TL;DR Tokenomics are not only key for (short/medium-term) price action. Sound tokenomics are also at the heart of Bitocracy’s protection against governance attacks. I would be happy to contribute to such a taskforce. In line with @Sacro, I propose the task force (i) reviews current tokenomics and makes all elements transparent to the community, (ii) investigates ways to stabilize circulating supply, such that supply can increase in line with demand (iii) investigates a fortification of bitocracy’s security against SOV price drops.
Time locked staking, governance attacks and tokenomics
As a long-time lurker on discord/dojo/forum/community calls, I decided to make a forum account yesterday and engage in this discussion, because this topic is important.
As argued by @yago in different posts, time-locked staking is supposed to act as the central protection of the protocol against governance attacks. The current staking reward system is designed to be forward facing and aims to incentivise long term future thinking: People most dedicated to the project – as demonstrated by their action to lock-up capital for a long time - should have a bigger voice.
These design principles are in my view sound and - as yago pointed out - they allow to draw a PoW analogy through the (opportunity) cost of staking. But this design relies on a key underlying assumption: for the incentive structure to work as intended over time, SOV price should be stable/increasing over time.
This can be illustrated with a simple example:
- Sovrynaut A invests 100USD in May 2021 at a price of 85USD, getting roughly 1.2 SOV. Taking a long-term view, sovrynaut A stakes for 78 periods, and gets 12 voting power.
- Sovrynaut B invests 100USD in April 2022 at a price of 3.6USD, getting roughly 27.8 SOV. Taking a short-term view, sovrynaut B stakes for just 1 period, and gets 33.36 voting power.
Both sovrynauts have the same USD opportunity cost (I’m simplifying here, by just focusing on the direct cost to purchase SOV, ignoring e.g., yield that could be earned). But sovrynaut B gets roughly three time the voting power of sovrynaut A, despite sovrynaut B making the shortest and sovrynaut A making the longest possible commitment.
While this example is extreme, it demonstrates that tokenomics and their price implications are also at the heart of Bitocracy’s security. Considering the price action over the past months, reassessing Sovryn’s tokenomics is thus also imperative for the protocol’s security.
Given above, I would be happy to contribute to such a taskforce (and my profile fits well in @yago’s description - being an economist with a quant & risk background).
Potential steps for a taskforce
I agree with @Sacro that the first step must be a detailed assessment of where we are. It is currently not straightforward to understand key features from an outside perspective. For example: my understanding is that we are in month 15 of SOV’s emission schedule as displayed in the blackpaper, which should coincide with roughly 35mio SOV fully vested. How does @yago’s remark made in the SIP0044 thread, that the emission schedule has already been slowed-down, play into this? How does this reconcile with circulating supply currently shown as roughly 21mio? All elements of todays’ tokenomics should be crystal clear to everybody to start an efficient and constructive discussion.
In a second step, options that could stabilize circulating supply can be explored. What are advantages/disadvantages/technical constraints? Some ideas have been proposed in different threads, including draft SIP-0044, and merit a detailed assessment. Other options should also be looked at.
In a third step, one could try to further fortify bitocracy against SOV price drops, which work against the desired incentive structure. A modification of the staking mechanism could be one solution. A modification of how voting power is computed could be another (e.g., instead of computing voting power as a sole function of SOV, one could explore computing voting power as a function of the SATS value of the staked SOV).
Given the input from BCW with draft SIP-0044, which led to one of the most intense discussions in the community that I witnessed so far on forum, tg & discord, I would find it beneficial if BCW members would participate in the tokenomics discussions (disclaimer: I’m not part of BCW).