This post aims to discuss the pros and cons of the current high inflationary staking reward rate of 114% and present an option to lower the staking reward rate to the Cosmos SDK default range of 7-20%. The current hyperinflationary curve will increase reward rate further and sustain elevated inflation until supply doubles before reverting to the Cosmos SDK default. By adjusting the staking rewards earlier, Onomy may create a more sustainable and stable ecosystem that benefits all stakeholders in the long term. However, it is important to discuss the pros of high inflation as well and hear community voices on the topic before an on-chain proposal is made regarding the staking reward rate.
Pros of High Inflationary Staking Rewards:
Improved Decentralization: Larger staking rewards incentivizes NOM holders to delegate to validators for staking, dispersing voting power and network decentralization, improving network security.
Increased Network Participation: High rewards incentivize more users to participate in staking, validating, and governance activities.This is evidenced by ~80% of supply being delegated to validators and high turnout on governance proposals.
Fast Network Growth: A high staking reward accelerates network adoption by attracting more users and stakeholders.
Arguably, a higher reward rate incentivizes users and stakeholders to hold their NOM longer-term.
Cons of High Inflationary Staking Rewards:
Unsustainable Inflation: Prolonged high inflation can lead to a significant increase in token supply, which could devalue the token, erode user confidence, and hinder adoption.
Centralization Risk: High rewards may lead to centralization as large stakeholders accumulate more tokens, potentially undermining network security and decentralization.
Short-Term Focus: Users may be more focused on maximizing short-term gains rather than long-term network health and development. Because rewards are potentially excessive, NOM holders may be incentivized to sell their rewards whilst holding the principal amount.
Deters new entrants: High inflation arguably supports the existing community and deters new entrants, effectively diminishing an important and crucial aspect of early stage growth of Onomy’s ecosystem of users and the Nomad Nation at large.
Rationale for Lowering Staking Rewards to 7-20%:
Sustainable Inflation: A lower staking reward will help curb excessive inflation, maintaining a more stable token value and promoting long-term adoption for both existing and new community members and users.
Encourage Long-Term Commitment: Lower, yet attractive rewards may foster a community of long-term supporters who are more interested in the project’s development and success than short-term financial gains.
Token Usage: Reduced supply output will make for more efficient utilization of NOM. Token holders must be more deliberate in the usage and deployment of their NOM holdings.
Resource Allocation: Reducing the staking rewards may allow for better resource allocation to other essential areas such as protocol development, community initiatives, and partnerships.
Reduced Sell Pressure: High staking rewards can lead to increased sell pressure as users regularly sell their rewards. Lowering rewards may decrease this pressure and contribute to more stable token prices that align more closely with the collective community growth and user adoption of Onomy Network, the DAO, and the associated OIPs.
Cosmos SDK: Reverting to the Cosmos SDK default staking reward rate range would potentially remove the need for the custom mint module that governs the current hyperinflationary curve.
While high inflationary staking rewards can attract new users and boost network participation, they also pose long-term sustainability and centralization risks that deter new entrants. It may be argued that the benefits of higher reward rates may still be enjoyed at lower reward rates, provided they are attractive enough. By lowering the staking rewards to the Cosmos SDK default range of 7-20%, we can potentially create a more sustainable, secure, and decentralized ecosystem that benefits all stakeholders. I request the Onomy community to consider the pros and cons of this proposal and voice your support or opposition to this proposal. Please voice your considerations for the overall long-term health of the Onomy Ecosystem.
After sufficient discussion amongst the community in this forum and on various social channels across Telegram, Discord, Twitter, etc., an on-chain proposal may be made for NOM holders to either ratify or reject.
So, even a high APR, negatively affects the price of the coin! So, whoever earns more than a lot of coins in staking, and wins a lot of coins! If everyone will sell coins, if they take them away for rewards, then the price of the coin will spend the whole hour in price!
I think that while inflation is so high, perhaps it would be convenient to lower the APR to a little more than inflation. And then, the team must make a study of when it is time to make the change (I understand that depending on the volume achieved), but yes, it is clear that in the long term this is unsustainable.
The drop could also be scaled, whether it was a percentage based on volume and price.
But in the long run, you have to enter normal APRs, of those enabled in Cosmos.
That’s my opinion… I don’t know if it will work for you…
Perhaps the question would be to find a balance between attracting new users (high APRs) and encouraging (I don’t know if something like this will be planned through the new DEX, which could be valued) through some method in which the rewards generated are not sold. .
As I said above, maybe the DEX could help - I don’t really know how… low commissions, other reward tokens… - to this.
Creo que el alto nivel de inflacion pone en circulacion millones de tokens que estan saliendo al mercado y no permiten que con los incentivos recibidos por el alto APR se cubran en terminos de la devaluacion, por tal motivo hay que buscar un equilibrio, donde los tokens recibidos como incentivo puedan ser desbloqueados, con un termino no menor a 1 año.
Estoy de acuerdo en reducir la inflación para que el Token incremente su valor. Creo que esto va a conseguir una mayor adopción en nuevos usuarios que ahora mismo, viendo la dinámica de NOM no se atreven a participar en el proyecto. Creo que sería positivo para el proyecto incluso mirando a largo plazo. Seguramente con una subida del token muchos usuarios venderán sus NOM pero creo que entraran mayor número de usuarios que los que saldrán del proyecto.
Totally agree, although it is true that we currently do not have a large volume, so a small wave of purchases would trigger the price “eating” all the inflation generated, we do not know when it will arrive. The inflationary peak is taking time to arrive and this large APR also makes me a bit dizzy, I would like it to start coming down fast too.
My belief is that a significant amount of the 80% of NOM that is currently bonded because of the APR will be unbonded. This will then be moved to exchange and provide vastly more sell pressure than inflation is causing.
It takes 3 weeks to unbond NOM from validator. 3 weeks after this proposal is enacted, we will see a sell off of NOM by those that were holding NOM because of the APR.
Once the APR is lowered there is very little incentive to buy NOM as APR will be on par with other coins. So we are actually removing market demand at the same time.
Therefore this proposal will only increase supply and decrease demand. The opposite of what the OIP suggests.
The current inflationary curve is smooth for a reason. So that we don’t have a cliff where in which inflation is dropped suddenly.
Most of the tokens are vesting and managed by the DAO, so I don’t think that changing the staking percentage will lead to the removal of a significant part of the tokens from staking, because only 2.7 million tokens were purchased through the bonding curve.
But perhaps it makes sense to leave the logic of the current inflation formula, but at the same time change it a little, for example, additionally divide the reward by 2. In this case, the inflation logic will remain depending on the number of tokens issued, but it will be exactly half of the annual. Or you can change the number of tokens at which hyperinflation is achieved, for example, at 100 million tokens there will be 100% inflation, and then it will decrease and tend to zero.