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 doesnât change the fact that if the finality of the subsidy doesnât work for a reason, or if the trading fee doesnât collect anything, everyone will still feel the repercussions for the failure of the collective action or the benefits. That doesnât change. The only thing that change if the trading fee is burned is bakerâs 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 wonât 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.
Iâm in favor of liquidity, I think it is a good collective action to achieve increased liquidity, Iâm NOT against the finality of the collective action, Iâm 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 canât 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 LPâs 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.
The question that she was responding to, a guy asking if LB becomes too attractive, how it will affect network security by bakers seeking profitability and actually closing their baking operations to go to be liquidity providers. Thatâs another issue. It could happen, but if enough people join the LP party, the profitability of the subsidy reward reduces, and it becomes less attractive, but still, it could happen that bakers close their business and instead join the LP party.
For this exact same reason, the trading fee should be REIMBURSED to bakers instead of burned, so they can apply the baker fee to that amount, so their incentives are not reduced and this security risk of bakers becoming LPâs is mitigated.
There are many reasons why Bakers must keep applying the baker fee to the 100% of what comes out of the TEZ printing machine, and it all reduces to maintaining the incentives.
Yes, and in my naive and probably wrong interpretation that means:
Current staking ratio ~78% - LP rolls 6.875% = 71.125%
Difference in mean block rewards for bakers per roll: 78/71.124 = 1.097 = ~ +10%
Now you just need to assume that all those LPsâs rolls will staked after they earn them. It will not lower the current staking ratio. You are assuming they will keep all those TEZ without staking them, or that when they dump them in the market, the buyers would also not stake, your logic is flawed.
We are not talking about the earned subsidies, we are talking about nearly 7% of all tez in existence being long term invested in the LP that are now (mostly) staked.
Where do you think that massive liquidity boost is supposed to come from?
My doubts come from 50% of the LP is in âwrappedâ BC, so is it really 7% or maybe 3.5%, tez should take a 3.5% one time inflation hit from the value transfer. I also think ppl might want a higher risk premium for IL risk so it might balance lower.
Oh sorry, i get you now, but why you assuming that 7% of the whole tez supply will be there long term investing by providing liquidity. Why not 1%? How you can predict that?
Is pure speculation. There is a lot of dilutive risks for lps, including not being able to stake and impermanent loss. How do we know that 7% of rolls will be locked up there, how they calculated that?
And if the 7% figure of locked up rolls in the LP contract is achieved, and bakers are attracted to quit their baking operation to become lpâs, reimbursing them trading fee would still mitigate this risk of security loss.
So from one side, if 7% of all the rolls end up in the LP contract, we lose security due to bakers closing their bakeries to become LPâs, but the remaining bakers will keep being incentivized due to fewer people staking and bigger block reward pie than before. On the other side, If only 1% of the rolls ends up in the LP contract, we donât lose as much security, but our block rewards pie reduces, because more people staking and less block reward pie.
Why not mitigate these risks of security and fewer rewards by reimbursing the trading fee to bakers? Letting bakers process the 100% of block rewards like they are doing today.
i thought a natural consequence of LB would be that at existing status quo, bakers that charged very low fees (like nearly all of us bakers) would likely feel they were getting screwed a bit due to this âtaxâ you discuss, but that a more fair equilibrium could be very easily obtained by simply raising fees a bit.
Yes. This is true. I just donât want to see more hidden taxes, bakers that donât know about it, will just maintain their fee static, and they will lose value. Not anyone will be able to spot it and when they do, they would have lost a few bucks.