Proposal For Introducing a Programmatic, Market-Based Emission Mechanism Based on Staking Participation Rate

Governance
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I’ve been back and forth here, but ultimately I’m against this, mostly because I don’t think there’s a big impact, and the uncertainty created from changing the monetary policy to something that is floating is damaging for institutional investor confidence.

Additionally, it feels somewhat arbitrary here. Why is 50% stake the “pivot point”? Why not 66% or 75%? The issuance/inflation rate itself doesn’t impact price at all, it’s the 2nd order effect of stakers selling those inflation rewards. On the other hand, higher inflation rates might encourage buyers to step into the market.

Regarding the tax question, those users (in many jurisdictions) can simply hold an LST to avoid the tax issue. I don’t think we should be optimizing for something that is a moving target and very different globally.

The market already naturally addresses the aim of Smart Emissions today:

  1. When activity is low during bear markets, stake % naturally increases. Go look at nearly every major PoS asset during any bear market and you’ll see that. When the bull market arrives, stake % naturally declines because there are more opportunities to do things with your SOL, so the “risk free” inflation rate from staking isn’t as attractive any more.
  2. We have no clue what the “Minimum Necessary Amount” of stake is to secure the network. This proposal targets 50%, but that feels very arbitrary.

Ultimately, I think there’s significant value in having stable monetary policy. Once we change monetary policy once, it becomes more likely that we will change it again. Institutional investors do not like the uncertainty. Worse yet, if we change monetary policy to a floating target (albeit algo determined), then it becomes even more difficult for institutional investors to model returns and thus build valuation models. That uncertainty leads to increased discount rates and lower valuations in these valuation models.

Although the initial, fixed monetary policy may not be “perfect”, there isn’t really a perfect monetary policy out there and there’s a real cost to the change. If we change from one thing that isn’t “perfect” to another thing that isn’t “perfect”, but incur the change cost, is it really worth it?