, dealing with clients, etc.

Why don’t we raise APY for bakers who participate in the governance. Figure out a logical, fair mathematical way to give block rewards benefits to bakers who vote yay/nay/abstain. This would knock out two birds with one stone. Say, 25% increase if you voted for the past 3 governance cycles 15% for the past two, and 5% in the past 1 cycle. I really hate exchange bakers who don’t help the network but take rewards. Also reducing foundation baker rewards by only having them abstain when they need to would increase the rewards for the decentralized bakers.

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TF bakers are voting big with they vote pass. You want to decrease the rewards to the bakers that vote pass?

The only way to increase ADR specifically for bakers is to increase massively the transactions that happens on-chain? Since bakers earns those transaction fees. I can’t think of another way :thinking:

Burning TEZ is another way (like with liquidity baking) but burning TEZ increase ADR for all TEZ holders (bakers and non-bakers), not only exclusively for bakers.

The idea is to target specifically bakers ADR, to attract new bakers that will lock their TEZ in bonds. The bigger the pie, the more new bakers will be attracted, once the new bakers are attracted, the pie will be reduced because of more and more new bakers sharing the pie, but now we will have a lot more TEZ locked in bonds than before, stimulating scarcity by bakers locking their TEZ in bonds, making themselves unable to sell and psychologically attached to the juicy ADR (also more TEZ locked in bonds increases chain security and more baking nodes + descentralization).

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If you want more income, raise your fees.

I would prefer to keep transaction fees low for users. Low fees enabled platforms like Hic et Nunc and Kalamint to thrive.

Nobody is talking about raising on-chain transaction fees now, I’m saying to increase transaction volume. More volume of low fee transactions, more ADR.

We can’t increase transaction fees yet because we need to bootstrap adoption of Tezos, maybe one day in the future we can raise the fees once we are the dominant smart contract blockchain with lots and lots of volume, and we can raise fees always based on the competitiveness of transactions costs with other smart contract blockchains.

Also, there is a misconception that transaction fees are kept only by bakers. This is not true, beside block rewards, bakers also distribute transaction fees to their delegators. If a baker charge 10% baker fee, 90% of block rewards AND 90% of transaction fees are distributed to his delegators, not only block rewards as you may think. Both are distributed with the baker fee, so TEZ hodlers that do not transact on-chain, that they just want to delegate their TEZ and HODL, they as well will get ADR benefit, not only bakers.

no, voting “abstain” is fine, they just need to vote.

This has been discussed, I believe we should punish bakers irresponsibility. I completely agree. And of course, the ones who benefit from the irresponsibility of bakers must be the remaining responsible bakers. Irresponsibility must be fined.

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