This is a repost from the TEC Forum to educate the 1hive community about the Parameters of the honey economy
h/t to Lauren who wrote this post:
What is Conviction?
Conviction Voting is a token-weighted decision making protocol in which tokens are staked on proposals to indicate preference and voting power, aka “Conviction”, grows over time. Conviction is a combination of the number of tokens staked on a proposal and the length of time they are staked for.
To design the Conviction Voting aspect of the Commons, the Spending Limit must be set. The Spending Limit is the maximum percentage of the Common Pool funds that can be withdrawn at any one time, therefore limiting the amount of funds that can be requested by a single proposal. This is often referred to as a “relative cap on spending” because the maximum amount of funds that can be withdrawn is dynamic and depends on the amount of funds that remain in the Common Pool.
Note: This parameter was formerly referred to as “Max Ratio” or β and was set as a value between 0 and 1.
A higher Spending Limit allows for large proposals that are requesting a lot of funds, so may help to support “big ideas”. However, it also makes the Commons more vulnerable to a significant loss of funds in the case of someone maliciously creating a proposal and exploiting the voting system.
A lower Spending Limit means that only smaller proposals will be able to be submitted and passed, which in some way limits the ability to fund large projects, but allows for a greater quantity of proposals and slows the rate of spending of the Common Pool.