Discussion: Community funds / inflation in Secret network after secret contracts

Hey all,

As proposed by Secretnodes.org on March 9, 2020, the Secret Network community has increased the community pool tax from 2% to 75%. Currently the inflation rate is ~18% and its set to range between 10-25% based on participation in the network. This post should be a thread where we discuss the desired metrics for inflation rate and community pool tax. Based on these numbers, we can project the size of the community pool and make better, more informed decisions about community spending proposals.

Inflation benchmarks (yield):
Cosmos: 7-20% - (9.7% yield)
Terra - 10%
Tezos - 5% (6.2% yield)
Algorand - 1.5%(5.5% yield)

Community tax
Z-Cash - 20% (includes foundation, team, founders)
Beam - 20% (includes foundation, team, founders in some cases)
Cosmos - 2%

Our on-chain governance for allocating community funds is not very effective. The improvement in the proposals that went through a process of off-chain was impressive to see in the last week. Therefore, allocating community funds primarily through an established grant system is critical for the success of the Secret Network ecosystem. This requires a lot more time and attention than any of us currently allocate for the revision of these proposals.

I believe having this discussion is important to determine how we are using the community funds in the near future. For example, if we take the conservative end of the benchmarks above (for example 5% inflation and 2% community tax),we are looking at 50K SCRT for the community pool for the year. On the other end, if we take 20% inflation and 20% community pool, we are looking at 2mn SCRT for the community pool / tax.

These numbers are supposed to show how big the impact of a future inflation / community tax change is going to be on the community pool. Maybe we should consider pausing community spending proposals until a decision has been made on the inflation and community tax numbers going forward.

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2m at 20%/20% assumes no coins are swapped. If the swap happens, I would expect the supply to double approximately. I would present 10%/10% on assumed 100m “initial” supply as a preliminary option, for ~1M annually.

I’m very much in favor of pausing spend proposals, not only until the numbers are figured out and more guidelines in place like Guy suggested in the other thread, but more importantly (in my opinion) until non-insiders are also able to have a stake and real input into proposals. Setting the tax rate to 75% in the meantime was a good idea, but on the flip side the recently passed proposals were presented by the two validators with the highest total stake, which just isn’t a great look (an optics observation – nothing to do with the relative merit of either proposal).

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In general, without commenting on specific numbers, I’m in favor of a higher inflation rate and high community pool tax. The entire community will benefit from more investment. I think any reduction on the value of SCRT, due to inflation, will be vastly outweighed by future growth of the coin. I want to see SCRT at $10+ and I think the technology backing it can get us there, but we need to make sure that we don’t throttle growth by restricting capital to fund that growth. If we think of the Secret Network as a startup then we must dump huge amounts into R&D with the expectation of future success.

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I am only a long term enigma token holder, but here are my thoughts:

  • Before arguing directly on the inflation rate we should know an estimate number of scrt tokens after the swap (assuming all eng swapped)
  • The community pool tax has shown a lot of potential because there are now people aspiring to build stuff for the ecosystem. I am an outsider so maybe I don’t have all infos but I felt it was less the case before the scrt main net was released.
  • I can’t read code so I can’t evaluate Enigma tech against its other competitors. I can however see that Enigma media presence is better than it’s direct competitors. Having said that, I think the community pool tax is a opportunity that provides a link between the project and the community of developers following enigma.
  • Even though I really like to see that the project is more decentralized than ever, I think it’s also very important that the team communicate well about their thoughts on each decision that will be voted. It’s important that the project still follow your vision as you guys I think are the best placed for taking decisions.
  • As stated before, I am a token holder hence I am a little bias on inflation. However I think inflation is less straight forward that it looks. What’s important is not the number of token available for the community tax but it’s total value. This is why I would favor a high inflation (so that there are tokens available) but not a very high (ex: 18%) because it has the possibility to drive price down.

Having said all of that, if I had to throw numbers I think that something between 7 and 12% inflation is reasonable for not diluting too much the created value.
And as @Derek stated, I am also in favor of a high community tax (ex: between 40 and 75%) and I think some part of this tax should go to the team too.

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Some thoughts of mine

My views on how block rewards should be setup are as follows.

50% goes to validators.
25% goes to community pool.
25% goes to The Secret Foundation.

I like this because it seems to balance the community pool to be in line with how the foundation is resourced, and the foundation really is a system that should stand as an equal to the on chain accessible community pool. Then 50% to the validators makes our network pretty attractive to node runners.

I really think it’s fine that proposals are coming out before the network is fully unified because the Infrastructure being worked on needed to get in motion now vs some unspecified time we can’t measure in the future where the bulk of coins get swapped. It’s unknown when we will truly be considered “post swap”.

So I don’t fully agree with a pause on the option of putting forward spend proposals since someone could identify other needed infrastructure (I have no current plans for any future community spend proposals). We probably shouldn’t fund speculative ideas though, instead I only really think essential infrastructure makes any sense for now.

My opinion:
Inflation is not more than 10-12%.

Big inflation creates pressure on the value of the token and affects the psychology of people. The important thing is not the number of tokens, but their value.

If we start with inflation of 10%, then when we reach a certain level of price/capitalization and development, we can step by step reduce inflation by 1% (10% -> 9% -> 8% -> 7% ->) and stop by 5% (like Tezos).

I also support a high community tax (30-50% for community pool/SF/core dev) to ensure explosive growth and market share capture in the first few years.

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Great discussion!

I also support pausing spend proposals until a better process is presented, as well as getting concrete consensus around inflation and community tax.

As to concrete numbers, it seems that double-digits inflation is important to attract strong validators and achieve proper network security. However, we can all agree that having high inflation is not advisable either. I would therefore suggest we stay around 10% and specifically, would advocate for something along the lines of 7%-13% (I believe some margin is important to incentivize reaching the needed 67%+ bonding threshold that’s needed for securing PBFT based networks).

Community pool - I also believe this needs to be high. I was very encouraged to see recent proposals, including businesses emerging that are set on building on our network. However, while I think this figure needs to be high, we also need to be thoughtful in how it’s being spent. As community pools go, 20% seems to be the current industry best practice (not a lot of data points though). I believe we can also agree on a higher figure (perhaps 30%-50%) for the first few years.

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Agree with this.

We should try to keep inflation as low as needed to achieve our desired outcome. High enough to incentivize validators and community builders, low enough to minimize dilution.

7-13% seems reasonable.

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I’m going to suggest something a bit different - a flat-rate interest of 12% with a 10% community tax.

I think a 12% inflation would be enough to incentivize investing and staking providers. In addition, I’d rather have a flat inflation rate, as I don’t think the variable inflation rates make that much of a difference unless the spread is large (something that we probably don’t want in any case), and the simplicity of a flat inflation rate will make discussing network economics easier.

While I agree that a strong community pool is a good thing, at first I’d rather not see the community pool inflate too much. I think a moderately sized community pool will incentivize contributions, without having too many projects that rely solely on community funds as their economic model & motivation (or worse, attract people looking to scam)

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Flat inflation rate would make it a lot easier to understand the system.

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I appreciate this perspective. While I don’t mind the pool inflating some early on, I don’t like the potential of it appearing as a “slush fund” (or worse, being actively treated as one).

If I assume there’s an inverse relationship between quantity and average quality of proposals, then I fall somewhere around here:
low quantity/high average quality<-------x---------------------->high quantity/low average quality

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In response to this discussion I am making the following proposal today.

The Secret Accords

Just a reminder that I encourage anyone who disagrees with the Secret Accords proposal to vote no or voice it. I tried to put into action what people had already discussed here. I’m also willing to vote it no if the people want this to wait, I was merely trying to implement a better baseline for us to make changes from.

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Now that the Romulus upgrade has been successfully executed and the swap is under way, it feels like time to reopen the discussion about inflation and Community Pool / Tax. It’s been a month since this was last discussed, culminating in the Secret Accords Proposal (Proposal 12) which was fairly soundly rejected. But reading back over the comments above it seemed that virtually everyone agreed that the rates (i.e. inflation and Community Tax) should be changed. The huge jump in Tax from 2% to 75% back in the first half of March felt like an emergency measure in order to get the funding for the work needed to facilitate the swap together as quickly as possible. Now that the swap is under way, I would have thought that this 75% rate is no longer necessary nor desirable.

The Community Pool is currently pushing a million SCRT and there’s already been a rejection of a proposal for the Token Swap Watcher on the basis that it was too expensive at 90k SCRT, so I would argue that there is a decent buffer of funds in there as it is, as long as the Tax rate is kept sufficiently high that it continues to receive healthy inflows.

The number of SCRT being staked on the network is growing a steady rate since the swap began a couple of days ago and you’d only expect the rate of this to accelerate as the word gets out and people become more confident in the process, both of burning and of staking. All of which will contribute to a greater rate of growth of the Community Fund anyway.

I’m in agreement with most that, in the early days at least, it would be good to keep the tax rate relatively high. I believe the average for most networks is about 15 - 20%. I would suggest that we reduce the rate to somewhere in the region of 30% (which is 50% more than was proffered in the Secret Accords Proposal.)

Re the other part of the equation - the inflation rate - I was under the impression that a variable inflation rate had some sort of technical / network security rationale behind it? @tor and @dbriggsie made a valiant attempt to explain it to me once but I can’t find the relevant thread now.

Because the failed Proposal 12 included both a) adjusting the inflation rate to a fixed 12% and b) adjusting the Community Tax to 20%, it is unclear whether it failed because people were unhappy with a) or b), or both. It may well have been the case that people would have been happy to adjust the Community Tax but wanted to keep a floating Inflation Rate.

As an aside I find it a shame that there is no mechanism by which people voting on a proposal (particularly if they vote No) can voluntarily leave a comment as to why they voted that way. I know that with this Proposal, as with the more recent Proposal 15 - Token Swap Watcher - some people voted against the proposal because they didn’t think that it was quite right in the fine detail, rather than being totally against the idea. Apart from the crude option of voting “No” or “No with Veto” there is no way to communicate the nuance behind your reasoning… should you wish to.

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Thanks for bringing this discussion back on @JimmyJingjang

Honestly, I feel @Cashmaney had a good idea of the flat inflation rate. And I think I agree with him for the next immediate action to be at 10%-15%. Later we can always move to a flexible change rate like @banal75 and other suggested where the community can passively reduce inflation rate over periods of time or after major network upgrades.

As for the community tax, I think a good 10% interest, for now, would be a good idea, but it depends on who the funds are going to.

  • If its SecretFoundation + External Development Community then 10% seems fine.

  • If the Enigma Core team also needs these finances then I would say 15%. But I believe the Enigma team had raised a considerable amount during ICO, so I am not sure if they need to draw from this SCRT pool, as they should hold a sum of BTC for core team function. I am not sure how the legal issues are being resolved but assuming 100% of the ENG get swapped the team should still hold a good chunk of BTC to finance SCRT network development. If the Enigma crore team, after the swap is open to putting in the ICO raised BTC (Or what’s left of it after using for development purposes) into like an SCRT-BTC escrow then we may still work with 5%-10% for community tax.

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Great to see this discussion picking up again. We will be sharing a proposal draft on this very soon.

Regarding the feedback on the voting outcomes and feedback. Ideally there should be a thread in the forum for every proposal and there should be discussion in that thread before there’s an on-chain submission. @jlwaugh will also be sharing a post about governance best practices later this week. We should include your suggestion there

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For me really isn’t clear how we can decide inflation rate, if there isn’t any public info about token distribution of Secret. I mean, actually from where inflation rewards are coming? How many tokens have foundation? Is there an ecosystem fund? and so on…

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Why would 25% be allocated automatically to an organization with no clear objectives, milestones, roles/responsibilities, etc? The community pool is nice because any spending has to be approved by vote before being executed. I’ll probably get banned for voicing any sort of concern but this is honestly a bit much. Node runners will receive a lot of operating capital through normal operations. They shouldn’t need to “double dip” at 50% of the inflation…that’s absurd. They’re already economically motivated to actively participate in the network.

Where are you getting the 50% figure from?

It’s been proposed foundation block rewards + community pool shouldn’t exceed 20%.

Zcash foundation gets block rewards for a similar foundation and the foundation must have a clear purpose to qualify for non profit status. I encourage you to dig deeper and do more research.

Ah that 20% figure is much more reasonable. I was looking at your post above that was old. I’ve been out of the loop for a while, and doesn’t help to be banned from all the telegram channels.

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