HIVE Inflation | Is it too high? | Part 2

in LeoFinance2 months ago (edited)

This is part 2 from the Hive inflation series.

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In the first post HIVE Inflation | Is it too high? | Part 1 we went through the following:

  • Top Cryptos Inflation, for comparison
  • Hive projected and actual inflation
  • What is needed to offset inflation
  • Possible scenarios for lowering the HIVE inflation

In short, in most cases the top cryptos have around 5% inflation, with BTC having the lowest 1.8%. Most of them are lowering the inflation over time.

The HIVE inflation although projected at around 9% in the past years, have been higher than that because of the HBD to HIVE conversions that have added around 14M more HIVE, pushing the inflation on a rough estimate around 10% in the last years. Going forward the HIVE inflation should go down to 1%, in 2033.

For the next 5 years the projected inflation should go down from 8% to 5%. With the HBD to HIVE conversions this will most likely be around 8% average for the whole period. In absolute numbers this period has the highest inflation per year with 26M new HIVE projected, and the HBD conversions on top of this. This will add around 174M more HIVE in 5 years, pushing the supply from the current 364M to ~540M in 2025. A ~50% increase from the current supply.

From the above, the goal would be to lower the inflation to at least 5% per year, meaning we need to cut 3% of the 8% current inflation.

Growth can easily offset the inflation, and there is massive potential for growth. Thing is how to jump start that growth? Lower inflation can partially contribute to this.

How to lower the inflation?

The first candidate for lowering the inflation is the DAO/DHF fund. This fund will have a massive 20+ million HBD after the HIVE conversion is made, and that will account for a 20+ years development fund with the todays rate of project funded for around 1M HBD per year.
If we remove the DAO/DHF inflation this will reduce the overall HIVE inflation for around 0.8% We need to find 2.2% more to get to our goal of 3% cut in inflation.


After this short recap now let’s take a look at other possible ways for lowering the inflation.
The next candidate for this would be the Author/Curation rewards.

Author/Curation Rewards

The author and curation rewards account for 65% of the overall HIVE inflation, 32.5% each.
To get to the 5% inflation from the current 8%, counting in the 0.8% from the DAO/DHF fund we need to cut the author/curation reward for 38%. Meaning 38% lower author/curation rewards. For easier understanding let’s just say half the current rewards.

Cutting down in half the current author/curation rewards.


Now the above might look like playing around with numbers, but the overall conclusion is this. Going down bellow the 5% mark in inflation, right now will mean to cut the author and curation rewards in half.
I know this would not be a preferred option for a lot of people here, as they might feel that they are robbed from their rewards. But just think about it.

Cutting down your rewards in half, but having a more valuable token would means that in general your rewards can be the same or even increase. For the rewards to stay the same, HIVE need to double its current value and be around 0.5$. This is achievable. Everything above 0.5$ HIVE would mean that you will get higher rewards.

SMTs to the rescue!

Second layer tokens are already here with the help of the Hive Engine. A lot of users are already taking advantage of them and earn extra income on top of the base token. LeoFInance recently put out a post showing that some authors are already earning more in LEO than HIVE. This shows clearly that a project can be build on Hive with real use cases that can provide value for that token.

When enough of these tokens emerge from the Hive ecosystem authors can lean on them for author rewards.
Now I don’t know when will SMTs finally be out, but at that point I would say it would be safe to cut the author/curation rewards in half.

I have seen a lot of users are even promoting cut down the author/curation rewards in total. My personal opinion is that it would be nice to have at least some rewards in the base token. First cut it down in half and later maybe even reduce it further.


Till now we have looked into:

  • DAO/DHF inflation
  • Authors Inflation
  • Curators inflation

What we are left with is:

  • Staking rewards (Hive Power Holders)
  • Witness rewards

Staking rewards. I have talked about Hive Staking Rewards Model before. These rewards shouldn’t be lowered, as they are the incentive for holding HIVE and earing passively. What can be improved is maybe the model itself. As the way they are now, they are not visible. You want to show off with your staking rewards, not hide them. A daily transfer to the wallet would make a lot of difference, instead of the current one, that magically increase the HP, without you noticing it.

Witness rewards. For most of the cryptos these are the only rewards that the token gives out. This is the equivalent of the mining rewards, and the block producers’ rewards in DPoS.

Currently the top 20 witnesses earn around 10k HP per month. At these prices this is just above 2k USD. This is not a lot of money for miners/block producers. For average users maybe yes. But what if HIVE gets to 1$ or 5$. Then this becomes 10k, or 50k. Bitcoin miners get lower rewards after each halving. Although not sure how comparable this is. The point is that maybe at some point in the future if HIVE appreciate in value, witness rewards should be lowered as well.

I think in the current inflation model, that projects 1% inflation in 2033 the witness rewards will also be lowered as the overall inflation pool will go down.

One more thing about the witness rewards is the curve. Witness rewards drop massively after the 20th position. It might be better if we have almost like linear witness rewards, where the no.1 earns the most and then they go down. At the moment it doesn’t matter if you are a no.1 or no.20 witness you get the same rewards. If they are linear, the rewards will slowly go down, creating more competition in the top 20, but without a sharp drop after the no.20 spot. This might not be totally in line with the consensus mechanism of the blockchain, that predicts 20 witnesses confirming operation.


Price = Supply VS Demand

Inflation is all about supply. As we know the price is a balance between demand and supply. To have higher price of the token we need to create demand for it or buy pressure. Not just hype. This is crucial for a health Hive economy. We will explore this topic further in a separate post, as it deserves attention.

Here I will just mention the obvious way, that a lot of projects are doing, is fist create revenue, then make buybacks and burns with a share of the revenue. Since we want to promote a real decentralization here it will be tricky for one central entity to create the revenue and make buybacks and burns. Looks like the path forward is communities and projects build on HIVE that will utilize the decentralized nature of the chain, and then each of them creating revenue, buybacks and burns. This will create a truly decentralize chain with multiple projects and revenues, that will be almost unstoppable :)

All the best
@dalz

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Staking rewards need to be more visible. No doubt about that.

Yep... make them shine :)

Idea of reducing iflation is good, but the way what your proposal do that is no accteptable.

  1. In DHF are massife funds and 10% of inflation pool goes to DHF, if you want reduce inflation, just don't give that much %. We can easy make cut over here. I agree that this should be totally removed or be just symbolic 1% of inflation pool.
  2. Many authors earn less than 10$ HBD in payout per day. It gives 5$ for day. With your cuts it will be 2.5$. Tell me, which author want make content for less than 3$?
  3. If authours will not make content, who gonna curate curators? They gonna just pump their voting power anywhere just to get some rewards.
  4. There is around 400kk hive right now, after reducing inflation, there still will be over 400kk hive. I don't think so that it change something in price. Maybe after long future, but for now it didn't change anything.
  5. Witnesses earning 10k hive per month and you think is not that much? Sustain cost for their servers are around 50$, which give with price ~0.2$ hive around 1950$ profit with running node. Of course there are witnesses, which really do something for the platform in this time, we see their work in proposals, but they get additional cash for that.
  6. We should reduce inflation for incoming years like 2% cut per year to level 3% or less.

I have adressed all this in the post, so you might read it again to find the answers.

In short:
When the steem/hive price was 0.1$, there was still authors posting. Maybe not as much but still.

The goal is to make Hive worth more, 0.5$ at least, so you will earn the same or more.

What you would like more? 10k hive at 0.1$, or 5k hive at 0.5$? Its 1000 to 2500.

I'm talking about the next 5 years, that have the highest inflation in absolute numbers. From 364M to around 540M, 176 more HIVE, or 50% larger supply. Its not the same number as you say 400kk....

About witness rewards, check how much EOS block producer makes, or TRON or TEZOS. Witnesses secure the network. We want high rewards and people that are willing to run witness nodes, for security. A blockchain is as good as much is secured.

If someone want to be a witness, buy a lot of stake and vote your self.

Lol, I don't know anything about tezos, but I wouldn't take those other two for a reference.
They have a lot of hill to climb before they prove themselves to me.

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Top 20, or top 10 at times, looks like they have climbed the hill much more then hive.

Yes, but hive been to #3 and has a use case that is getting used.
Call me biased, but I don't hold either of those.

  1. Witnesses play important role. The committed witness to our HIVE the the more everyone else in the blockchain benefit. That means they’ll work towards improving and developing our decentralised network.

I personally love to see more competition for our top 20 witness. The beautiful thing about this decentralisation is anyone can run the witness node and get into the top 20.

  1. Over time we want to see inflation reducing. Our main focus should be now is to rebuild our hive brand and growing our hive Network.

I strongly believe our main priority is Growth

About staking rewards:

As the way they are now, they are not visible. You want to show off with your staking rewards, not hide them. A daily transfer to the wallet would make a lot of difference, instead of the current one, that magically increase the HP, without you noticing it.

I would prefer a model where user sees increments in real time. As far as I know, the increase rate can be calculated so the wallet page can "fake" the real-time animation of increments so we don't spam the nodes asking about the current HP value every 0.1 sec.

Also an additional info can be added with the amount of HP predicted HP increase in the next 24H (because with small accounts the HP increase won't be visible unless someone is very patient :D).

That is a solution as well. Fake the represetation. Still some notification, or record from the past rewards will be needed. Although it is still a compesation.

Yeah, something for a start :) Seems it would the easiest to implement and then it could be expanded.

I remember that frystikken made some ridiculous page that counted IRT his "interest" earnings.

Yeah, he even used the default odometer theme :D something like this but a little more subtle when it comes to presentation :D

SMTs to the rescue!!

Indeed :)

We can implement good old and battle tested burning

I see the problem with reducing the inflation to authors in the continued decentralization over time. Halving it essentially means that those with stake now will have a large gap over anyone participating. I am skeptical at this point that the inflation is stopping prices from increasing. I think there is more value in the continued decentralization than in the tweaking of inflation. SMTs do offer a future solution that might work around this, but it is hard to say if they will be viable as a replacement, unless one of the SMTs replaces HIVE altogether and HIVE is used solely for staking returns.

Fair point. Lets hope we will create enough buying pressure to offset the inflation then.

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Haven't authors given enough?

When do savers get interest?
Holding the coin unstaked is valuable to the ecosystem, give them some small percentage, iyam.
Let's see how much of the hive on the exchanges comes home.

We have three basic groups here, sp holders, witnesses, and authors.
The authors have given up to both sp holders, through increased curation percentages, and most of the witnesses through the dhf.
Why not apportion the toll between the three?
This may not please the balance of power holders, but it will better suit the crowd, and their friends are the ones we are ostensibly trying to attract, eh?

Smteees™ will solve most other things, once they arrive options open up, but if you run off all the common people playing the game to further the interests of those few gaming the play I don't think it works out as well.

It was suggested to me that you might be able to recreate this report, would you be interested in do so?

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I'm brainstorming on the topic ... open to discussion ... I can recreate the post above, but not sure will l have the time .... I do monthly reports on top earners as well ....
A lot of people do montly reports for distribution.... these are daily only, not a good timeframe

Yes, monthly would likely suffice.
I just like how it was showing that distribution was occurring, and to what economic divisions.