Discussion: Honey Issuance Policy

[cryptematical]

@thejakk2

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.

Public Good: “A public good is a good that is both non-excludable and non-rivalrous. This means that individuals cannot be effectively excluded from its use, and use by one individual does not reduce its availability to others.” So the most common example of a public good is national defense. Individuals within a nation cannot be excluded from this. The public good is not HNY, but instead, the ecosystem. Regardless of whether one wants to participate, we cannot exclude someone from the ecosystem and more specifically, from the faucet. Honestly does not matter whether we’d categorize the ecosystem as a public good… the point the was being made was that individuals–for, against, or indifferent to the cause–have access to the ecosystem and faucet, regardless of their contributions… Do you agree?

This leads to the next point regarding the free rider problem:

Free rider problem: “The burden on a shared resource that is created by its use or overuse by people who aren’t paying their fair share for it or aren’t paying anything at all.” – The shared resource is the ecosystem and faucet. Let’s take the faucet. Regardless of your contribution to the faucet, if you register, then you receive the same amount as any one else. The free rider problem applied to this would state that there will be individuals who exploit the faucet, sell their HNY and not contribute to the ecosystem because it is there. Do you agree that there are likely individuals who receive HNY without any intention to contribute to the ecosystem?

This leads to my next point regarding money:

Money: “The characteristics of money are durability, portability, divisibility, uniformity, limited supply, acceptability.” Money should also be a store-of-value.

Do not confuse money with currency, which is not a store of value. HNY holds all those characteristics. You could buy other cryptocurrency with HNY. Regardless of our mission with HNY, it has these properties and in turn, is a form of money. Regardless of whether you agree with that, hopefully you agree with the notion that it has value. The very notion of value creates hierarchies. ‘Good’ versus ‘Bad’ money, or crypto, or project, or what ever you want to call it is valid for this situation entirely. No one has unlimited resources, which implies that people are deciding what they will keep versus sell, and buy versus not buy. Do you agree that people (EVERYONE) wants something that will retain value?

@thejakk2

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.

Bitcoin=Money=Asset
Stocks are arguably money and money (not currency) is arguably an asset… Take Bitcoin… Hardest money known to man; hardest asset known to man. Calling something money does not mean that it will facilitate transactions; instead, it could facilitate transactions. I could buy things with shares of TSLA if I really wanted to. I wouldn’t, given what it would take, but I could trade partial shares with an agreeing party… This is all irrelevant. Given HNY properties, its ability to facilitate transactions will not diminish.

@befitsandpiper

I believe the incentives of dynamic issuance are strong enough that the community would tend to reduce issuance over time anyway

The same functions of dynamic issuance can be ascertained under a max supply cap. The only difference is that value is distributed with respect to proportion of remaining common pool as opposed to the quantity of the pool. Moreover, indefinite inflation and maximum supply are not mutually exclusive. Many assets in this world have a maximum supply, but indefinite inflation. Take gold for instance, which inflates year to year at a decreasing rate… We need increasing supply at a decreasing rate such that the total supply tends towards a value. I agree with:

@thejakk2

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.

Lastly, let’s consider the risk-return. Worst case scenario with too low a max supply, we back a new crypto with the value of HNY to meet our needs. Worst case scenario without a max supply, our holdings are worth nothing and majority of participants in this ecosystem leave. Who’s taking these losses well?

[befitsandpiper]

The idea of creating HNY as a hard asset and having a secondary asset which is inflationary is certainly interesting… it would require a lot of changes in how we think about the HNY token and its role within our community, but this is definitely a possible option to consider.

[gabi]

Would like to leave this link here as I consider relates with the topic discussed: https://www.placeholder.vc/blog/2020/9/17/stop-burning-tokens-buyback-and-make-instead

In particular I found interesting how a Balancer pool is able to be controlled by a smart contract with a specific policy that could issue tokens or buy them back under certain market conditions.

[Harry]

Vitalik Buterin had an AMA this week and was also asked about the issuance policy, I think his answer is relevant here:

vitalik.eth (VitalikButerin)

Just in case the tweet/reddit disappears, I am copying it here:

[Monstrosity]

A look at Issuance Policies of other Projects:

I will be honest, due to volume of post on this thread I haven’t been able to keep up to date with all the ideas and therefor I am assuming that many of these topics have been repeated. However, rather than capture in another post I think this would be the best place for the data I collected.

This is a look at several other token/coin projects and their issuance & issuance policy and what impact it had on their price, assumptions are made.

Preface:

All the poor performers lacked clarity of any kind or their token supply (CRO) was insanely high. Is the data I have sufficient to make the claim that these are the reasons, no. But based on looking at all of these projects I believe it to be a reasonable assumption. The only main outlier in my opinion is BAND, I can’t explain its performance at the time of writing this.

Conclusion:

In regards to an issuance policy; Inflationary/deflationary, a slower issuance over a long time, a fast issuance over a short time, cap or no fixed cap. None of these seem to matter to price in the grand scheme of things. Traders(those who drive price up) just want to know a plan that is fairly reasonable. What is fairly reasonable? I suspect something less than what CRO did where they have 100B total supply and are sitting on 80% in a common pool essentially (but it still has a expected market cap of $8B at current price). Two other quick examples

1. Sushi token was falling in price until they made an announcement they would cap their token, just an announcement. There is no actual cap and the token is up 3x
2. CRV has one of the highest issuance of 3B tokens over 6years and the price has found a bottom around $0.35 in oct and is now 2x, this means it has a theoretical market evaluation >$1B.

Summary of project issuances:

Obviously a lot more work was put into this, more so than what you just see here but maybe this will bring some value to others.
I haven’t yet performed any analysis on these coins/tokens but I did collect some data and grouped the projects into 1 of three categories:

1. Those with a max supply (BNB, SNX, SUSHI, CRO. KuCoin)
2. Those without a max supply but they have an issuance policy (CRV, UNI, KNC,PICKLE)
3. Those without a max supply and no issuance policy (BAND, HT)

It is apparent to me that the following are the biggest contributing factors to coin/token price.
• project itself – I did not go into great detail here
• having a token supply policy
It did not appear to me that the issuance rate or max supply really had much of an impact at all:

Because crypto is fast moving I focused on this past year, cycles and market movement. No statistics was performed on the follow just my opinion based on analyzing them closely. Also, note some may seem odd at first but considering we just went through an alt crash so every coin is suppressed if they saw growth in last two weeks they weren’t poor performer necessarily.

Strong Performers – won’t elaborate on these two:
• BNB – consistent
• SNX – Doing very well

BNB SNX
Honorable Mention – these both have a longer history so that commonality put them in their own category and arguably no different than the questionable performers:
• KNC – Longer life than the others seeing 4x over last year but coming down from a top following market last 2 weeks
• BAND - Longer life than the others seeing strong growth over last year but coming down from a top following market last 2 weeks (outlier, performing relatively well give no cap and 2 ICOs and 1 IEO)

KNC BAND
Questionable Performance:
• UNI – Volatile price but recently in last two weeks following market price
• SUSHI - very high release price but since recently following of market in the last 2 weeks.
• PICKLE – surprisingly one of the most cyclical yet stable tokens showing a flat ROI until the hack
• CRV – insanely high release price but since it has been flat with a possible following of market in the last 2 months.

UNI Pickle SUSHI CRV
Poor Performers:
• KuCoin – This is the only one I didn’t yet provide an issuance curve because their documentation doesn’t align with reality. And maybe their changes to their plan have something to do with their price.
• CRO – it has a max supply but its current circulating supply is only 20% of their token supply which we don’t know for sure what or when or how it will be released.
• HT – It appears they have a project issue going on. I really didn’t even want to include them after looking into them.
CRO

[therealmo]

Really interesting discussion, really enjoyed reading through all the ideas here.

In the meantime, the proposal to cut the issuance rate to 30% has passed https://1hive.org/#/vote/6 !
I personally consider that a step forward. Also, it might be a good idea to edit the first post with this new rate to avoid confusion for people who are not yet up-to-date.

[thejakk2]

An issue I see with the dynamic issuance model is the risk of a death spiral. Suppose the dynamic model goes into effect and we are unable to generate much revenue, as is the case right now. You could end up with high inflation and that high inflation will discourage adoption and the creation of new projects thus preventing revenue generation and the cycle repeats.

Correct me if I’m wrong, but MKR, which pulled off the dynamic issuance policy, had its product out there almost from the start of issuance and demand for DAI/SAI was solid. 1Hive may not be able to function with a dynamic model until the HNY starts flowing into the common pool thanks to a profitable project.

[befitsandpiper]

We can cap the issuance rate with a throttle. But yes, there is risk of overinflation and failure of the project. This is a risk that essentially all new organizations have. But HNY holders ultimately make the decisions around issuance indirectly through passing spending proposals. HNY holders have incentives not to overinflate.

In comparison to a fixed issuance schedule, dynamic issuance produces lower inflation in all cases except the one where spending exceeds the original fixed issuance rate. By setting a max issuance in combination with the dynamic policy we cover this case as well and force overspending to be followed by relative austerity, and increased difficulty of proposals passing.

We could still reduce this maximum issuance rate as we grow and reach new steady states, although I would be cautious about lowering this max rate on a fixed schedule or prematurely, since reducing issuance is not really reversible once we make that decision.

[thejakk2]

The max issuance rate is currently 30% so this risk exists. Revenues are so low at the moment that almost all spending will be replaced by inflation rather than revenue inflows. So yes, you could stop inflation by stopping spending, but then nothing gets passed. No new projects, no new revenue, death spiral. This model doesn’t work well when there is little revenue.

I think RogueTwo might be on to something by saying the issuance policy shouldn’t be set in stone. What issuance policy works now?

[metaverde]

Have we considered asking Venture DAO for funding?
Venture DAO
Is this something to which we are opposed?

It might help to get some help instead of relying on inflating Honey.
I’m softening on the dynamic issuance, but it is a dangerous game.

[befitsandpiper]

We might be able to go as low as 10% max issuance for the dynamic policy. I think going lower than that risks us starving the DAO though, and I still prefer a higher max issuance to give us flexibility. We currently have a real inflation of about 30%, so this is a 1/3 budget cut at current prices. But, cutting issuance may also raise prices which will reduce our issuance needs. Hard to predict exactly what happens here.

Since we are already well above the target ratio for the common pool (likely 10-20%, whereas the current ratio is about 28%) a 10% max issuance policy wouldn’t constrict supply much for another 6-8 months at least (we will still be burning HNY from the common pool over this period). It’s possible our inflows will increase a lot and/or our outflows will decrease over this time period so 10% or less will be all the issuance we need to fund proposals by then.