Babel, transaction fees and stablecoins

[miked]

Babel transactions are a cool idea. https://youtu.be/YXaK0cvgoFQ?t=2164

I think people outside Cardano are sleeping on how powerful this native-token approach is.

That said, I do find it strange basing tx fees in a volatile token like Ada. Same goes when looking at Eth etc.

Please correct me if I’m wrong but even with babel it looks like all tx fees tie back to the value of Ada? If ada shoots up in price () tx costs go up for all users. If it goes down, SPO’s may not be able to cover costs as well.

If we wanted to adjust fees we’d need to go through vote/consensus from my understanding. No guarantee SPO’s will be onboard with that, look at the Eth world and the divisiveness involved getting EIP 1559 through.

Would it not make much more sense to use chosen stablecoins (e.g. USDC, CBDCs in future) for base tx fees?

Benefits:

• Cost is easily understood by everyone in the world, great UX for onboarding
• Easier for people to compare with CEFI vendors like Visa, PayPal etc. Shows off how good Cardano is.
• People already hold or will hold / be paid in stablecoins looking into the future.
• Companies building on Cardano have a more predictable cost base
• SPOs have more predictable revenue. Likely to be able to pay their costs using stablecoins in future. They can always convert to ADA if they like.
• Better decentralisation as more SPO stay in business if Ada drops in value.
• Competitive advantage to other chains suffering from token pice volatility.
• Others?

Ada would then become more of a governance / security token.

Did I misunderstand any of the tokenomics here? Perhaps this approach compromises the security of the network? Maybe it surfaces some regulatory issues around the Ada token?

[Cardanoisgreat]

Good points.

I think you’ve not accounted for how important the demand is for ADA and losing that as the primary fuel in the ecosystem would remove a huge amount of utility and buying pressure for ADA. A huge amount of thought has gone into the current tokenomics model and various analysis of game theory, bad actors, etc. to stress test the design of the ecosystem. I’d be more in favor of keeping things as they are with ADA as the central and common coin.

Another factor is the future DEXes and such where the core pairing for every new native token will be x coin/ada…so if it suddenly were to require a stablecoin in order to perform any transactions, then that’d make life difficult for everyone. It could be possible to do some kind of in-built conversion when sending any coin that it’d get converted to a stablecoin, but that’d just drive up fees everywhere and demand for this stablecoin.

Another factor I’d want to think about is how ‘stable’ a stablecoin is. Right now we’re living in the legacy fiat system primarily and those who live in the USA or Europe are used to relatively stable values for goods and services (sometimes engineered through government subsidies, like the massive food subsidies in the USA to artificially keep food prices cheap). But if you live in Argentina or Lebanon or any number of African nations with no common or stable currencies at all with lots of unbanked people - then you’re living in a different kind of fiat reality and would not think of your currency as ‘stable’ by any means…those would be terrible targets for stablecoins to be pegged against.

The USD or Euro could spiral out of control at any time with endless money printing and lies about inflation. They keep telling the public that the USD has a 2-3% inflation rate while real prices have gone up by 5-15% a year for well over a decade. Healthcare, education, housing, marriage, death, and even food have all gone up wildly in numerical costs while wages have been flat or declining for the vast majority of people in the USA. That ticking debt clock of negative interest rates, etc. could make even the so called ‘stablecoins’ a lot less stable than people think. The federal reserve US central bank printed 20-25% of the entire money supply last year and it is working its way through the belly of the snake of the wealthy driving up prices through inflation of the things they buy - assets like stocks and bonds and luxury/famous art work and yachts, etc. That will eventually wind its way through to everyday items as those 10 trillion plus dollars created out of thin air eventually get set loose in the wider economy.

How much does it change every year in value? Do we trust the offical 3% rates when it is really something like 10% inflation in the USD? The only stable experience the SPOs would have is what the experience every American worker has had for the past 50 years…a continual decline in the value of their wages. That seems like a bad thing to sign up for and crypto is the alterantive. I think the stablecoins are a stopgap measure and we’ll hopefully move towards a fully independent stablecoin pegged to some kind of algorith of sorts and/or the volatility will decline in crypto markets as it reaches mass adoption and mass user bases…so we can plan for that future and that doesn’t mean wedding ourselves to the central bankers.

But fundamentally if you were to hand over control around pricing and a key mechanism like this to a stablecoin…then you’d be a servant to whomever you pegged that stablecoin. If the fees were in some ADAUSD…a made up stablecoin…then why be in crypto? It is surrendering control and power over to the Central Banks to determine how much of that to print and how much value it will or will not have. This surrender of control to a centralised external agent is antithetical to the core beliefs around decentralisation which drive the Cardano ecosystem.

So I think those are a few points worth considering and I’d be voting for ADA as the core currency of account and for fees in the Cardano ecosystem over any kind of 'stable’coin.

[miked]

Hey thanks for the detailed response, you make some valid points.

I didn’t feel I got an answer to the fundamental issues of Ada as a tx fee currency, specifically its volatility causing fee swing, and price appreciation causing fees to increase over time. This pretty much guarantees ongoing (controversial?) votes on lowering fees as Cardano gains popularity.

No matter what you think of fiat currency (we all share many of those same thoughts) it’s still what the worlds population earns income in, and what most compare things too, the price of Ada as an example.

That will not change anytime soon, certainly not for the vast majority of people. This makes all the thoughts around fiat devaluation meaningful for finding long term investment assets that don’t depreciate vs fiat, but not great for something you want charge people fees in. Just look at Eth and BTC for examples.

[Cardanoisgreat]

Thanks Miked.

I agree that fee increases could be an issue along with volatility for SPOs.

In terms of a major fee reduction coming up soon, there is one in the works with Hydra which has not gone through yet. At the moment a 0.1 ada fee might drop towards something like 0.01 ada or something.

The ways in which this will be accounted for in terms of the motivation of SPOs to continue and be economically viable is a very probably increase in the number of transactions. With all the Native Coins coming online wiht NFTs, defi, Dex, gaming coins, etc. etc. the number of transactions will skyrocket and even with greatly reduced fees per transaction/block etc. there is a way for SPOs to get paid.

The other factor which is a big one is informed consent. There is no one who is an SPO today who does not understand the high degree of variability in prices in crypto. No one can be said to be uninformed and many people have differing reasons to be an SPO. So one could argue one way or the other about the merits of a system for other people…but it is not a theoretical argument - we have strong evidence and can see there is a dramatic over subscription in the number of people who want to be SPOs. The current incentives structure is working very well and there are well over a thousand stake pools out there.

The introduction of native tokens doesn’t change the math on this at all. People have lots of reasons to run stake pools and they are not huge money making operations to begin with. Running one or two stake pools will not be enough rewards to live on in any developed countries. Kaizen crypto is a youtuber I follow and he runs one stake pool to make a little money and it pays for itself and he runs a second one where the rewards he gets are given to charity. SPOs are engaged, enthusiastic about governance, cardano in general, and are earning rewards on the ADA they’ve staked as well. They are voting in catalyst, they are diverse.

And I think it can be a bit strange to tell people who are already doing this in a very informed way about their own motivations. Creating the most stable possible fee structure for SPOs isn’t the goal, the point is to transform the world and create viable alternatives to fiat and central bankers where people are free.

There is a trade off between a free market, a (De)centralised one, and stable prices. The more free a market is and the more decentralised it is, then you’ll have greater volatility because the price is truly sensitive to actual factors in the world. For a currency to remain stable in the face of change requires control, lies, money printing, debt, and manipulation - or as the central bankers call it…monetary policy and managing the economy.

I saw on Charles recent AMA a great point he made about the image he uses on twitter. It is a 1910 photo at UK Edward 7ths funeral and there are 9 kings of europe there…a mere 4 years later when WW1 started their reign ended. There are still a few monarchs in europe even now, but they are powerless and insignificant in the post WW1 era compared to before.

Change builds up and builds up and the foundations crumble over time until things change rather rapidly. It can sound crazy to say in 5-10 years fiat will no longer be the dominant currency in the day to day lives of westerners and people in many developing nations and their lives will be better for this change. I can draw a line from the rules changes under Nixon, then Reagan, then huge huge changes under Clinton and the direct consequences of the Clinton changes which created the 2000 dot com bubble, then the 2008 GFC from reckless gamblign with the government and commoners footing the bill for sociopaths, now with Covid it is another giving spree for the wealthy who recieved freshly printed trillion after trillion after trillion with the fed buying up corporate bonds, negative interest rates, etc.

The foundations are crumbling. Going back further you have Enron, and multiple savings and loans and bonds crises with a bad one in 1987. All of this is heading for change and the change will not be gradual. Luckily we had Satoshi and then other leaders who paved the way forward. Instead of pure chaos, we have an off ramp from the insane inflation and anti-worker policies of the central banks in a world where 95%+ of people are in households depending on worker’s wages.

When people realise how bad things are…as they have in Argentina and Nigeria and Lebanon and Iran, etc…people can and will look for alternatives to fiat and insane inflation spirals where 50 years of labor and savings are destroyed over a few months of already super wealthy bankers printing money for each other and their friends. People in 2008 were very very very angry and if crypto was as mature as it is today back then, the revolution would have already happened. But BTC was a responce to 2008 and came afterwards. Now with the covid and horrible horrible central banker policies and governments run by bribes in the USA…people are angry once again and wanting to turn away from a corrupt system.

People do use fiat today…but they don’t even have the option to think about if they like it or not…but everyone knows things are rigged on some level. So as teh consciousness blossoms about crypto and people see it as a real viable alternative over the next 1-2 years…it will make no sense to stick with an inflationary asset when you have deflationary options. Any worker who deals in inflation based currency is losing in a rigged game.

Who knows what’ll happen, but there is no future or independence in any kind of stablecoin pegged to a central bank controlled fiat currency. If SPOs have to ‘suffer’ through the volatility or the community has to vote due to changing circumstances of a $50 ADA or something which drives up fees…then so be it!

That’s what a DAO and decentralised means…it isn’t a set it and forget it any more than any governance for any institution is a set and forget affair. Be it a government, a charity, a corporate board, or whatever…the governance and leadership will continually be with us. Unlike bitcoin with its philosophy of set and forget…it becomes rigid and cannot change. BTC failed to deliver on layer 2, on smart contracts, on everything else in crypto…not because it is a failure, but because it was always meant to be limited.

Yes there will be issues, yes there will be votes…yes there will be a robust and open and decentralised system to deal with that in the Cardano network…that’s a huge part of the project. If that’s not appealing, then there are a lot of other projects you could engage with. But Cardano is going to be and has always said it was going to have a decentralised form of real governance - there is no possbiel world in which any fee system can be set and never thought about ever again…even if it was a scaling system - what would it scale against, a fiat currency reference, the buying power of people in which country? It is a global project. The best people to manage those changes is the community of users rather than the Satoshi style ‘perfect vision’ to account for all things.