The TEZ minted it is interacting with the system, so your example of the bug doesn’t apply, the trading fee that will collect back the amount that was subsidized, is no guarantee that it will collect the whole 2.5 TEZ back, it might only collect 2 TEZ, so we are talking about a risk.
Who is running that risk? The Hodler (delegator and baker) or the baker? I argue is obviously the baker, because his incentives to maintain his baker operations are threatened, he needs to take his cut even from the losing position of the scenario of the trading fee collecting only 2 TEZ, not just distribute the 2 TEZ without his cut at a 0% baker fee.
Who takes the risk? Who allowed the TEZ printed machine to print the subsidy in the first place? Who was in possession of the 100% of the printed TEZ before Liquidity Baking? WHO?
Why the baker didn’t have that risk when he was managing the 100% of the TEZ printing machine and applying baker fees to the 100%? The answer is simple, because the one who has more to lose is the BAKER, and the one that takes the biggest risk, is the BAKER, and the one who has governmental control over the TEZ printing machine, is the BAKER, and the one who risk more from all other entities in Tezos, is the baker.
Again, we were not talking about LB, we were talking about Arthurs example and a slight generalization to arbitrary amounts.
This example and LB are two different things and we were talking about the first and not the second. I know this can be confusing and I will try to avoid such situations in the future.
You answered that:
Now, lets assume a year ago the Tezos printing machine minted and burned 10^9 tez in the middle of the night without anybody noticing. A massive TAX, completely annihilating bakers inventives but luckily nobody noticed that and everything went on as before. Sadly you opened yesterday a chain explorer and find that minting and burning operations. Shockingly you have been bancrupt for a year without anybody knowing.
The truly fascinating question is, what happens if you dont tell the other bakers about this operations?
Are they like schrodingers cat both bankrupt and not bankrupt?
What happens if you interact with them?
Again, we are talking about the first thing, not the second thing!!!
I don’t think that bug is part of our reality, the TEZ printing machine creates blocks with TEZ in them, the printing machine doesn’t destroy them, unless is instructed for the TEZ to go to a certain burning address. But let’s say this bug is part of reality. You are exaggerating with the bankruptcy sentiment that the first observer supposedly experienced. There’s a reason why he can tell the others, and the others most probably won’t experience any possible feeling of loss of profits either, unless they are crazy irrational.
If a random block prints 1,000,000 TEZ instead of 40 TEZ due to a bug, but 999960 was instantly burned, and the block remains with the same 40 TEZ again, since the printing and burning happened in 30 second, they’ll just treat it like a 40 TEZ buggy block, they’ll still know that the printing machine will keep printing 40 TEZ every half a minute as usual from which they will still be able to apply baker fee. They wouldn’t be arguing that they lost possible profits due to a bug of 999960 TEZ not passing through the baker fee, it would be ridicule to treat it as a loss. Buggy block was always in bakers possession. No baker benefited more than other bakers to imbalance things out.Life goes on as normal.
Instead, with LB is different, Bakers authorizes 2.5 TEZ block subsidy from which it is going to be used for a purpose and used elsewhere, out of their reach for X amount of time, from which they will be unable to apply baker fee, in your example, the buggy TEZ block never passed on to non-bakers entities out of their reach, it always stood in possession with bakers, in LB TEZ goes to LP’s smart contract, and it’s used as payment from which LPs can dump or stake. Baker says goodbye to the 2.5 TEZ, and they don’t know if they will ever recover it one day. And if is recovered, the tyranny of the majority will impose the burning.
The income tax is real, let’s stop pretending is not @sophia, bakers are a business, and it should be treated as such, if you tax us, and our profits are diminished, we close the doors and the chain centralizes. The 3% income redistribution that is forced upon us, is real, stop talking about economic freedom when you tax the ones that secures the chain. That’s makes you a hypocrite. You hid an income redistribution tax in the code you wrote. The tax was hidden under the amazing and convenient feature of increased liquidity making it hard to find and easy to ignore.
This is probably how they will do it, they will hide these taxes under amazing features. And since Bakers are so desperate because the TF has been dumping suppressing the price, they will vote for the amazing features, even if they have to sacrifice themselves, bakers are desperate for TEZ to go to the moon, and they use that to their advantage to include these hidden wealth or income taxes, so they desperately ignore the taxes in exchange for amazing features.
I knew I shouldnt have touched the bug word, unforced error on my part.
But here is why LB is exactly the same. Assume LB goes live and we have the same amount of incoming trading fees going to null and subsidies going to the LP.
There is only a slight difference, there is a switch in the protocol that has a 50/50 chance per block generation to send the summed up trading fees directly to the LP as long as both amounts are the same with no subsidy creation or burning happening.
Now LB is running for a year in this conditions and nobody has looked in the chain how many times each alternative was chosen.
A baker now does not know what % between 0% to 2.9% he had lost because there is no observable difference unless you look in the chain history.
Now how is this poor baker to know how much he has to raise his fees to survive?
Why would the trading fees be sent AGAIN with this switch thing to the LP’s if the LP’s are already receiving the 2.5 subsidy, you want them to have even more profitability? You are overcomplicating yourself is not the same. There is clearly a tax that redistributes income, and there is an income transfer of wealth from bakers to delegators of 2.9%.
A baker charging a 10% fee would need to increase his fee to 10.29% in order to not be diluted. As simple as that.
Lb is not exactly the same. We all have to understand that the printing machine is ours, because we have governmental control over it, if we print an additional amount of TEZ, we don’t burn it, we take a cut from it and distribute the rest, is a loan that trader must reimburse if we want to keep the bakers incentives intact. That’s what incentives for bakers are for. IF you don’t believe in incentives, then burn 100% of the block rewards, distribute all block rewards at 0% baker fee. See how that works. Stop trying to find a reason to justify this TAX, it is wrong, it reduces our incentives. Is a robbery. You don’t justify a robbery by any means, not because the tax is a legal robbery means is legitimate.
The problem is that you think bakers have a license to collect a tax on any created tez.
So, when a bug creates and burns 10^9 tez you would just send an invoice when it comes to light. (to whom tough?)
The modified LB above would be required to keep track of all tez creation so the correct tax burden could be calculated.
The principle is rather similar to paying taxes on staking rewards.
In both cases the rewards are just offsetting a loss, but the tax collector does not care.
And yes, you have proven that if you had those tax powers your revenue would be higher than if you dont, congratulation.
No, it would not be higher if reimbursed, our revenue will be the SAME revenue as we have today. Not higher. With the burning of the trading fee, it will be LOWER as it is today. If you want to reduce even more the incentive, then BURN 100% of what the machine prints, see how that works out. You are having a really hard time understanding the simple fact that the incentive is maintained, not increased, if we regain the control of the 100% TEZ printing machine. 94% for bakers, while 6% burned, is a decrease.
No, bakers are not taxing anyone, don’t be so naive. A TAX can only be applied with coercive action, when you apply a tax is at the code level through governance. It was clear from the beginning that ALL revenue sources were going to be exclusively for bakers, since they are the ones that put their TEZ in bonds to secure and decentralize the network. Bakers are NOT taxing delegators, the baker fee is a voluntary agreement between both parties. Delegators a free to choose which bakers pay them more, Delegators are the workforce that provide bakers the opportunity to find more blocks with revenue in less time, delegators are paid by bakers, not the other way around. Delegators are free to reject or approve the voluntary agreement, the is no coercion. The only TAX here is the one that is imposed at CODE level with governmental coercion though this new Tax Reform to TAX bakers revenue source with the purpose to redistribute income, is the one that Arthur and Sophia hid there.
What you and Sophia are doing, are simply turning the blame on bakers, that “we are the tax collector” when bakers only work with delegators on voluntary agreements, so the fallacy of you and Sophia that we are the taxers is totally bullshit and shows how ignorant you both are.
On a more general note, your stubbornness to frame LB in anything other than these flawed Tax abstractions is quite interresting, can you, in good faith, make an argument for LB, assuming that if you really want to take down such arguments for good, you might want to start by going against the best possible argument in favour of it?
I was of course comparing paying taxes on staking rewards to your national government. The staking rewards just offset inflation but you have to pay nevertheless. In the same way that you want a cut on every newly minted tez even if they go straight to null.
IF reimbursed, we ARE STILL using block subsidies (inflation) to take collective action to fund something, that doesn’t change the fact that if the finality of the subsidy doesn’t work for a reason, or if the trading fee doesn’t collect anything, everyone will still feel the repercussions for the failure of the collective action or the benefits. That doesn’t change. The only thing that change if the trading fee is burned is baker’s incentives. The reduction of incentives is a reality from which you cannot escape, you can ignore the mathematical evidence all you want, and believe based on pure faith that this is not true, it won’t change the objective reality that is affecting incentives. You are just denying reality, collective action would still be taken if the trading fee was reimbursed.
I’m in favor of liquidity, I think it is a good collective action to achieve increased liquidity, I’m NOT against the finality of the collective action, I’m against the means to achieve that end, the end does not justify the means.
The revenue sources are the rewards of bakers for locking their TEZ in bonds. Delegators can gain access without middleman to the block rewards, as long as they put their TEZ in bonds and lock it there. What is being done, when the TEZ is burned, is distributing the TEZ for FREE at 0% baker fee to people that is not even locking TEZ in bonds.
No, they get distributed to everyone for free, that can’t have a null effect on baker incentives, you are denying reality.
No one is ignoring or denying anything, this was brought up before, to quote Sophia:
So modulo the 1% fee and psychological effects, we expect ~6.875% of total rolls to be LPs for the liquidity baking CPMM, which is far from enough to affect network security.
Asumming trade fees can offset subsidies, does that not mean that bakers get a bigger piece of the pie since those 6.8% are removed from staking/ block reward recipients?
To be more precise: Bakers will always have to share their piece with less stakers regardless of trade but inflation might eat that unless there is enough trade.
No! Because the subsidy will stay little time inside the LP contract to be meaningful, once it is earned by LP’s they will stake it, or dump it into the markets, the people that buy that TEZ in the markets, will stake it. Either way, it ends up staked.
