WFC - KIRA (Kusama Inflation Reduction Act)

6d ago

Rejected

Content

AI Summary

KIRA (Kusama Inflation Reduction Act)

This KIRA WFC proposal aims to make Kusama more attractive and to promote its adaptation. Not only for new users, but also for all existing users. To achieve this, the following is proposed and put to the vote:

1) Reintroduction of treasury burning

Kusama has spending periods. It is proposed that the treasury burns 0.5% of its unspent amount of KSM per spending period, thereby reducing the amount in circulation. The treasury burns at Polkadot should serve as a model. [Paragraph has been edited]

2) Introduction of a general voting fee

OpenGov allows anyone with KSM to vote. It is proposed that a modest voting fee of one per mille, i.e. 0.001, is due for each KSM used, which is burned (not locked) in the process and thus removed from circulation forever. KSM that are used with conviction are taxed according to that (1x conviction = 1 KSM, 2x conviction = 2 KSM, etc.).

In the case of delegated votes, the original wallets are taxed. The person who receives delegated votes only pays fees on their own KSMs, but not on those that have been delegated to them for voting.

Example: Person A votes for a proposal and commits 100 KSM with a conviction of 3x. 100 KSM x 3 = 300 KSM. 300 KSM x 0.001 = 0.3 KSM fee.

This mechanism ensures that the demand for KSM is slowly but surely increasing. Due to its low level, it does not prevent anyone from voting, but ensures that those who wield political and economic power make a contribution to the community as a whole. [Paragraph has been edited]

3) Introduction of a general treasury tax for outflows

In the case of treasury proposals, it is usual for the KSM or stable coins paid out to be sold. To counteract this selling pressure, it is proposed that the treasury automatically burns (not locks) 10% of the amount paid out from its own holdings in addition to the payout, which in turn reduces the amount in circulation.

Example: Group A requests 100 KSM from the treasury. The proposal is accepted. The treasury transfers 100 KSM to group A. The treasury burns 10 KSM from the remaining assets.

4) Reduction of the maximum inflation rate

Kusama's main problem is its current maximum inflation rate, which leads to a long-term supply surplus, which in turn leads to a price reduction according to the laws of supply and demand.

As this model has demonstrably not led to more adaptation and thus jeopardizes the long-term financing of the project, also with regard to investor protection, it is proposed that the maximum inflation rate be set at 5% per year.

Two points should be mentioned in this context:

A few weeks ago, the minimum commission rate for validators was increased from 10% to 15%, giving validators 50% more income than before. A reduction in the maximum inflation rate therefore does not harm them in any way, as this percentage amount is not affected. On the contrary, they will also benefit from a reduction in the maximum inflation rate.

Secondly, and for all those who are worried about their staking rewards, rest assured that with the current inflationary strategy and the consequent fall in prices, these are not worthwhile on balance anyway. For precisely this reason, a reduction in the maximum inflation rate is needed, which incidentally has also been implemented at Polkadot.

Conclusion

With these changes and future adjustments to the Coretime pricing model, Kusama would become considerably more attractive again. Why exactly?

a) The amount of newly created KSM is significantly reduced, which increases the supply much less quickly. KSM therefore becomes more valuable because it is scarcer.

b) The amount of KSM in circulation is slowly but steadily reduced by the newly introduced fees, which also lowers real inflation. KSM therefore becomes even more valuable as it is scarcer.

c) Although the percentage of staking rewards will decrease due to the reduction in the maximum inflation rate, the value of staking rewards will increase as the reduction on the supply side leads to a price increase (supply shock).

d) Due to the voting fee, it will slowly but steadily become necessary to buy more (new) KSMs in order to maintain the previous voting strength, which will increase the buying pressure.

Thank you very much for supporting this proposal and have a wonderful day!

PS: If you would like this proposal to be put to a vote, please consider paying the decision deposit, as it is unfortunately impossible for me to do so. :'(

Edited

Up 1

Status

Decision14d

Confirmation

Attempts

Tally

0.7%Aye

50.0%Threshold

99.3%Nay

Aye

≈2.47KKSM

Nay

≈357.54KKSM

0.0%
0.0%
Threshold
0.0%

Support

0.02%

≈3.12KKSM

Issuance

≈16.31MKSM

Votes

Nested

Flattened

Actions

Check how referenda works here.

Call

Metadata

Timeline4

Votes Bubble

Statistics

Comments

Cdyg...b94n

In principle, I agree with the proposal and am even prepared to make the decision deposit available, as I am aware that it is extremely difficult for people with good ideas who do not have thousands of dollars at their disposal to be able to contribute these ideas at all. Something that should be fundamentally changed in the future in order to be as flexible and innovative as possible.

But let's move on to my criticism of the proposal. I think it's good to reintroduce the treasury burns, but 5% per spending period is too much, as each such spending period only lasts just under a week. I would welcome it if you changed this percentage to 0.5%.

Up 1

Cdyg...b94n

You are most welcome! I can understand your frustration very well.

By the way, I became aware of your proposal through X (Twitter). It was briefly addressed in a video post, either on Polkadot or Kusama. The worst thing was the arrogance and double standards of the people there.

The moderator and a few others were in favor of letting Kusama blithely continue to be inflationary in order to and I quote “fund their innovations”, and apparently have no problem inflicting a 10% inflation rate on their users, but they do have a problem with burns and a voting tax of one per mille being introduced... One woman there even called your proposal stupid. Is this any way to treat users who want to contribute something constructive? Where is your comment here?

The problem is also that they place far too much emphasis on who is proposing something. This is because they very probably come from authoritarian countries that don't have a clue about Western democratic systems in which every citizen can get involved and it's about concrete content and not about rank and name.

And one more thing: the moderator sneeringly remarked that this was just a WFC. Dear Mr., the WFC, which effectively set the treasury burn to 0, was finally lovingly implemented, wasn't it?

The sad truth is that they have an irrational fear of losing their funding and salaries. It is not concern for the project and its users, but pure selfishness. Dear Kusama team, if you are reading this, please hire an economist, or preferably two. It can only get better! And in principle it would be really easy: Please stop pretending to be superior to market mechanisms, because we live in a world that is dictated by them.

The current inflationary course will certainly not lead to a place where Kusama will flourish. Please, take a look at the chart! That, my dears, is unfortunately the sad reflection of your strategy so far. We need a better one! We need this one! Aye!

Up 1

DiNc...iBYS

While we understand some of the motivations of this referendum, there are several points that lead to our NAY vote:

We believe any form of tax on OpenGov participation is counterproductive as participation should be incentivised, not disincentivised.
Raising the minimum commission to 15% was needed in order to keep validator operations sustainable. We do not follow the argument that this step created any headroom to now lower validator income again.

EvoL...oVus

My general voting policy is to aye pretty much everything, first I'm glad you took the time to put together something that is not nonsensical. I'm not sure if any of the proposed changes is going to do anything, but the thing is nobody knows and we will never know if we don't try anything and just keep naying every attempt at changing the way things are.

👍
I don't think it helps much and could discourage voters. Also we probably don't want to surprise holders that "delegate and forget", if after a few months of staking I have a smaller balance than what I started with that would make me angry and if implementation is non trivial is more the troubles it brings that the benefit no?
👍 interesting
I already failed to propose that, validators might need some extra convincing and incentive to be onboard as they see the 15% commission as just a bare minimum and would likely keep increasing the commission.

Up 1

HUf7...WXD4

Hi EfWt...RF1U !

In general I advocate for solving the root cause, not the symptoms, and seeing things the way I've been seeing them since I joined this community (back in '22), high inflation is not just fairly recent, but just another symptom. IMHO, the underlying problem Kusama as a network must address is lack of usage, and that is a systematic symptom across every network other than a few three (Bitcoin, Ethereum, Polygon). This is mainly because: a) the KSM was considered a shitcoin even become the inflation rate increase, and b) usage is driven by usability, and by that I don't mean porting to Eth, but building systems that let real-world people use web3 products and enjoy their benefits without the burden of acknowledging they're using Web3 products (I mean: opening a wallet, buying crypto, being constantly aware of that, etc.).

This can be done somehow. @olanod 's latest passed WFC proposal, the DarkHole Pallet can be used for this purpose. It's just a matter of, when released, to set the burn mechanism that was modified in WFC 437 to redirect treasury burns to the darkhole pallet. Then, that pallet would be able to burn the funds automatically when it ends its cycle.
This is the most controversial proposal, so I'll stop a bit more here.
I'm personally against this, as probably many active voters are. While governance is in itself an economic game, its ultimate purpose is representing the voice of the tokenholders, and this means not punishing them for exercising their right to have a voice. The immediate effect of doing something like this, even as an experiment is not known as there are no prior evidences of this, but the worldwide evidence suggests that incentivising the vote abstention is highly effective, and this only deteriorates the same democratic principles this system inherits.
Not to mention that this is inviable as an experiment: the process of applying changes to this system would be highly controversial, because its applicability would also apply to Polkadot, and that's a big no no: general consensus is that Kusama is free to do experimentation and some members of the fellowship (like me) can opt to implement them, as long as they don't impact Polkadot. Also, it would take at least a semester (if not more) before being active, as this process implies changing the SDK, approving the changes, waiting for the next stable release where this change is included, and finally proposing changing the runtime, receiving an approval to do so, then waiting for the release, and the upgrade enactment on-chain.
There are additional implications, though: a) How would the burning process work if I change my vote? Would I recover the excess on the unused funds? Or does the burn occurs after the vote is unlocked, so I can only get to pay for the vote I actually exercised? What if the amount to burn for is higher than what I actually have in my free funds (note that you can vote with funds that are currently locked), do other external systems (like NFTs or Staking) have to pay for my voting actions?
Finally, on the economical aspects of this proposal: a general vote fee wouldn't work as a reflection of the increased demand, because it not producing real value output. Markets see that, and won't go there to buy a token on a network which is not just reflecting real demand, but is also potentially punishing them for speaking their minds.
Teams need precise amounts, and if they know beforehand that there are outflow taxes. They'll just request more. Sure, that adds friction, but that won't stop teams from requesting more, depleting our (already scarse) treasury even faster. Doesn't sound too reasonable.
On the economic side, this has local impacts, but is generally not taken into account by external observers, because this doesn't reflect a real impact in the token demand which ultimately impacts the price.
This is one I can agree on, but this is a network that's historically been sustained by validators, and they have a great saying about it, I also have mixed feelings about it.

I understand the good intentions behind this proposal, but low inflation with zero demand has no impact whatsoever.

Up 1

DaCS...Liax

PolkaWorld votes NAY.

If Polkadot is aiming to reduce security costs, I believe Kusama can adopt a similar approach. Even if we choose a different path, we still need a more comprehensive plan for reducing inflation.