Thanks Adrian,
A lot of what you say I agree with. This is a discussion, so nothing is decided yet!
1 - Token Price Pressure:
I agree - I don’t think inflation rate has a significant impact on the token price at the moment - bigger things such as marketing, number of people holding fuse, investors, liquidity, C/DEX etc all play a much bigger role in that.
But as we move forward inflation will become a negative pressure on the token, and one that needs to be justified to a wider range of investors and projects running on the network.
The aim of discussing and agreeing this now is to build a sustainable economic framework that will create the best environment for all participants in the network in the years to come.
2 - Inflation Rate:
Inflation is entirely arbitrary. There’s no economic reason why inflation is 5% - it’s just a number picked by the team at genesis that sounded reasonable. It could have been 1% or 20%.
I entirely agree that an APR less than ~5% would be below market rate and a negative to all investors. Ideally APR should be in ~5-15% range to be competitive to the market.
I’ve looked at transaction growth and discussed how tx costs will increase over time - I believe these fees should be shared between all stakers, and this should be the basis for validator/staking rewards, not inflation.
This directly ties rewards to network performance and is a justifiable economic model. It also promotes token velocity - moving tokens around - as projects who validate/stake will need to buy fuse to pay for txs, they won’t be getting them ‘for free’ via inflation rewards. This creates a ready market for fuse token.
My calculations show that there should be enough tx value to give a APR in the 5-15% range in a few years, and the reduction in inflation % is designed to balance that and sustain the APR during the transition period.
@Andy raised the issue of whether it was technically possible - this needs to be looked into. It could be based on EIP1559, but 100% of the tx fee is burnt (so the validator gets 0 at the time of the tx), but all the fees are then minted and distributed to validators/stakers at the end of that cycle, in the same way as inflation is - proportional to stake, validators taking 15% fee. It would require a staker lock-in of 1 cycle, but I think that’s being proposed at the moment anyway.
3 - A Balanced Eco-System
More and more projects want to build on fuse. If native fuse staking returns the best APR (due to the arbitrary inflation %) it is a barrier to these projects deploying and gaining traction - how can they compete? As we move forward we have to open our eyes to the bigger picture and see that there will be many other opportunities to earn a return on fuse token.
That being said, the greatest gain for all of us will be in token price, and we need to support that.
In controlling inflation and creating a equitable environment for projects to deploy, we build value into the network, which supports and builds the token price.
Overall, it’s better for all of us to have a lower APR with a high value token in a stable and well used network, than a high APR with a low value token in a fragile and unstable network.