Thoughts on inflation

Philosophy and Economics
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Hey community, I was thinking about inflation by the Tezos protocol which is fixed at 5.5%.

I’m thinking that we should reduce the protocol level baking rewards to just 1% per year and use the remaining 4.5% to compensate protocol developers and other grants by the community.

The reasons:

  1. Lowers the inflation. 5.5% inflation seems very high.
  2. The remaining 4.5% inflation is optional and only is linked to people’s productivity. If they do more work, they get more rewards(but then there is economic value to their work).

The reason for suggesting 1% - I want to refer to this tweet about Bitcoin: https://twitter.com/michael_saylor/status/1372601627467726851 - he says, Bitcoin miners are consuming 1% (10 billion USD) worth of energy to secure 1 trillion in value.

Looking forward for your thoughts.

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3 Likes
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Protocol developers are already capable of including an “invoice” with each new version to compensate themselves, so that reason goes away.
Secondly, “grants by the community” are already provided by the foundation which sits on $400M+ to give out to anyone who can justify their need. I myself have received 2 grants in the past year for different projects; it’s not hard.

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Why do we need to have a separate fund to reward developers when TF has a 2 bil wallet for that purpose?

At 1% returns, is it profitable for someone to run a bakery? Even at 5%, there are many saying that it doesn’t work and are shutting down. We need bakers to secure the network and to participate in governance.

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I think we can unpack this into two main points that are inexorably linked- protocol inflation and TF’s dominance in baking. The latter serves as a very real and significant deterrent towards existing and potential new bakers. I’m continually astounded by the hesitancy to directly address this issue. Many bakers have left and more will continue to leave as long as TF dominates baking and consumes the majority of rewards. The status quo can’t continue and we must address it. In the past I’ve suggested that perhaps TF is waiting for the community to provide official guidance via governance, and are hesitant to act in a way that some might see as affecting XTZ price. Assuming such, the community should help TF towards the goal of decentralization by specifically removing TF bakers in protocol upgrades. This respects property rights, follows the roadmap towards decentralization, and helps TF by alleviating them of a decision which some might say is an attempt at economic manipulation. This is exactly the type of situation that the governance afforded by the Tezos protocol is designed to address. I would suggest an incremental reduction in inflation as TF bakers are brought offline via governance.

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We went from 408 bakers to 398… and about 4 months ago we were at 392. I may not be a math genius, but it seems like we are GAINING bakers not losing them.

You’re wanting to remove TF bakers via protocol? Do you not see the extremely dangerous precedent you’re setting? What is preventing that to be used against another baker?

So you’re wanting to “fix” a non-existent problem by creating another problem, seems like a brilliant idea.

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TF should have stopped baking a long time ago. They continue earning baking rewards when it was supposed that they would stop at some point and let bakers run the network once it matures, the network I would say is mature enough nowadays.

TF should sell their XTZ from their bakers (to make the ecosystem much more descentralized). And use that money to fund development and marketing. They have a war chest too. But I prefer them to sell their XTZ periodically, so the network wealth is distributed and thus more descentralized.

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it’s been a good half a year long descent already, I believe we can call it descentralized enough

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Still, it is not a bad idea to distribute that wealth from that party in particular. And use the profit to finance marketing and development.

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TF’s baking operations were only intended to bootstrap the network. That’s been done. Further centralizing the network in a tron like fashion is extremely bad optics and definitely keeps people away from the ecosystem. A prominent VC told me they wouldn’t even consider allocating into Tezos until TF started winding their baking operations down. Pretty sure this is why Polychain dumped their XTZ and quit baking too.

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For argument’s sake, would Florence have made it to the Testing phase if TF bakeries didn’t vote pass? Second, a “prominent VC” told you that they wouldn’t consider allocating? that’s literally the same thing we hear all the time in telegram “long time ico holder” before they start to FUD.

Lastly, are you really sure that’s why Polychain stopped baking? It’s not very hard to use a block explorer and see that you’re overexaggerating once again. Polychain Labs 2 on tzkt.io ?

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Rationality? Bakers won’t boycott other bakers that actually bought their XTZ from the markets, that would be shooting themselves in their own foot, rational bakers knows that TF didn’t keep their promise of stop baking after bootstrapping the network, TF didn’t buy their XTZ from the markets, they generated their XTZ out of thin air, we sent bitcoins and ethereum in exchange in the ICO.

We need to do something via governance, this is why we have governance, let’s use governance. Super majority is always around 80% I’m sure TF have more than 21% of XTZ supply in their possession, they are a risk that can veto one day any proposal. They legally can’t vote yay or nay, but still, that doesn’t mean one they won’t start voting yay or nay, we should just inject a proposal to take away from them their ability to generate new XTZ from the inflation that is supposed to be for us, the genuine bakers that actually bought from the markets or exchanged with bitcoin or ethereum in the ICO. Let’s put it to test as well, let’s see if they CAN’T really vote nay to that proposal due to legal reasons. They don’t seem that they will stop voluntarily baking, we have asked them in Q&A, and they ignore this.

It is not an irrational decision to do perform such a governance measure, is perfectly rational and objective.

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I don’t understand the suggestion to remove the TF bakers against their will. It makes no sense to me. First of all, as already stated, they have veto power and can always vote against any such proposal.

The only way to prevent them from having any say in the matter is to socially organize (off-chain) a hard fork which disallows them from voting against the proposal, or which just disables their baking accounts at the time of the fork. But unless you’re talking about completely destroying all of their tez in the process, that still won’t be enough to stop them.

If you simply amend the protocol to disallow their baking accounts from baking, all they need to do is transfer the funds to a new address and then continue baking. And if they wanted to be stealthy about it, they could anonymize their funds through various exchanges, dividing them up into dozens of much smaller baking accounts of various amounts and just re-establish baking. Except then it would no longer be happening transparently and in the open. And since potentially no one would know which accounts were theirs, they could start secretly voting yea or nay in future proposals and pull the strings even more in their favor behind the curtain.

They could even start accepting delegations which would take even more of the rewards away from other bakers since that would mean less people delegating to non-foundation bakers.

Yes, the amount of power the TF has is something to be concerned about. I hope that the Tezos community and the Tezos Foundation can amicably work out a process in which they voluntarily reduce their control over the network and hand it off to the commonwealth. But I would absolutely hate to see the fallout Tezos would suffer as a result of attempts to forcibly oust control away from the Tezos Foundation.

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There is no such thing as a “descentralized blockchain” if we have a party with such veto power. What we have here is a centralized blockchain, at least in the decision-making part, we are centralized, let’s call it by its name, it’s centralized. And it will be centralized until no single party have the veto power.

TF doesn’t seem to want to cooperate voluntarily, then from now to 10 years, if they keep baking with full veto power, would you consider it in 10 years to inject a proposal to do something? They can’t legally vote nay or yay. They will be forced to comply with the law and vote “pass” to every proposal.

We have already been asking nicely for 2 years, first year was to bootstrap the network, but the other 2 years have been just abuse. They said they would stop baking.

I don’t think they can legally anonymize their coins either, they would be sued. We really want tezos to be decentralized in the decision-making part, so what do we do? We just wait with crossed arms until they want to cooperate, or we do something via governance?

They say, our bakers will be operational just long enough to help to bootstrap the network, how long will take that according to their concept of “long enough”? 10 years? 20 years?

I’m basically baking, risking my money inside bonds, so I don’t even have liquid XTZ available to spend, with the hope that one day it will be descentralized IF this party voluntarily decides to stop baking. I believe it is objective we do something via governance.

EDIT: We can shut down their baking operations via a tezos proposal, this would be our way of “asking nicely” to stop baking, if they move the coins to new accounts, we will then know who we are dealing with.

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If they can’t legally vote yay or nay, what makes you think they will in the future? Unless the law is changed, they can’t and they won’t. It’s that simple. End of story.

Not an irrational decision to change it via code? You’re crazy if you don’t see the dangerous precedent you would be setting by doing so.

The difference that you’re failing to see is that if TF voted yay or nay, they would essentially be breaking Swiss law. Do you really think TF is going to go rogue and break laws? Let’s be real here.

Basically what you’re saying is you want TF to shut down their bakeries so that you can make more tez. It’s quite clear from your position. You’re arguing with the guise of “decentralization” when really, when you cut the crap it boils down to you as a baker (greed) wanting to make more tez by any means necessary even if it means setting dangerous precedents via changing the protocol to do so.

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No you misunderstood me, and that’s an incredible enormous straw man fallacy that you are doing there, I never said that I care about how much I earn and how much I would earn if they stop baking, my point was not about baker’s greed, is about that they have full veto voting power to veto any proposal, doesn’t matter that the law doesn’t let them vote, the reality is that there is a huge risk of that happening, because things can happen no matter what the Swiss law says, the reality is that the possibility of that happening EXISTS. And as baker in possession of over 110,000 XTZ, since my XTZ is locked in bonds, I wouldn’t even have liquid XTZ to sell if that becomes a reality, the possibility is there, so don’t try to do a straw man on me with a greedy motive, is a security motive, not greedy. Greed doesn’t have anything to do here. I fear for my investment. I would prefer to be in a blockchain where there is no such possibility at all.

EDIT: So basically the “descentralization” of Tezos, depends on the laws of some country. Without the country is centralized. No, there is no such a thing, the blockchain itself is centralized, period. A blockchain shouldn’t depend on the protection of a country to be decentralized. A blockchain must be decentralized by itself, not by some laws of some country.

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If you honestly think TF would go rogue one day, by violating the swiss law, and US Security regulations law by influencing the network, then I think you’re sadly mistaken. They wouldn’t be able to exist at that point if they were doing things that by law, they can’t. If you think a $2bil professional organization would just risk it all by violating laws, then pass me whatever you’re smoking cause that stuff must be strong.

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Ad hominem, is all I’m seeing, attacking me saying I smoke stuff instead of the argument. The argument is that it is an illusion that the non-TF bakers have any control of the network. A country which is an external factor doesn’t make the network decentralized, it would be an oxymoron if you say that, a contradiction. Only a network itself can be decentralized by its own. Either is decentralized or is not, there is no “gray area”.

And yes, if Tezos becomes big enough, it could be an attack vector. There is the possibility that the Switzerland and the US change the laws, so the foundation can intervene, it would be a way of state control through the foundation.

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I don’t have a reason to like TF and I don’t.
However I don’t like the idea of taking someone else’s money even more.
We agreed TF’s gonna print this money out of thin air when participated in the fundraiser so it’s their money.

If they intervene with bad stuff then we’ll have to fork them out I guess.

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Yes, but we also agreed they were not going to bake forever, that they were only going to bake to bootstrap the network to achieve some level of stability. This stability has been achieved. Then where is the TF integrity? I’m not proposing burning their coins, their property, or expropriating anything. It is just a mathematical fact, that for the blockchain to be truly decentralized the supply they control will have to be lowered. If I had known the decision-making would be centralized, then perhaps I wouldn’t have put my XTZ in bonds. This is really a disincentive for bakers to run a baking operation, and not because of greed, but because we have to lock our XTZ in bonds and thus making us to sacrifice liquidity with the added risk of 1 party owning all the decision-making control, it doesn’t worth the risk of locking our XTZ in bonds. It means that on-chain governance is a lie, that we don’t have the properties of a distributed decision-making blockchain.

You can ignore reality, but you can’t ignore the consequences of ignoring reality.

I’m sure we can find a governance solution that does not involve expropriation of their coins or burning of their coins. An idea I have is, that we can split the inflation rewards in two parts, one for the TF bakers and one for the rest of the bakers, in which all bakers except the TF bakers gets the majority let’s say 90% of the inflation rewards and the TF bakers get 10%. Then we eliminate that “inequality before the code law”, once we achieve truly distributed decision-making. This way, the TF baking nodes can remain operational for the time they consider prudent for whatever they mean when they say they do it to “bootstrap the network and achieve stability”.

IF the TF moves their XTZ to a different tz1 address, then we patch again, and again. I agree there must not be any inequality before the law among bakers, but this is a necessary objective governance action to achieve distributed decision-making, it will not scare away investment, quite the contrary, it will attract more since decentralization through distribution is being achieved. If not why we have governance? We should use it only objectively for objective reasons.

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