Proposal for a New Factom Token Model

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Factom Community,

This thread is for the discussion of this Proposal for a New Factom Token Model. The discussion will be open for two weeks and will close on 12DEC20. The purpose of this discussion thread is to elicit feedback to further refine this draft so that we can subsequently present it for ratification and begin planning its implementation.

This proposal was developed as part of a series of proposals that are in line with the July 2020 Factom Governance Improvement Proposal, and as the complementary engine to the drive the execution of the proposed draft Community Road Map, efforts to achieve more inclusive community governance, community evangelism, and empowerment of the proposed framework of Community Standing Committees.

The presented proposal has been in development for several months and has undergone at least five major rewrites in an effort to boil down essential elements needed to address current and long-term community needs. It includes a one-page summary, a detailed discussion of the model objectives and the model mechanisms it uses to satisfy them, a model comparison, recommended implementation safeguards, and an adjustable modelling spreadsheet.

The Proposal was built around four core tenets:
1. Matching funding to mission/mandate
2. Celebrating and respecting all stakeholders, particularly token holders
3. Aligning the incentives for all stakeholders with protocol usage
4. Establishing a sustainable and equitable balance between supporting the Protocol’s own long-term development and Standing Party Incentives

The proposed new token model seeks to provide: sufficient resources for current and future protocol development; access to leading token exchanges; incentives for community activism; reinforcement of its new inclusive governance model; and a sustainable framework for equitably sharing the risks and rewards of protocol success.

For those using a computer, the proposal is best-viewed on Google Docs Here.
For those using a mobile device, the proposal is best-viewed using the attached PDF.

Please thoroughly read the full proposal before raising comments and questions.
 

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Nice enhancement with "boxed mint & burn" model. Good call.

Are we officially nixing any sort of token holder staking reward? If not, we need to make sure the math works. We don't want to put ourselves in a position where we have to reduce ANO payouts (because the FCT for stakers has to come from somewhere) and nodes can't operate without taking a huge loss. Obviously, any sort of staking would affect the grant pool as well.

So, GOI would like confirmation that the protocol has no intentions of pursuing any sort of POS/dPOS model, or we'd like to see projections about how we actually pay for everything. Basically, we should nail down an overall strategy before we start making big changes.

The proposal, in a vacuum, looks good though. Thanks for putting it together. Thanks
 
Why is this put forward now, when the roadmap puts improved tokenomics in ERA 2, that will only start in a year? Surely we should focus on other more important things at this time?
Like what?

The roadmap was a first draft, soliciting community feedback. Pretty sure tokenomics will be moved up in priority for the next draft. It's key to actually getting the resources required for any reasonable stab at roadmap execution.

Also, this is just the discussion, which can never start early enough. Implementation is something entirely different.
 
Are we officially nixing any sort of token holder staking reward? If not, we need to make sure the math works. We don't want to put ourselves in a position where we have to reduce ANO payouts (because the FCT for stakers has to come from somewhere) and nodes can't operate without taking a huge loss. Obviously, any sort of staking would affect the grant pool as well.

So, GOI would like confirmation that the protocol has no intentions of pursuing any sort of POS/dPOS model, or we'd like to see projections about how we actually pay for everything. Basically, we should nail down an overall strategy before we start making big changes.

The proposal, in a vacuum, looks good though. Thanks for putting it together. Thanks
Thanks Matt for reading the proposal.

Three of the four tenets in this proposal are tied to staking. In fact, it’s mentioned 10 times in this short proposal. We even highlight that more than one form of staking incentive program is likely. Furthermore, the proposal also discusses how it would “pay” for it. The included modeling spreadsheet lets you tinker with a sample staking program to see the impact across all factors. So yes, staking is one of the elements.

The proposal aligns incentives for increasing protocol usage and equitably distributes the costs and benefits of protocol success across all Standing Parties. Resources (token mint potential, ANO rewards, token holder rewards) will be inversely related to the circulating supply at the time of mint. The proposal describes this relationship at length. Again, the spreadsheet lets you inspect the model with a variety of variable conditions. Basically, rewards will decrease (for all parties) as the number of tokens in circulation increases. Rewards (for all parties) will increase as the number of tokens in circulation decreases (usage). This strongly aligns the incentive on attracting greater usage for all parties.

The grant pool as we know it will fundamentally change. This warrants further discussion beyond this proposal’s scope, but basically, if we agree that the community’s central effort should focus around executing a road map, you should expect all grants to be in response to “grant solicitations” from the Standing Committees, while still reserving (limited) room for non-roadmap grants. We give committees select and conditional token issue authorities to have the required tokens minted as payment for whatever (roadmap-related) service is needed, without needing to hold tokens themselves.

To your greater point – yes, authorized token mints --- by the Standing Committees for things like exchange listings, or by the protocol for incentive programs --- without equal or greater token burns, will have an inverse relationship to future Standing Party rewards. This necessitates for very good resource management to obtain a better ROI, hence the proposed governance changes.

I’m not entirely sure what you are asking in your second paragraph. This proposal aligns with the GIP, the draft community road map, and the Factom 2.0 discussions that maintain PoA as the primary protocol consensus model. This token model proposal, the road map, and the recent governance model revisions all include PoA, PoS, PoW (anchors) and some method for Proof of Use. A thorough description of how all four could work together in "harmony" is found in Niels’ vision articles, linked here.

The question of “how we pay for things” is the real and only purpose of this document and its underlying model and mechanisms. I strongly encourage you to explore the proposal – I’m confident you will find all the answers. This will give us the resources for what we aim to achieve.
 
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Agree - and the great attractor is resources.
Yeah, you agree because I paraphrased your post in the roadmap discussion 😛

So let me make it a bit clearer where I am coming from: It has been less than a month since Jason put forward a proposal for a roadmap (which you had given input to, btw). This roadmap clearly puts tokenomics a year out. Now Jason’s posts a large proposal for a tokenomics change, which furthermore models on the basis of “what if we did this tomorrow”. It just makes it very difficult to believe that the roadmap will be something that anyone will adhere to, when the author of the roadmap is not even following what is laid out in it. A roadmap is also about not doing certain things, so we can focus.
 
It just makes it very difficult to believe that the roadmap will be something that anyone will adhere to, when the author of the roadmap is not even following what is laid out in it.
But the roadmap is a draft that was soliciting community feedback. It's not approved. I'd also point you to Jason's comments in the roadmap topic that ERA objectives can have overlap. You can 'mostly' be in era 1 while starting some era 2 objectives so long as the prerequisites are hit.

If that's not clear enough, or even helpful, then that's excellent feedback for the second roadmap draft.
 
But surely the draft for discussion represented some kind reasoning about the best sequence to do things in?

Excuse that I am derailing the discussion here. I don’t think I will stop being a bit baffled that the proposal came from Jason - and since I am not a particularly big fan of a hard cap and certainly not of staking, I would say that there are other things we should focus on, like better processes around grant payouts and tracking or grant round awareness. Either way I will dig more into the proposal and post about that in the coming days.
 
But surely the draft for discussion represented some kind reasoning about the best sequence to do things in?

Excuse that I am derailing the discussion here. I don’t think I will stop being a bit baffled that the proposal came from Jason - and since I am not a particularly big fan of a hard cap and certainly not of staking, I would say that there are other things we should focus on, like better processes around grant payouts and tracking or grant round awareness. Either way I will dig more into the proposal and post about that in the coming days.
@Hinamatsuri Thanks for your continual passion for the success of the protocol. Your voice is heard and is a source of motivation.

As a closing remark about road map organization, what we're trying to do is nearly impossible to do right - what I mean by that is that we are trying to conceive a plan for the development of an aggressively evolving emerging technology within an everchanging regulatory environment alongside schizophrenic market signaling whereby the use case solutions we predict are possible will hopefully solve problems that might not yet exist which further require independent complementary technologies that are also accelerating in their own unique evolution, all within a globally competitive environment, in public, across a decentralized community, with finite resources and talent. No matter how brilliant, any sequential plan would be doomed to fail the second it was laid out. In complex projects, nothing really occurs in sequences, an instead many are done in parallel across concurrent branches of varying length and complexity across various lines of effort. A strategy, using parallel lines of effort has greater flexibility to reprioritize and adjust based on how things turn out and have a better chance at success. He unexpected will happen and we need a plan that has resiliency.

To help you get in our headspace, the way I like to think about Factom's proposed road map forward is as tree graph. When you think about the road map lines of effort you should think about several "subtrees" of varying complexity and when you think of road map eras you should think of "tree levels" across each subtree. Each subtree spans multiple levels. Lines of effort have some sequencing (leaves) due to dependencies, but at any given time you will likely be completing projects within each subtree and across multiple different levels, all at different speeds, all at the same time. I really think this is the best way to think about it. Happy to talk more about it (in a different forum). Now back to the token model! :)
 
Increasing our dev attraction could be one thing that could be seen as critical....
From your comments I believe you recognize it, but because it's subtle its worth pointing out that the aim to attract tech talent into the project is being pursued at several angles and several methods. Better docs and onboarding processes, Proof of Use Incentives and bug bounties, outreach committee initiatives, and most powerfully...the road map-committee-grant system framework to be administered and executed by the standing committees.

Standing committees will select and prioritize projects, develop requirements, milestone timelines, assign a budget, and solicit grant applications globally. I believe this approach, and the outreach committee's ability to showcase this catalogue of quarterly opportunities to the right developer communities contains all the right elements to attract a wide variety of new talent into the community. This proposal has several of those needed pieces - the incentive programs and conditional mint authorities to the committees to dive road map grants. The rest of the needed pieces are the two governance documents currently up for ratification - right now!

All the pieces are coming together - and as more proposals come to fruition, I believe more of the community will increasingly become as unpopularly optimistic as I am.
 
So as mentioned, I am not a particularly big fan of this proposal. I will first provide some high level notes then specific commentary of pieces of the proposal

High level:
  • At a very core level I see this as a way of kicking the can down the road. The facts are: We still want to spend a lot of fiat money on development and infrastructure. Not a lot of people wants to give us their fiat money anymore. So instead of asking ourselves questions like "Can we reduce our expenditures?" or "Can we make some effort to make someone build on our protocol, so we get usage or a story to tell?", we instead spend our resources on fiddling with the tokenomics. To me, this proposal is another example of us looking inwards instead of out. Case in point: For the last two grant rounds we could not even find projects for all the resources we had available, but now we are discussing how we can get more resources in.
  • We are trying to sit ourselves between two chairs. We see that supply of tokens is bigger than demand, so we introduce scarcity. At the same time we want to build a lot of things, so we run the token printing press. Those two things work against each other.
  • This proposal talks a lot about a shared incentive for protocol usage. At the same time it introduces mechanisms that issues more tokes if usage increases, i.e. pushes price towards some kind of equilibrium. That does not align with with an incentive for higher protocol usage.
  • It is suggested to give people an incentive for staking. Staking in turn gives right to voting. However, people who really care about the project would stake and vote anyways. People who do not care would stake and take the rewards, but still not vote. Furthermore staking ties up resources in perpetuity, that cannot then be used to develop the protocol. Lastly, if we the intent is really to push usage, why is the model showing more rewards given to stakers than users? It should be the other way around then.


"Establishes a circulating token limit of (19,888,021)" and "Establishing a fixed, maximum circulating token limit of less than 21million FCT"
- I understand that the cap is a model parameter, but why has Bitcoin's cap become such a fixation point? It has no relation to our protocol.

"Changes Factom’s approach to achieving token scarcity" & "Such authority would be decentralized and restricted in size and purpose, for example, to enabling exchange listings and paying for approved roadmap grants."
'- This sounds like we will be printing out tokens for any and all of the main activities that we are aiming to do.
'- Why is exchange listings a special category here? They should be grants, so they are put under some kind of scrutiny.
'- It makes a massive difference what the restriction would be. The model mentions 5,000,000 tokens for the committees, but omits them from the year over year predictions. But if such a massive amount of tokens are created and sold in the next couple of years it is difficult to believe it would not push down price significantly.

"Celebrating and Respecting All Stakeholders, Particularly Token Holders"
'- This whole section reads a little weird with me. It lists some issues with crypto assets, which is not really related to the following paragraphs. Then is says box and mint model will enable token holder participation, but it seems off. It would be giving token holders a vote and a seat in committees that would allow for (more) participation. Lastly the paragraph about staking incentives make it seem like staking is the same as burning tokens. Is that really the case or is the wording unclear?

"This token model is designed to directly link all incentives to the size and growth of protocol use." & "It is envisaged that various token holder staking programs would similarly payout inversely to the number of tokens in circulation at some periodicity."
'- Our current token model is also very much designed an incentive for increased protocol usage. If usage increases sufficiently, price goes up. Was anyone against protocol usage before? Some in the wider ecosystem are probably indifferent to the token price and they can continue to be so, if their business model is not built on the value of the Factom token.
'- As per the point above, token holders also have an interest in increased usage today. However, they have minimal influence over the usage. It is like telling a company's procurement department that their yearly bonus is dependent on how the sales team performs - and now we are coming in saying "good news guys, we are increasing how much bonus you can get". But what would they be doing different because of that? How will token holders be able to do anything significant for protocol usage, just because their incentive gets bumped up?
 
  • At a very core level I see this as a way of kicking the can down the road. The facts are: We still want to spend a lot of fiat money on development and infrastructure. Not a lot of people wants to give us their fiat money anymore. So instead of asking ourselves questions like "Can we reduce our expenditures?" or "Can we make some effort to make someone build on our protocol, so we get usage or a story to tell?", we instead spend our resources on fiddling with the tokenomics. To me, this proposal is another example of us looking inwards instead of out. Case in point: For the last two grant rounds we could not even find projects for all the resources we had available, but now we are discussing how we can get more resources in.
This is a tired and larger discussion about the economics systems of Austerity vs Keynesian economics – I’m not interested in discussing austerity measures. We can’t spend less and get more, there is no free lunch. We’re not where we need to be to be competitive, so austerity is just a form of denial that will further reduce our ability to achieve creating value and compete in the long term. On the cost side, as part of the committee system, committees are charged with executing the roadmap, strategic efforts, and in all practicality - the grant system. This will surely improve expense efficiency so that we get more of what we need for every FCT spent.

“We still want to spend a lot of fiat money on development and infrastructure.”
Absolutely – if we don’t have the tech that others want to use what are we all doing here? Surely you don’t think our tech and infrastructure are perfect and best positioned to viably compete on a world stage?

“Case in point: For the last two grant rounds we could not even find projects for all the resources we had available, but now we are discussing how we can get more resources in”
You’re missing some big ideas here. Individuals who spend their entire pay checks on whatever is in the store at the time are doomed to a life of poverty and disappointment. Part of project longevity is good resource management. This proposal says nothing about “getting more resources in”, but instead explains how we can spend resources more wisely and build a framework where we control what the protocol invests in rather than spend all our resources on whatever happens to be ‘in the grant pool store’ at the time. We need a smarter system to ensure we get the projects we want built for reasonable prices and demand better ROI, limiting those expenditures to only the things we really need.

  • This proposal talks a lot about a shared incentive for protocol usage. At the same time it introduces mechanisms that issues more tokes if usage increases, i.e. pushes price towards some kind of equilibrium. That does not align with with an incentive for higher protocol usage.
The more usage, the more resources. The more resources re-invested smartly into high ROI potential projects, the fewer resources water and more usage. Rinse and repeat. If that mechanism to ‘issue more tokens’ also includes ANO / tokenholder rewards, you have a shared incentive for usage that was previously unseen.

There is no equilibrium between usage and minting. With a hard cap, if anything it moves to further scarcity as tokens go lost and wallets go missing.

You’re also missing the market effects. This kind of circular system is very complementary to the typical circular retail behavior seen in crypto. Usage meme > usage meme confirmed by explicit increase in rewards > the increase in rewards justifies people buying the asset.

  • It is suggested to give people an incentive for staking. Staking in turn gives right to voting. However, people who really care about the project would stake and vote anyways. People who do not care would stake and take the rewards, but still not vote. Furthermore staking ties up resources in perpetuity, that cannot then be used to develop the protocol. Lastly, if we the intent is really to push usage, why is the model showing more rewards given to stakers than users? It should be the other way around then.
Please reread the proposal. Staking does not tie up resources in perpetuity. It ties up resources for as long as people want to stake. They will want to stake if the returns are attractive. Returns will be increasingly attractive as token price increases through scarcity and usage - a virtuous cycle. Staking programs could include things like securing bridges to other blockchains, and other 2nd layer applications. Staking should provide a function and value to the blockchain; it’s not about rewarding people for not trading FCT.
The model is just a model – if you read the proposal you will see that use rewards are based on the amount of token burns …. the more tokens burnt the higher the reward potential. The modeling spreadsheet only projects out to a point when token use is just to the point where the model becomes sustainable. That’s why things look the way they do to you.
Also, the amount of each reward program has not been determined and it is outside the scope of this proposal. Values are for illustrative purposes to show the model works as described.

"Establishes a circulating token limit of (19,888,021)" and "Establishing a fixed, maximum circulating token limit of less than 21million FCT"
- I understand that the cap is a model parameter, but why has Bitcoin's cap become such a fixation point? It has no relation to our protocol.
--It’s not. 😊

"Changes Factom’s approach to achieving token scarcity" & "Such authority would be decentralized and restricted in size and purpose, for example, to enabling exchange listings and paying for approved roadmap grants."
'- This sounds like we will be printing out tokens for any and all of the main activities that we are aiming to do.
Yes – this is correct. And for a system with better controls and choice architecture to ensure investments are for appropriate amounts and the things we really need. That's the way tokenomics works - the protocol can only mint tokens to fund development etc. Providing, as in this proposal, balancing factors (that increase usage and manage scarcity) enables this.

'- Why is exchange listings a special category here? They should be grants, so they are put under some kind of scrutiny.
Scrutiny yes, that is why this authority will still be requiring Standing Party approval. Regular grants - No. Regular grants will largely go away and be replaced with specific targeted and limited grant solicitations that will be tied only to those things we most need to succeed. Check out the GIP for more info on this. Exchange listings are separated because these will be large amounts of tokens that will need to be minted directly to the exchanges so that the exchanges will be the ones financially liable to pay taxes, etc.

"Celebrating and Respecting All Stakeholders, Particularly Token Holders"
'- This whole section reads a little weird with me. It lists some issues with crypto assets, which is not really related to the following paragraphs. Then is says box and mint model will enable token holder participation, but it seems off. It would be giving token holders a vote and a seat in committees that would allow for (more) participation. Lastly the paragraph about staking incentives make it seem like staking is the same as burning tokens. Is that really the case or is the wording unclear?
Please reread the proposal. I’d also suggest reading the road map proposal as well as these two paragraphs are linked.

"This token model is designed to directly link all incentives to the size and growth of protocol use." & "It is envisaged that various token holder staking programs would similarly payout inversely to the number of tokens in circulation at some periodicity."
'- Our current token model is also very much designed an incentive for increased protocol usage.
The incentive is implied and uncertain (see effect of Pegnet burns). This proposal makes the incentive explicit, in that rewards will have a higher absolute amount if usage increases. By comparison, ANO server rewards are currently fixed.
 
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This is a tired and larger discussion about the economics systems of Austerity vs Keynesian economics – I’m not interested in discussing austerity measures. We can’t spend less and get more, there is no free lunch. We’re not where we need to be to be competitive, so austerity is just a form of denial that will further reduce our ability to achieve creating value and compete in the long term. On the cost side, as part of the committee system, committees are charged with executing the roadmap, strategic efforts, and in all practicality - the grant system. This will surely improve expense efficiency so that we get more of what we need for every FCT spent.
No reasons to discuss macro economic theory when we are not dealing with a macro economic problem. We are not exactly an entire economy. Let's agree that there is no free lunch. Then let us assume there is a demand for Factoids of 100K USD a month right now. If we want to spend more than that, someone has to work for free, i.e. they pay themselves. But we do not care. We just fiddle a bit with the numbers. Do a bit of scarcity, then print a lot of tokens and keep our fingers crossed that price will go up while we flood the market.

Absolutely – if we don’t have the tech that others want to use what are we all doing here? Surely you don’t think our tech and infrastructure are perfect and best positioned to viably compete on a world stage?
No, not perfect, but I think it is possible to build company that uses Factom technology today. I defy the idea that companies cannot achieve success with Factom, because our tech is severely lacking. Harmony was built on Factom, Off-Blocks is built on Factom, Triall, HealthNet, Sphereon's products, Zoints is coming, etc. So yeah, I completely agree that we can never stop developing. On the other hand we should not put ourselves mentally in a corner, where the only way out comes with a 5+ million dollar price tag.

You’re missing some big ideas here. Individuals who spend their entire pay checks on whatever is in the store at the time are doomed to a life of poverty and disappointment. Part of project longevity is good resource management. This proposal says nothing about “getting more resources in”, but instead explains how we can spend resources more wisely and build a framework where we control what the protocol invests in rather than spend all our resources on whatever happens to be ‘in the grant pool store’ at the time. We need a smarter system to ensure we get the projects we want built for reasonable prices and demand better ROI, limiting those expenditures to only the things we really need.
I am all for spending resources wisely and in turn I think having a roadmap and better processes is great. That is not necessarily the same as changing the tokenomics. And regarding "getting resources in", you just put forward a proposal that suggest we issue up to 5 million tokens, so...

The more usage, the more resources. The more resources re-invested smartly into high ROI potential projects, the fewer resources water and more usage. Rinse and repeat. If that mechanism to ‘issue more tokens’ also includes ANO / tokenholder rewards, you have a shared incentive for usage that was previously unseen.
The proposal suggests that more usage, i.e. more burns, will mean more tokens are issued. Which would then work to push down prices. In other words, when demand increases, so will supply. In our current model tokens get issued at the same rate, i.e. fixed supply, so if demand rises price goes up.

There is no equilibrium between usage and minting. With a hard cap, if anything it moves to further scarcity as tokens go lost and wallets go missing.

You’re also missing the market effects. This kind of circular system is very complementary to the typical circular retail behavior seen in crypto. Usage meme > usage meme confirmed by explicit increase in rewards > the increase in rewards justifies people buying the asset.
Ehm, the proposal literally says "The proposal modelling spreadsheet using assessed enduring incentitivation needs and a sufficiently large consistent FCT burn rate, suggests a long term equilibrium is available below the token circulation limit". But sure it might be difficult to say if there is an equilibrium, when you also have speculation. However, since burns now increases the supply then there is only speculation to drive price very high. We are just removing ourselves from a possible scenario where usage drives price. I believe that removes attraction of the token for long term investors and leaves us with speculators.

Please reread the proposal. Staking does not tie up resources in perpetuity. It ties up resources for as long as people want to stake. They will want to stake if the returns are attractive. Returns will be increasingly attractive as token price increases through scarcity and usage - a virtuous cycle. Staking programs could include things like securing bridges to other blockchains, and other 2nd layer applications. Staking should provide a function and value to the blockchain; it’s not about rewarding people for not trading FCT.
The model is just a model – if you read the proposal you will see that use rewards are based on the amount of token burns …. the more tokens burnt the higher the reward potential. The modeling spreadsheet only projects out to a point when token use is just to the point where the model becomes sustainable. That’s why things look the way they do to you.
Also, the amount of each reward program has not been determined and it is outside the scope of this proposal. Values are for illustrative purposes to show the model works as described.
You are right an my wording was bad. What I meant is that we will allocate a percentage of the tokens we issue to token holders in perpetuity. I think they will be better spent on developing the protocol.
Sorry, but we cannot discuss this without considering the values at the same time and it is difficult to believe that these "illustrative" values were picked completely at random. Having a hard cap of 10 million would be radically different from having one of 100 million and puts us in different places. So some kind of numbers will be part of determining if this is a good or bad path to go down.

Scrutiny yes, that is why this authority will still be requiring Standing Party approval. Regular grants - No. Regular grants will largely go away and be replaced with specific targeted and limited grant solicitations that will be tied only to those things we most need to succeed. Check out the GIP for more info on this. Exchange listings are separated because these will be large amounts of tokens that will need to be minted directly to the exchanges so that the exchanges will be the ones financially liable to pay taxes, etc.
OK, if the process is the same and the the minting simply goes somewhere else it makes sense. Since listings was mentioned alongside the roadmap and not as part of it, I got the impression that they would be handled differently.


Please reread the proposal. I’d also suggest reading the road map proposal as well as these two paragraphs are linked.
Please write with greater clarity going forward. Thanks.
 
I think this is a good proposal for a number of reasons:
1. Capping supply: this is a trust thing not an economic thing in my opinion. If we cap the supply, we're putting rules in place that say we're going to limit our ability to get more coins - I believe this is what attracts people to capped coins more so than supply side/austrian economics does.
2. I think Bitcoin is actually a good fixation point - we are anchored to them after all. They are the wildly most popular, successful, and original cryptocurrency, why wouldn't we want to mimic that in some ways?
3. The sliding scale of rewards allows us to adapt for both stakers and users. I think scale usage is still a ways off so solely focusing on trying to bring in usage is a waste of time right now. Lot's of people, ourselves included, are working on it, so let me say from experience, we're a ways off but we are very optimistic for the long term. Right now, money is coming in from investors and early adopters and it's getting to expensive to mine Bitcoin and other POW currencies are failing so money is moving to PoS. Allowing token holders to earn rewards is a great incentive to buy and hold Factom while we work on bringing in usage. Other PoS cryptocurrencies don't have a cap or burn model so in the long run, we're providing a more known future to investors.

One area I'm confused on is what concrete things does this proposal do other than cap the currency? I'm totally fine with just a cap for now as I see that as the next priority but I don't see anything concrete for how staking would actually work. Again, totally fine with that! It may take a little more doing to get staking right but I want to make sure we're all on the same page as to the full scope of this proposal.

The last thing I'm confused on is the inflation rate - I understand we're still figuring it out but I assume we'll build an algorithm that sets the inflation rate that will go into the proposal? Something like:

Inflation Rate = Monthly Rewards / Remaining Tokens

This is obviously oversimplified but we'll need to agree on how that rate is calculated and have that in the proposal.
 
Thought 1:

One thing that started worrying me recently about hard cap — 4 mln tokens owned by CoinCheck will be transformed into 20%+ of 20 mln hard capped supply.

It creates some centralization in token allocation.

Thought 2:

Hard cap is attractive / selling point for the protocol. Is there much difference between 20 mln hard cap or 50 mln hard cap in outsiders eyes? Or even 100 mln hard cap.

In other words, what exactly brings 20 mln hardcap comparing to any larger numbers?

What’s LTO recently announced hardcap e.g.?

Thought 3:

Actually having much higher than 20 mln hard cap has some advantages over super-scarce 20 mln hardcap:

  • We don’t have overcentralization in token allocation
  • Better survivability for the protocol (a chance for mistake or two)
  • Possible anchor investors / crypto funds have a chance to accumulate % of total tokens without skyrocketing the price on exchange — imagine you want to invest some BTC into Factom over time to buy 5% of supply. Is it even possible with 20 mln supply (without pumping price by 1000%) — I don’t think so. Will someone be willing to buy 5% of supply eventually overpaying 500-1000% for this — I don’t think so as well.
E.g. very low supply combined with low amount of tokens flowing into market and a lot of tokens (in % of total) already allocated in someone’s hands might be a disadvantage in some cases, like I described above.
 
One thing that started worrying me recently about hard cap — 4 mln tokens owned by CoinCheck will be transformed into 20%+ of 20 mln hard capped supply.
This is definitely worth considering. One piece of private feedback I gave was to actually move far beyond a 20 mil cap, because even at say 50 mil we'd still be 'small' given the current price. I'd also settle for the current number, but having 20% of supply locked up with an entity we don't know is 'benevolent' is a bit problematic. It also seems unlikely we'll ever see it flow back into the mintable supply.
 
Thought 2:
Hard cap is attractive / selling point for the protocol. Is there much difference between 20 mln hard cap or 50 mln hard cap in outsiders eyes? Or even 100 mln hard cap.

In other words, what exactly brings 20 mln hardcap comparing to any larger numbers?

What’s LTO recently announced hardcap e.g.?
I'll reply more completely to this later, but as a point of clarity - this proposal doesn't suggest a hard cap, or even a cap at all. We've specifically avoided that language to prevent there being confusion with a cap.

There is a circulating token limit. It is a fundamentally different thing in the boxed burn mint model.

As a second quick point - what in the world do we need all those tokens for?
The provided model already provides endless tokens if the industry uses Factom and Factom is commercially adopted as viable value-producing technology. If the world rejects Factom fundamentally in preference for another technology and there is no viable use case - we should all move on.
The reason we want the sub 20mil token model is to 1) help drive favorable pricing via token scarcity for token holders. and 2) its enough to achieve all that we need.

Remember - For protocol users the value of FCT is meaningless - users use EC not FCT. It's give and take here - want need to create some mechanism to ensure tokens are used wisely - not open a printing press. 20mil is enough. If some disagree - why?
 
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This is definitely worth considering. One piece of private feedback I gave was to actually move far beyond a 20 mil cap, because even at say 50 mil we'd still be 'small' given the current price. I'd also settle for the current number, but having 20% of supply locked up with an entity we don't know is 'benevolent' is a bit problematic. It also seems unlikely we'll ever see it flow back into the mintable supply.
I feel 50 mln will move us to the same stage where an average blockchain protocol stay — 20% of supply is allocated already, a small amount (let’s say 10% — 5 mln FCT) is locked into endowment for protocol expenses/activities, and 70% of total supply to be issued within many years.

IMO this is much more balanced than super-scarce 20 mln number, and it allows to easier adopt staking rewards, reworked grant system, and other stuff, if we decide so.
 
I feel 50 mln will move us to the same stage where an average blockchain protocol stay — 20% of supply is allocated already, a small amount (let’s say 10% — 5 mln FCT) is locked into endowment for protocol expenses/activities, and 70% of total supply to be issued within many years.

IMO this is much more balanced than super-scarce 20 mln number, and it allows to easier adopt staking rewards, reworked grant system, and other stuff, if we decide so.
We are actually trying to be better than the average blockchain ... that’s what we’re trying to accomplish - being average is easy.

By “balance” this just means more inflation ... yes it will be “easier” because instead of wisely thinking through trade offs wlthrncommunity could just always mint more tokens - but it costs everyone and removes all forcing features to take token investment and standing party rewards seriously. We want a serious model that requires choices.

The model provides more than enough resources for all identified needs - and installs a mechanism to replenish resources with protocol use making it sustainable - Isn’t that enough - or do need more? Remember Gluttony is a deadly sin.
 
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