Develop a mechanism to lock a percentage of staking rewards as set out in the details of this referendum

Note: I am speaking personally, not in my role as a Web3 Foundation employee.

This is an experiment ready-made for Kusama. I like the fact that it keeps people more aligned with the ecosystem. I like the idea of starting at 0 and modifying it upwards, a bit at a time. Also, this is just what we should be doing on Kusama, trying things out and seeing if they work. Inflation on Kusama is already much higher than on Polkadot, so I do think something should be done and why not try something different than what Polkadot is doing? This is Kusama, expect chaos!

I do have a few concerns:

1. It adds even more complexity to an already-complex staking system, and
2. Staking rewards are generally (depends on jurisdiction) taxable upon receipt, even if they are locked. Which means that if the locked percentage is high enough, it could mean that theoretically people are paying taxes on staking rewards that outweigh the value of the rewards received.
3. I would like to hear more from validators and how this would impact them. I know Kusama validators are often in an economically precarious situation.
4. I think the parameter should be modifiable via Staking Admin track, not just Root track.

Thanks for the feedback Bill and all good points,

• I agree but I hope we can manage this with good UI
• This is a point that I have not considered. I have access to a team who can give some advice on this matter and I'll review revert with feedback.
• Never hurts to get input, more so from those with commissions > 15% (min commission).
• I considered the staking admin track but given it's impact (similar to inflation) I found it suitable to use the root track. Happy to change my position on this based on community feedback.

For the rest of the community, I know there are some factions seeking more discussion and more details on the broader scope. I have had several discussions with knowledgeable stakeholders, developed presentations and formal proposals on the topic, the details exist. However, with such a 'chaotic' proposal discussions can easily shift focus so I'm trying my best to offer suggestions in very simple bite-size pieces which we can (as a community) come to consensus.

I had the opportunity to be on AAG earlier today, please find clip using the link here.

A few questions were raised which I'll like to put in writing.

Firstly:

This referendum doesn't seek to impose any changes to existing staking parameters, if passed, we can employ experts to guide us on possible variations much like what was done on Polkadot. With their expert guidance we may for instance have three referenda up:

• One to increase inflation but incrementally lock 50% of staking rewards
• Another to leave inflation as-is but incrementally lock 40% of staking rewards
• The last to lower inflation by 40% and immediately lock 20% of staking rewards

These are just examples (for illustration), the experts would provide context as to the pros and cons of each option presented or add in other factors like validator min commission adjustments.

Secondly:

I was asked how does this referenda affect nominators. On AAG I presented two scenarios, one in which the locks are applied and the other in which inflation is just reduced. Reducing inflation is the only viable options with existing parameters right now.

To illustrate I'll use a likely scenario of inflation being reduced by half on Kusama. As opposed to inflation remaining constant but half of staking rewards are locked.

Inflation halved, a per-era calculation, validators don't increase commission

• Rewards to all stakers for the era is 800 KSM, now halved to 400 KSM
• This reward is split over 1000 validators, each validator gets 0.4 KSM
• Validators take their minimum commission of 15% (.06 KSM/era), nominators get the rest (0.34 KSM/era)
• Expanding the above to a monthly value for validators, (0.06430) 7.2 KSM, or $108/mth @$15/KSM

Inflation halved, validators increase commission to earn "pre inflation adjustment rewards"

• Validators take their minimum commission of 30% (.12 KSM/era), nominators get the rest (0.28 KSM/era)
• Expanding the above to a monthly value for validators, 14.4 KSM, or $216/mth @$15/KSM

Staking Locks, half locked:

• Rewards to all stakers for the era is 800 KSM
• This reward is split over 1000 validators, each validator gets 0.8 KSM
• Validators take their minimum commission of 15% (0.12 KSM/era), all tokens are transferable
• Nominators take the rest (0.68 KSM/era) 0.34 KSM/era is transferable, 0.34 KSM/era is locked
• Nominators can restake the additional 0.34 KSM/era or unbond their transferable KSM leaving behind the locked one

Possible fringe benefits are:

• We may see more participation in governance as the tokens are already locked.
• We may see more social investment in the network as these locked tokens accumulate

Regards,
Will | Paradox

To increase token price, increase buying pressure & decrease spending pressure. Increasing system complexity and making the life of nominators more difficult is not going to help.

Token price will become healthy if we get serious about growing alongside yet independently of Polkadot, not just remaining an incentivized testnet. Increasing buying pressure will be a result of adding utility and reducing selling pressure will be a result of decreasing Big Spenders.

Also, should we consider having 500 validators instead of a 1000? With this we could both slightly decrease security budget and slightly increase validators rewards; win-win.

Ultimately, we need this:

https://forum.polkadot.network/t/make-kusama-chaotic-again/11123

Terrible idea. Most people won't realize their tokens are locked until they go to make a sale. This will probably result in a deprival super-reaction response, similar to what happened when people expected to receive more DED tokens in the distribution than what were actually distributed. Deprival super-reaction tendency is real, it is strong, it is very irrational, and it is dangerous to Kusama because It will convert supporters into rabid haters. You should not do this.

Charlie Munger explains deprival super-reaction: https://www.youtube.com/watch?v=UeEoyJnPuBo

PolkaWorld votes NAY

At its core, this proposal seems to miss the point: users ultimately care about returns — whether from staking or DeFi, they will naturally gravitate toward whichever offers higher yields. If staking rewards drop, users will shift to DeFi. This suggestion neither addresses the root issues nor clearly defines what it aims to solve.

1.	The inflation problem remains unresolved
2.	The reduction in nominator rewards is still unaddressed

You can view our full feedback here.

Dear Proposer,

Thank you for your proposal. Our first vote on this proposal is NAY.

The Wish For Change track requires 60% quorum according to our voting policy v0.2, and any referendum in which the majority of members vote abstain receives an abstain vote. This proposal has received two aye and five nay votes from ten available members, with one member abstaining. Below is a summary of our members' comments:

The voters expressed a mix of opinions regarding the proposed WFC, with several advocating for more discussions and analyses before approval. Many highlighted the potential significant impact on Kusama's tokenomics and called for a thorough evaluation of the long-term implications. Some voters were open to experimentation, recognizing the potential benefits, while others preferred to see the proposal discussed in a broader context, including economic modeling and alternative platforms. Overall, the sentiment leaned towards caution and the need for further deliberation.

The full discussion can be found in our internal voting.

Please feel free to contact us through the links below for further discussion.

Kind regards,
Permanence DAO
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