Greetings to all forum members!
As the cooldown phase of the Tezos Oxford proposal nears its end, we would like to express our thoughts and concerns and open the floor for discussions.
Based on our analysis, we believe that the proposal implementation may have negative economic consequences for both bakers and delegators. This is primarily due to a significant reduction in inflation rewards, despite the proposal’s main goal of increasing the value of XTZ and improving the economic situation within the ecosystem.
Having been part of the Tezos ecosystem from its inception, we at Everstake are deeply interested in the network’s growth and well-being. Therefore, we believe it’s important to emphasize the following points:
- Decreased inflation
1. Reducing inflation doesn’t necessarily guarantee an increase in token value. While it may have a positive impact on token value, what if it doesn’t react as initially anticipated, especially considering the current market conditions? That’s why it’s crucial to consider all possible scenarios and prepare a backup plan with thoughtful solutions to address potential challenges. A substantial reduction in the inflation rate may prompt many retail and institutional stakers to sell their XTZ due to the decreased APY, potentially causing a negative impact on the price.
2. This will also lead to significantly reduced rewards for bakers. Currently, the inflation rate stands at approximately 4.59%. After the proposal is accepted by the majority of voters, inflation will fluctuate between 0.05% and 5%. In all cases, bakers’ profitability will see a significant decrease in the long term unless there is substantial XTZ price growth. When it comes to smaller bakers, they are already facing challenges in maintaining their infrastructure, while there’s no active inflow of new bakers, and the reduction of rewards will only worsen the situation.
- Delegation vs. the new staking process
1. Our primary focus here is on the user experience and interests: what the new staking process will look like and how user-friendly it will be, as this is what determines whether delegators will want to transition to stakers. Also, once again, keeping in mind that stakers’ funds will be subject to slashing.
2. There might be a potential risk that only a tiny percentage of users will switch to staking. It’s crucial to engage the community further, listen to users’ opinions, and gather user feedback. With reduced rewards, delegators might tend to seek higher returns and switch to staking, however, the transition to stakers comes with increased risks, which can, on the contrary, push users away.
We are deeply interested in the implementations that will contribute to the evolution and prosperity of the ecosystem and would like to see more discussions around the potential implications of Adaptive Issuance.