Factom Tokenomics Proposal

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Should we hardcode this token proposal into the protocol?


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This is a proposed new Factom Token Model for a major timed discussion and vote.

This revised Token Model proposal is the resulting product from several weeks of soliciting input and guidance from the community.

The token model proposal can be viewed here: https://docs.google.com/document/d/1yIXWeXSEF-GbFw6KP7WIgAUoZ7L3Bs2j_Zdxvgai0L4/edit?usp=sharing

Changes from the previously presented draft proposal are:
  • The proposal’s scope has been narrowed and all features outside the core token model have been removed.
  • All content potentially controversial has been removed: this proposal is meant to be apolitical and appeal to the ENTIRE community
  • The proposal has been signifncaly shortened and simplified
The proposed token model has three goals:
  • mint tokens in a sustainable way
  • align incentives with protocol use
  • give Factom a stronger "store of value" use case
Proposal Summary
  • Introduces a maximum circulating token limit of 20,000,000 (UPDATED) FCT.
  • Minted tokens are added to the current token circulation, burns remove them.
  • Token minting capacity is split into conditional ‘ad hoc’ mints to pursue development objectives and scheduled mints to cover protocol rewards programs.
  • Token minting capacity is inversely proportional to the current tokens in circulation; thereby creating a proper, shared incentive towards usage and promoting good stewardship.
Implementation: if approved, the proposed token model will be hard coded into the protocol. Paul Snow has expressed a willingness to lead this effort. Timeline for implementation would be second quarter of 2021.

This proposal was made possible from invaluable input from people across the community. Special thanks is warranted to Hinamatsuri for providing significant feedback during the proposal’s draft public discussion and to ANOs Cube3, Kompendium, HashnStore, Factom Inc, and to Vidale (formerly of Factoshi) for doing the work of debating, drafting, and refining this proposal over the past few months.
 
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I'm still working the math on the proposal but a question that I keep coming back to is why not just use an easy number for the hard cap, e.g. 20M? I understand the symbology behind the current number but for ease of telling the story, it would be way simpler to say Factom sets a max cap of 20M vice 19,888,021.
 
Thank you for providing the proposal. I do recognize it took a lot of time and effort to produce it and it is great that we have members of the community who are willing to do that. However, it is still my view that we should not change tokenomics according to this proposal

First, I want to note that changing the tokenomics should not be taken lightly. When we tinker with tokenomics, we remove trust that the protocol operates in a predictable way. If the proposal does not give us the intended benefits, it will put us in a very poor light if we go out and change it again shortly after (and by shortly I mean a couple of years). We want to avoid investors sitting with a feeling that ANOs can always turn the tables in their favor. Saying this is not about the proposal itself and should not be seen as an evaluation of the future intent of ANOs or anyone who put forward this proposal. I do want to stress this regardless, since we are now potentially changing the tokenomics.

Now let me outline why I think we should not go forward with this proposal:

1. We will increase the supply when usage goes up

A core tenet of the Factom protocol until now has been that we have a fixed supply of tokens. Even when demand in the form of usage increases, the supply stays the same, thus pushing up price. This proposal will do away with this principle. If we have usage beyond how many tokens are minted, we will instead increase supply. Also consider that when the total circulating supply goes down, an increase of newly minted supply means that the relative inflation will increase significantly. If we in any way have a goal on increasing the token price, this mint and box mechanism will work directly against that. The token price will have an upper bound that it will never raise above, because inflation increases every time it gets near.

2. A significant number of tokens can be minted without any demand in the market
This proposal opens up for millions of tokens being produced with short notice. However, we only see low demand from markets for FCT, which is what has driven price down until now. If we begin to mint larger quantities of FCT now, I expect it to suppress prices even further, which will work against the goal of funding development. I do note that the assumed amount of tokens that will be minted for roadmap initiatives is no longer mentioned (was 5 million tokens in the old proposal). However, if we only expect to spend the same amount of tokens as now, why even allow ad-hoc issuance of potentially much larger amounts of tokens? This proposal is betting on ANOs showing restraint, but will they be able to do so?

3. Investors cannot foresee what the future tokens supply will be
Building on the point above, right now an investor can with certainty calculate what the maximum amount of tokens in existence will be in 3 or 5 years. With this proposal it will be impossible to foresee the amount of tokens being minted. You will only know that there is a cap, eventually. If usage picks up, tokens will be burned and the total supply will go down. Only to then suddenly spike up, when it is decided to mint more tokens. It works against the store of value use case and the uncertainty will make FCT a less attractive commodity to invest in.

4. Meaningful development can be de-incentivized
I know that an argument against overly minting tokens is that it means ANOs will take a cut on their payouts if they do so. However, this leads to a risk of a perverse incentive: That ANOs will work against meaningful spending, because they prefer to keep their payouts high. We should neither over- nor underspend. This proposal make it easier to do both (cf. point 2 about new tokens being printed).

To me this proposal fundamentally changes the direction the protocol takes. Implementing this proposal removes the long term upside of the protocol for prospective investors and thus their incentive to invest. That gives us a system with tokens of little value, where companies building products on Factom technology will sell directly to users for the protocol. Such an ecosystem can be sustainable. However, I think Factom will see much more success if we have an ecosystem that does not bound the price of the token through the tokenomics model.

Then, a note about the context of this proposal:
Right now we do not have an agreed to roadmap, much less high level requirements for what we will build or breakdowns of the activities we will do. We definitely do not have budgets. Furthermore, we do not know what our future leadership will look like. However, we are working on finding ways to get more resources by printing more tokens. I think we will put ourselves in a much better light with prospective investors if we can show a well working leadership structure, thorough planning and disciplined spending, before we even begin to consider changing the tokenomics model.
 
I'm still working the math on the proposal but a question that I keep coming back to is why not just use an easy number for the hard cap, e.g. 20M? I understand the symbology behind the current number but for ease of telling the story, it would be way simpler to say Factom sets a max cap of 20M vice 19,888,021.
The exact number is not as important as instituting an exact limit. Psychologically for me a number like 19 something is much small than 20 something, but again the limit number the community wants is less important than just ensuring we have some kind of limit that is known by all and unchanging.
 
A core tenet of the Factom protocol until now has been that we have a fixed supply of tokens. Even when demand in the form of usage increases, the supply stays the same, thus pushing up price. T
To date, this 'usage raising the floor price' meme has failed completely and any hope of this mechanism paying off relies on a time horizon that we can no longer support.

You're right though that this kind of change needs careful consideration. That's why the architect of the original system is involved and willing to code this. I guess it would help if @PaulSnow shared some of his thoughts.

If we in any way have a goal on increasing the token price, this mint and box mechanism will work directly against that. The token price will have an upper bound that it will never raise above, because inflation increases every time it gets near.
You're not including two things:

1. Market effects - which is what's driving 99.8% of crypto whereas for years we've been foolishly sticking to our 'usage' proposition.

2. Tokens will go lost or get locked up over time and never be burned, so gradually you'll see less FCT in circulation. This doesn't have a tail emission similar to Monero to account for it.

This proposal is betting on ANOs showing restraint, but will they be able to do so?
This proposal calls for good stewardship, which isn't a bad thing. It's a parallel effort that assumes we get leadership in place as the OP mentions a tentative Q2 release. It's not really wishful thinking that we can have the proper systems in place before then.

We made those suggestions, by the way, but that's a very political debate that will need to be solved separately from the urgent need for improved tokenomics.
 
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You're not including two things:

1. Market effects - which is what's driving 99.8% of crypto whereas for years we've been foolishly sticking to our 'usage' proposition.

2. Tokens will go lost or get locked up over time and never be burned, so gradually you'll see less FCT in circulation. This doesn't have a tail emission similar to Monero to account for it.
1. So is the long term value proposition for this investment supposed to be ‘hype’? And the argument for that proposition is that there is lots of other bloat in this world?

2. Likewise, is that the bet we are taking? Prices will go up because people lose their keys?

I fully recognize that we are in a difficult situation, but it does not seem like this proposal brings a solid value proposition to replace the old one.
 
1. So is the long term value proposition for this investment supposed to be ‘hype’? And the argument for that proposition is that there is lots of other bloat in this world?
What I'm saying is that you're completely negating market effects from your assumption that the token price under this model will have an upper bound it won't break through.

2. Likewise, is that the bet we are taking? Prices will go up because people lose their keys?
The more we build, the more usecases for FCT we enable, leading to more interactions/transactions. That ultimately means more FCT will get locked up, stored away or get lost - meaning the price of FCT will have to rise as usage picks up. That seems to be fully in line with what you want, so I'm not sure how this confuses you.

You're looking for a clear value proposition inside this proposal whereas the big change is that we need value propositions coming from the applications we build. And to build, we need resources and a shared incentive where the output of those builders helps determine their input (more usage = more 'income')
 
I'll try to address the other comments when I have more time as I want to ensure they are addressed properly.

1. We will increase the supply when usage goes up
Said simply, the above statement misunderstands and misses the point of the model. Burning tokens (use) is good … for everyone … and that is by design of the model. In fact, too much protocol use is a problem we would all love to have!!

Hopefully the below removes any confusion how this works.
The reoccurring number of tokens minted does not increase when usage goes up …. it only increases when the NET number of tokens minted since the inception of the model becomes negative.

An example to illustrate, if the model starts and FCT in circulation is 10mil, that becomes the baseline to the reoccurring award of 1123/month/server. For the argument lets say: ANO monthly rewards are a total of 50k FCT/month and the burn rate is 1000FCT/month. Here, each month the 1123/month/server will decrease, making reoccurring mints lower each month. That same year, let’s say 100k is minted for grants, and 1mil FCT is minted for an exchange listings.

Year 1:
Mints: 519,698 ANO + 100,000 Grants + 1,000,000 Exchange listings
Burns: 12,000
NET Change = 1,519,698 – 12,000 = 1,507,698
Auth Server Award at year 1 end = 955 FCT award/month/server

Year 2:
Mints: 351,013 ANO + 100,000 Grants + 0 Exchange listings
Burns: 120,000 (a crazy 1000% increase in FCT burnt!)
NET Change = 451,013 – 120,000 = 331,013
award/month/server at year 2 end= 916 FCT award/month/server

To return to a 1123FCT/month/server award rate, the protocol will need to burn an extra 1,838,711 FCT (1,507,698 + 331,013) beyond the 132,000 it already burned to bring total circulation back down to 10,000,000.

So in the above scenario, the only way this would ever make sense would be for so many tokens to be burnt that total tokens in circulating became less then when the model first became instituted (10mil in the above example). In this situation, the community would justifiably be jubilant for the likely market-recognized increased token scarcity, the awesome ROI of dev leading to mass use, and the sustainability of community and project health.

This aspect of the model is one of its core strengths.
 
2. A significant number of tokens can be minted without any demand in the market
Yes, this is true – in this model token minting is not dependent on market demand, but instead on community priorities and investment opportunity.

To recognize the importance of how the model works, you must factor the benefit of having ecosystem opportunity costs and its contribution towards creating a healthy and sustainable future.

This model places significant opportunity costs on the use of community resources. This structure is meant to compel better community stewardship. Investments and incentive programs now have an opportunity cost meaning the more the community mints tokens above the level of token use in aggregate the fewer resources will be available in the future. Our current model doesn’t include opportunity cost and its absence leads to low ROI investments and low accountability standards to managing community tokens.

3. Investors cannot foresee what the future tokens supply will be
I would argue the opposite and its appeal to token holders. This model uses a closed system (boxed) where the total number of tokens possible in the system NEVER changes. This relates to the above section on the importance of opporuirnity costs and incentives. Any buyer of FCT will know exactly the max number of FCT they will ever see in the ecosystem. This is powerful. This is why ‘store of value” and predictability are key aspects of this model.

4. Meaningful development can be de-incentivized
ANOs are people and people can be shortsighted – this proposal doesn’t change that.

But it’s not clear by what you mean by “meaningful.”

If “meaningful” means something that will produce a ROI equal to or greater than its cost, then standing parties will be incentivized to make that investment as it will offer some feature, capability, tool, etc that will allow or facilitate some future use of the protocol or improve its accessibility/sustainability.

If “meaningful” somehow means something with a low ROI, then standing parties will be disincentivized to make that investment as it would potentially reduce the sustainability of the scope and size of future investments and reward programs.
 
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The more we build, the more usecases for FCT we enable, leading to more interactions/transactions. That ultimately means more FCT will get locked up, stored away or get lost - meaning the price of FCT will have to rise as usage picks up. That seems to be fully in line with what you want, so I'm not sure how this confuses you.
I am not confused, it was meant as a rhetorical question. What I am saying is that it is a weak value proposition for investors that eventually someone will lose their keys or lock up their funds.

You're looking for a clear value proposition inside this proposal whereas the big change is that we need value propositions coming from the applications we build. And to build, we need resources and a shared incentive where the output of those builders helps determine their input (more usage = more 'income')
Let us look at some investment opportunities:
  • Mr. A has a steady job and wants to buy a home, which he does not have cash for. Mr. A seems able like a solid guy and he is willing to pay you back an extra 5% for your willingness. You bet that he can pay you back, so you borrow him the money.
  • Company B drives restaurants and want to enter a new area. To finance their growth they sell equity that promises a share of their profits. You buy in, betting that they will succeed and thinking others might get onboard in the future, pushing the price of the stock up.
  • Commodity C is a great electrical and thermal conductor and you can use it for all kind of physical applications and electronics. If demand increases supply might also go up, but rapidly increasing production is difficult, as this stuff literally has to be dug out of the ground. You bet that demand will outstrip supply and buy a metric ton, which sits in your driveway while you wait for the price to go up.
  • Digital commodity D can help secure data. If someday enough usage occurs the commodity price will go up, as the supply cannot change. It seems a bit far fetched, but you take the plunge and buy into it. You write your private keys on a piece of paper, stick it to the fridge and rejoice in the fact that this investment will not dent your car.

So, for all of these investments there is a clear reason why you should put in your money. But now it will go something like:
  • Digital commodity E can help secure data. If usage outstrips supply the supply will automatically incrase, so usage has limited effect on price. Instead use cases, that we do not know yet, will drive up the price because of market effects. Also, please do not mind too much about where you put your private keys.

If we do not have a clear value proposition for the protocol and not just for companies building on the protocol, why would investors put their money into the protocol? I am keenly aware that tokenomics has other functions than enticing investors, but as I said in my original post, this proposal will remove an incentive for investors to get in and thus make them play a lesser role in the ecosystem.
 
Said simply, the above statement misunderstands and misses the point of the model. Burning tokens (use) is good … for everyone … and that is by design of the model. In fact, too much protocol use is a problem we would all love to have!!
The reoccurring number of tokens minted does not increase when usage goes up …. it only increases when the NET number of tokens minted since the inception of the model becomes negative.
Jason, if there is something I have misunderstood, I would like to understand. Please do note however that I am not talking about when supply will increase above 1123 FCT per month per server. In my post I specifically said “If we have usage beyond how many tokens are minted, we will instead increase supply”.

I tried to reproduce your calculations, but I cannot. I believe it relates to the timing of the exchange minting. I did do my own calculations, using the formula Auth Server base reward = 1123 * (max cir limit - current cir supply) / cir supply baseline. I get 1123 (1123*((19,888,021-10,000,000)/10,000,000) = 1110 FCT per month per server from the beginning. I am assuming 36 servers and 100K tokens for grants per year, evenly distributed over a year. As you can see, from month 7, when the burn outstrips the minting, the supply will begin to increase. Is that not how the model works? If so, the point is still valid: Whenever demand goes up beyond how many tokens are minted, we will increase supply, thus curbing any price increase

MonthCirculating supplyMinted server awardsGrantsANO rewardsBurns per month
110,000,0001,1108,33339,975-1,000
210,047,3091,1058,33339,784-1,000
310,094,4261,1008,33339,594-1,000
410,141,3531,0958,33339,404-1,000
510,188,0901,0898,33339,215-1,000
610,234,6381,0848,33339,027-1,000
710,280,9981,0798,33338,839-100,000
810,228,1711,0858,33339,053-100,000
910,175,5571,0918,33339,266-100,000
1010,123,1561,0978,33339,477-100,000
1110,070,9671,1028,33339,688-100,000
1210,018,9881,1088,33339,899-100,000
 
If we do not have a clear value proposition for the protocol and not just for companies building on the protocol, why would investors put their money into the protocol?
I think you too easily dismiss the effects of markets (what you call 'hype') and the effects of building out a successful protocol.

Market effects include:
  • Awareness - Is the coin top of mind?
  • Market availability - How easy is it for interested buyers to make a purchase?
  • Speculation - Is there a clear growth trend in price/development/usage?
The higher you rank on those, the more impact markets have on price.

As for the effects of building, here's something to consider. Fundamentally, Ether works just as well at $100 as it does at $1200. There is no mechanism to a higher token price or 'attract investors' in Vitalik’s whitepaper. Their timing was great, and they’ve done a great job at building. Consequently they now score very high on those three market effects and there is significant interaction within their protocol that locks up tokens, creating (perceived) scarcity, and creates novel value propositions.
 
Jason, if there is something I have misunderstood, I would like to understand. Please do note however that I am not talking about when supply will increase above 1123 FCT per month per server. In my post I specifically said “If we have usage beyond how many tokens are minted, we will instead increase supply”.
Yes, the timing of when tokens are minted will impact future rates of token minting. So in a two-year span, the earlier in that period these a large token issue occurs, the more impact it will have on the rest of the model. This feature is part of the sustainability feature.

To ensure we are using the same terms the same way, I will try to define the terms in a way that I think you are using them.
"Token supply" to equate to the monthly rate that tokens are added to circulation.
"Token Circulation" meaning all tokens held globally.

“If we have usage beyond how many tokens are minted, we will instead increase supply”.
So YES your statement is sort of correct, BUT it is missing an important qualifier that changes everything:
“If we have usage beyond how many tokens {have been minted in aggregate since the model was adopted}, we will instead increase {the rate of} supply”. This is the REWARD of success!

So to hopefully this example makes it easier to see how the model works:
Imagine: burns are like revenue, mints are like expenses, and net circulation is like income. So ...
Expenses [mints] - employees (validators), infrastructure, market access, and development of products & services
Revenue [burns] - customer use of products & services (made possible by employees, infrastructure, vendors, marketing)
Income [fixed circulation max - circulation] - Tokens available to cover expenses

The below is an explanation of the model in business terms.
  • We always have expenses [mints] as long as we're in business.
  • In the beginning expenses [mints] are high, revenue [burns] low, which result in negative income and we accumulate debt [circulation]
  • As revenue grows, we eventually get to a point where we breakeven [burns = mints] and the business becomes viable
  • To continue to remain successful it must make more investment [mints] for better services and products, hire more employees [mints], increase marketing [mints]
  • If the business earns a very high income [burns exceeds mints] and a net income income is sustained for a long period, the business will be able to pay off its accumulated debt! [net increase in circulation]
  • If a business has paid off all its debt [net increase in circulation] and continues to earn a positive income, it can offer higher wages [mints] to employees, and invest [mints] in improving and expanding its products and services
    • Only in this last step is when we finally get to a point where the rate of token supply increases as a result of protocol use - but in now way does increasing mints mean that net token decrease would stop. This is a problem everyone would love to have and is core to the model's sustainability and alignment of incentives for expanding protocol use. It signifncaly benefits both standing parties (higher rewards and project investment) and token holders (greater scarcity, token demand, and project investment).}
 
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The exact number is not as important as instituting an exact limit. Psychologically for me a number like 19 something is much small than 20 something, but again the limit number the community wants is less important than just ensuring we have some kind of limit that is known by all and unchanging.

All,
If you prefer to change the the proposed model’s fixed maximum number of tokens in circulation from 19,888,021 FCT to 20,000,000 FCT please up vote this reply, and I’ll update the proposal.

Otherwise, please reply with your argument against doing so.
Thank you
 
I think you too easily dismiss the effects of markets (what you call 'hype') and the effects of building out a successful protocol.

Market effects include:
  • Awareness - Is the coin top of mind?
  • Market availability - How easy is it for interested buyers to make a purchase?
  • Speculation - Is there a clear growth trend in price/development/usage?
The higher you rank on those, the more impact markets have on price.

As for the effects of building, here's something to consider. Fundamentally, Ether works just as well at $100 as it does at $1200. There is no mechanism to a higher token price or 'attract investors' in Vitalik’s whitepaper. Their timing was great, and they’ve done a great job at building. Consequently they now score very high on those three market effects and there is significant interaction within their protocol that locks up tokens, creating (perceived) scarcity, and creates novel value propositions.
While I do think that these effects will impact price to some degree, I on the other hand overrate them in the medium to long term :)
The tokenomics should not only support us in the short or medium term, but also the long one as it erodes out trust if we go out and change it again in short order. Think of the dot.com bubble. You had a string of companies with very high valuations, but not sustainable business model. They did not make it through. Some of the companies that did remain very successful today. I do not believe we can build a long term sustainable ecosystem based on awareness, market availability and speculation.
 
“If we have usage beyond how many tokens are minted, we will instead increase supply”.
So YES your statement is sort of correct, BUT it is missing an important qualifier that changes everything:
“If we have usage beyond how many tokens {have been minted in aggregate since the model was adopted}, we will instead increase {the rate of} supply”. This is the REWARD of success!
In the example I gave above, the token circulation increase by 286,998 - 6,000 = 280,998 tokens after the first 6 months. Then in month 7 and 8 when burns exceeds the monthly mint, the minted number of tokens start to increase, even though the burns in total are less than 280,998. How does that fit with "have been minted in aggregate since the model was adopted"?

Regarding the "reward of success", that would hold if we were a business in an economy and our tokens had a fixed denomination in a fiat currency. When a single business increases payouts to it partners it has no measurable impact on the value of the fiat currency in the economy. However we are a weird hybrid between a business and an economy (which, on a side note, is pretty interesting). We pay in tokens, that represents the value of the whole 'economy'. So by printing more tokens, we increase the inflation, which would push down the nominal value against fiat currencies, i.e. push the price down.
In our current tokenomics model the number of issued tokens is absolute. So when there is a small token circulation, the rate of inflation will be high and the rate will be low when the token circulation is large. The new proposed model, it seems, makes this effect even more pronounced. For example, in our current model a 6 million token circulation and 65 servers would give us a monthly inflation of 73,000 tokens a month. If the new model starts at a 10 million token circulation that number would be 101,376 tokens a month, when the token circulation goes to 6 million. That is 38% more than in our current model. Imagine if the PegNet conversions had not been stopped. We could have been in that situation already.

So to hopefully this example makes it easier to see how the model works:
Imagine: burns are like revenue, mints are like expenses, and net circulation is like income. So ...
Expenses [mints] - employees (validators), infrastructure, market access, and development of products & services
Revenue [burns] - customer use of products & services (made possible by employees, infrastructure, vendors, marketing)
Income [fixed circulation max - circulation] - Tokens available to cover expenses
You say that [fixed circulation max - circulation] is "Tokens available to cover expenses". I just want to note, that us having the possibility to mint the tokens does not mean anyone has committed to buying them. Tokens that we can print in the future is not the same as having cash on hand. Again, the token supply reflects the whole 'economy', so printing tokens in excess can cause the price to drop.
 
For example, in our current model a 6 million token circulation and 65 servers would give us a monthly inflation of 73,000 tokens a month. If the new model starts at a 10 million token circulation that number would be 101,376 tokens a month, when the token circulation goes to 6 million. That is 38% more than in our current model.
ANOs
- We don’t have 65 ANOs and have no prospect to do so in the foreseeable future So those elevated numbers are not applicable. With fewer ANO, FCT mint per month in this model offers an immediate reduction. On that same point, in the new model new ANOs will represent an opportunity cost (lower mint base per ANO) so expect tougher scrutiny to limit new ANO accession to only those showing strong potential to bring value to community

Your Example
- Not sure on the math, but your example is good.
If somehow the protocol figures out a way to get so much use (and demand is so high) that we not only burn every FCT we mint every month but also burn so much above that amount that we eventually burn all tokens minted since the model was started (your example 10mil) AND 4 million FCT beyond that point to result in a only 6mil FCT in circulation million (eliminates all inflation since before M3!), you are right - monthly mint would almost surely increase but Under the example circumstances this amount would be trivial. You highlight that ANO-related monthly mint could be higher (30k FCT) in this extreme case under this model, that very well could be the case. If we had the conditions to produce this result, FCT would have extreme demand and extreme scarcity based on just usage alone - this is something no crypto token faces now or the foreseeable future - so your worries should be eased. To put the potential scenarios extra 30k FCT ixn reality, assuming no token was ever burnt again in the example above it would take ~+15 years for the excess mint (30k) to replace just the 4mil FCT bellow the base that was burnt. This is like someone winning the lottery and upset that their taxes go up. Basically, the scenario you describe about would be greatest the thing that could ever happen – unfortunately, reality is very far from your example…but I too want to believe its possible.

Dual Token Model
-One additional thing to remember that in the above example would have a far greater effect on tokens in circulation is the impact of factoring use demand on FCT. Users don't care about FCT, only EC. EC price is ~fixed. In the above, FCT prices would likely be skyrocketing, so as FCT price rises the fewer FCT would be needed to be burnt to produce needed EC for a static use demand. Alternatively, in a bear market as FCT prices fall more FCT will need to be burnt to produce needed EC for a static use demand - that’s the magic of having the EC cost managed to ~$0.001.

I just want to note, that us having the possibility to mint the tokens does not mean anyone has committed to buying them. Tokens that we can print in the future is not the same as having cash on hand. Again, the token supply reflects the whole 'economy', so printing tokens in excess can cause the price to drop.
Market Demand Comment:
-It’s worth pointing out that minted tokens are not minted to the protocol to spend or minted in exchange for funds to be received by the protocol like an ICO. The protocol doesn’t have the type of market risk you describe as it mints directly to third parties for services. It is the direct recipients of tokens that have market risk (ANO, exchanges, grant recipients, etc.) (and tax liability too), so the protocol it doesn’t really have this concern. Also, large mints as described are unlikely to be sold off on the market and are more likely for example in the case of an exchange to be used as the basis for a liquidity pool.
 
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Then, a note about the context of this proposal:
Right now we do not have an agreed to roadmap, much less high level requirements for what we will build or breakdowns of the activities we will do. We definitely do not have budgets. Furthermore, we do not know what our future leadership will look like. However, we are working on finding ways to get more resources by printing more tokens. I think we will put ourselves in a much better light with prospective investors if we can show a well working leadership structure, thorough planning and disciplined spending, before we even begin to consider changing the tokenomics model.
Very much agree with this. I am not very much against the proposal and it is an important discussion to be had. But IMO we are doing things in the wrong order. These changes are the type of changes you can only do once every few years.

The order should be:

Vision and Strategy including stakeholder alignment and decision making changes -> Execution plan and roadmap -> Tokenomics that fit the model and strategy -> Execution

The tokenomics cannot be an island in itself, so we will be voting no for now, but recognize that the proposal is on the right track
 
We don’t have 65 ANOs and have no prospect to do so in the foreseeable future So those elevated numbers are not applicable.
The relative difference between the models stay the same regardless of the number of servers. So the number of servers do not matter to the example.

If somehow the protocol figures out a way to get so much use (and demand is so high) that we not only burn every FCT we mint every month but also burn so much above that amount that we eventually burn all tokens minted since the model was started (your example 10mil) AND 4 million FCT beyond that point to result in a only 6mil FCT in circulation million (eliminates all inflation since before M3!), you are right - monthly mint would almost surely increase but Under the example circumstances this amount would be trivial. You highlight that ANO-related monthly mint could be higher (30k FCT) in this extreme case under this model, that very well could be the case. If we had the conditions to produce this result, FCT would have extreme demand and extreme scarcity based on just usage alone - this is something no crypto token faces now or the foreseeable future - so your worries should be eased. To put the potential scenarios extra 30k FCT ixn reality, assuming no token was ever burnt again in the example above it would take ~+15 years for the excess mint (30k) to replace just the 4mil FCT bellow the base that was burnt. This is like someone winning the lottery and upset that their taxes go up. Basically, the scenario you describe about would be greatest the thing that could ever happen – unfortunately, reality is very far from your example…but I too want to believe its possible.
How long it would take us to get back to a certain number of tokens is not so important. What would be important is if we would have a greater or smaller inflation than our burn. Another thing: It seems like when I point out the issues with the model your counter argument is along the lines of "but having usage would be good". No-one is against increased usage. Having more usage would be great. It is how our tokenomics model reacts to high usage that is important.

I plotted the inflation in the two models against token circulation, as well as the relative inflation between the two models. I did it with a start of the new model at 10 million and 65 servers, but the observations can be generalized:
Both models will have a higher inflation rate at lower a token circulation. But the new models will have it even more than the old one. So in other words, the new model protects us better against price going very low (which is good), but make it more difficult for price to go very high (which is bad). I continue to believe we should not adopt a tokenomics model that make it difficult for us to have a high price in the long term, amongst other things.

Did you ever consider hard capping the number of tokens that can be created from server rewards?

Inflation versus circulating supply.png


Inflation new model versus existing model.png

-It’s worth pointing out that minted tokens are not minted to the protocol to spend or minted in exchange for funds to be received by the protocol like an ICO. The protocol doesn’t have the type of market risk you describe as it mints directly to third parties for services. It is the direct recipients of tokens that have market risk (ANO, exchanges, grant recipients, etc.) (and tax liability too), so the protocol it doesn’t really have this concern. Also, large mints as described are unlikely to be sold off on the market and are more likely for example in the case of an exchange to be used as the basis for a liquidity pool.
This reminds me of when I began to work professionally with IT sourcing and I was creating penalty schemes for the first time. My initial take was to make those schemes really tough. If vendors don't deliver they should bear the all responsibility right? Then someone who knew much than me explained, that it would just mean vendors would take a risk premium for their services. This is the same. The protocol cannot unilaterally pass on market risks to someone else. Those who deliver services will take a risk premium for them. We all ready saw traces of this in previous discussion about whether grants should be denominated in FCT or USD. If those who deliver services know we can bump up the token circulation with 10, 20, 30% the need for a risk premium will be bigger. That effect could be alleviated by 1) not allowing ourselves to just print tokens as we see fit 2) at least show that we can do proper planning and budgeting before starting such a scheme.
 
You have passion, but as has been said time and time again, many of your claims and statements on the model and it’s effects are inaccurate and often misleading, strongly suggesting your understanding of the model is incomplete.

The model’s advantageous and benefits to all have been tirelessly and clearly described in sincere effort across several posts to aid your understanding. Please take a moment, reread the answers provided to you above, and attempt to reverify your assumptions. This may help clarify any confusion still had and allow you to see some of the major advantages and immediate benefits this model allows across the entire ecosystem.
 
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