Discussion: Honey Issuance Policy

🍯 Honey
#63

More accurately, dilution is not necessarily a penalty. I agree with much of what you are saying, as dilution is effectively utilized in equity markets all the time (and arguably by central banks–central banks are less concerned with retaining value and more concerned with providing liquidity to the market). When dilution is effectively used in equity markets, the underlying asset generally has much pull and momentum such that a board can vote on decisions at a whim. Decisions involving issuance and supply is a long-term decision that we won’t be able to just change spontaneously. For dilution to effectively impact this ecosystem, we would need to dilute the supply in accordance to specific events related to demand around the ecosystem. Without control or the ability to time such events, we are unequipped to make decisions regarding dilution down the line at this point in time. Deciding on a time to dilute and the structure of said dilution would be guessing.

I don’t think this is necessarily the case. Even with a fixed supply, we would have just as much flexibility. We would just need to zoom in… Again, HNY is divisible to the 18th decimal place value. Literally no difference. We could even name a Quintillionth of HNY (drop?).

I agree with @Paddington to the fullest. Well said!

#64

This is a governance token that’s divisible by 1 quadrillion… Why is everyone so fixated on dishing out all these coins? The value of the ecosystem will be valued according to it’s fundamentals. The question is, should we spread that value across more or less space?

#65

Early holders already have large numbers of HNY. Let’s say you set cap at 30,000 tokens, and because of that the faucet starts giving out 0.00000003 instead of 0.003 HNY.

This makes the early holders have much more influence and control over whole platform, because there are less governance tokens released to dilute their influence - new people can’t get enough to make much difference to voting or get proposals over the line (or abstain when they don’t think proposals should pass). I don’t think that’s a great position to be in. Maybe 50k is a better max - twice what we have now

2 Likes
#66

I haven’t fully read through some of the recent comments but am very optimistic about the discussion because I feel we will land on a widely-agreed upon issuance policy overtime.

ETH does not have a set cap, is inflationary, and yet still retains tremendous value based on its fundamentals and speculation around its future applications. Has anyone considered the ETH distribution? I haven’t, but perhaps we can learn from their issuance policy.

1 Like
#67

ETH and HNY serve completely different functions. With ETH ability to generate smart contracts and other functions, it’s imperative that ETH has an inflationary model. However, that’s often been one of the biggest criticisms of ETH and for ETH2.0, ETH will become deflationary in the long run, as gas will be burned. HNY, on the other, is a governance token that could benefit from a restricted supply.

Again, capping the supply would be to protect the value and rarity of HNY. This by no means excludes others nor impedes on our ability to fund project. In fact, we would have more to offer, as we would have something of value. Look at the common pool. At current valuations, we have enough to sustain development for years. Why risk that security? Increasing supply will only make that situation more precarious.

I want this community to thrive. The fearful and greedy will falter, while the true believers will be able to hold onto something that they know will retain value. That includes our voice and denominational value. Let’s not risk it. That’s why I am really pulling for this 30k hard cap proposal, which is gaining traction. If you agree with what I am saying, then please support.

#68

Best to model against other exchange tokens like bnb, cro, okb uni ht knc. What was their early adoption issuance policy, what is it now, what is there long term issuance policy plan. How did and does their token value fair against their approach.

it’s critical to look at their initial issuance, consider these exchanges are hundred of millions and billions in market cap so we should look at their issuance policy life cycle not just what they are doing now. What can we learn from their approach?

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#69

I’m very keen for low cap otherwise I can see the future pundits heavily criticising honey as being a ‘vote for this’ printing machine.

However we do want to ask ourselves questions like, does honey want to have the potential to become like eth one day and run operating system and mint coins or something similar? It’s a reasonable question, we could if we wanted. Honey could go in any direction.

Also another interesting thought (for me) is that sometimes, when you simply dilute coins you can increase their value, for example when stock companies say each share is now worth 100 shares. This often increases overall price. Whilst trying to do this the other way often decreases the value (egold for example).

So it is true that there are examples when diluting the supply can increase the value. However. I’m still of the opinion that with a hard cap coin, you always can have the option of trading your old coins for a new bigger cap one and diluting if we really wanted to, when we need to. So in my opinion, far better to take the benefits from a hard low cap, until the point comes we are ready or want or need to change.

3 Likes
#70

Exactly, we can increase the value of HNY and attract more investors which would increase the diversity of the hive. All positive aspects

#71

That is so true and this event generally occurs when company is booming.

Agreed entirely. We can attract investors and other members to the ecosystem. At the end of the day, a strong, hard HNY is most important to the ecosystem, as it funds and incentivizes future development and growth.

#72

A point of interest is a 60% yearly inflation on 25k coins would make over 3.1billion honey coins after 40 years.

Also If you multiply 3.1 billion by the current honey price you get a very large figure.

What price do you think the market will feel is acceptable for such a large issuance ?

I suggest instead we think along the lines of something like 2500 - 5000 coins issued per year maximum. I believe if we chose 2500 we would find the honey price heading to $2k quite quickly. Making the honey economy 5 x 6 more powerful almost overnight. This would also give honey the chance at becoming worth more than BTC one day.

Then next question that comes to mind is, would a proposal ever be able to cap the yearly mint ? Is it even possible for a proposal to trump other future proposals ?

#73

Proposals don’t determine issuance, it would have to be a dandelion vote or “decision”.

1 Like
#74

At the moment, there seems to be a variety of incentives which lead to different inflation preferences.

Very short term: pump price immediately. Proposals such as capping supply or burning HNY.
Short to mid term: Funding farms to erase impermanent loss or increase HNY price by improving Honeyswap. Or simply more interested in Honeyswap than other 1Hive projects.
Long term: Wants high price eventually, but sees the value in distributing more HNY to create all sorts of new proposals in and outside Honeyswap, Celeste, etc.
These are all reasonable preferences depending on one’s circumstances.

Maker has an interesting dynamic inflation policy where making good decisions for the DAO’s main goal, keeping DAI stable and popular, burns MKR. Instability mints MKR. This aligns short term and long term interests. I don’t know how this would be applied specifically to HNY, but perhaps the inflation system should be thought of in terms of aligning incentives.

If HNY is minted or burned in response to certain outcomes then consensus on improving those outcomes is pretty easy to reach. This could have a very positive effect on the community as more HNY holders will share the same goals.

2 Likes
#75

Good Idea / Deflationary rewards could feet and help this initiative.
I believe an 3% to 4% yearly inflation could be acceptable and help the project to recover some interest.

#76

Price action is short term, but establishing the value of the community is long-term and is our best shot of retaining what we currently have.

Why does price continue downward? Because people are selling! Literally! Sell pressure is real and directly related to current outflow of HNY minus the demand. #People milking the honey pot Economically, that’s par for the course with public goods; the curse of the ‘free rider’. Look at Gresham’s law, “… circulating currency consisting of both “good” and “bad” money quickly becomes dominated by the “bad” money. This is because people spending money will hand over the “bad” coins rather than the “good” ones, keeping the “good” ones for themselves.” Applying this to the crypto space, people are going to dump the crap coins every chance they get and hang on to the harder assets.

There’s a lot of competition in the crypto space and as optimistic and idealistic as many are, HNY is not going to hold value under many of these overly inflated models that are not supported by the demand necessary to satisfy these models. We must harden HNY before we can even think that it will be a stable means of funding development. HARD HNY = $$$ for Development… point blank.

Lastly, this is not mutually exclusive from many of the other proposals out there regarding inflation. It would just require the rates at which we inflate to be toned down.

#77

Gresham’s law doesn’t apply. Apologies, but HNY is not, technically speaking, money. It’s a speculative asset. Concerns are speculative not monetary.

#78

Gersham’s law does apply. LITERALLY speaking, HNY is exchangeable, transferrable, divisible, and lives in the wallets of many amongst other coins that have the same potential to be exchanged and sold. Modern economic theory aside, people get rid of the shizz coins first and hodl the good ones… Gersham’s Law!

This entire thread is inherently monetary. Issuance=Monetary

#79

I don’t think you’re using the terms money, public good, or free rider properly. You can issue lots of things besides money, such as stocks. My point is HNY isn’t being weighed against other crypto for its utility as a medium of exchange. It’s an asset. If you wanted HNY to become a currency you’d want a relatively stable price which would undermine all the other goals of holders.

#80

There’s been some discussion in the luna discord channel today which hammers out some further details on a potential dynamic issuance model that a number of 1hive members, including myself, believe is a good long term policy.

The idea is centered around our conviction voting model and targeting a fixed percent of total supply in the common pool to fund proposals. If the supply in the common pool exceeds the target percent of total supply (due to inflows from project revenue entering the common pool), the common pool switches into a burn paradigm. While the common pool is less than the target, we switch into an issuance paradigm.

The simplest version of this policy is a simple flip between a specific issuance rate and a specific burn burn, however a continuous policy is likely preferred instead. An example of a pretty simple continuous dynamic policy would be to have the issuance rate equal to the following equation:

1 - (common pool supply / target supply).

If the issuance rate is negative, the common pool would be in a burn paradigm, while if the issuance rate is positive the common pool would inflate, diluting HNY holders over time. The incentives here end up being similar to the incentives Maker has around issuance, although instead of the rate being made through discretionary governance, it follows a simple formula.

One downside of this formula or ones like it is the issuance is no longer capped. While incentives are aligned for HNY holders to reduce outflows to frivolous project, and so switch into a low issuance or burn paradigm, there is no simple story around issuance and passive shareholders may have less confidence in the long term inflation rate.

It is possible to set a maximum issuance with a policy like this. But the choice of maximum issuance is necessarily an arbitrary decision, and it’s unclear what it should be set to. If the maximum issuance is set too low, we risk choking the DAO by artificially preventing outflows to valuable projects that the community wants to fund.

Looking at the data here: https://docs.google.com/spreadsheets/d/1Sqk1CUfyWjdszWrawk0DoFqrb4fUe7giS0gI2UE5Wsg/edit#gid=678257790
We can see that the outflows over the last 6 months are equivalent to about 32% real annualized inflation to the total supply of HNY.

Personally, I am against setting a maximum issuance policy. I believe the incentives of dynamic issuance are strong enough that the community would tend to reduce issuance over time anyway, and support only proposals that are believed to bring positive value. However, if we were to set a maximum issuance policy, setting once close to this current inflation rate of 32% seems like a good starting point.

I know @lkngtn and @Eth_Man also have opinions on this topic, but this is my view from the discussions we had today.

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#81

This is a great idea. If you are concerned about the cap being too low, one compromise can be to have decreasing issuance for a number of months until reaching the final cap (so 60% 50% 40%… 10%), but I think the sooner the policy is “set in stone” the better.

3 Likes
#82

There is a vote to reduce issuance from 60% to 30%: https://1hive.org/#/vote/6 (Note the UI is a bit buggy, the buttons keep flashing on and off, we’re aware of this).

If you vote in favour of it, your HNY will be locked until the vote either passes and is executed or until the end of the voting period. This is likely to mean voters don’t vote until near the end of the vote.

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