Thereâs 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 itâs 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.