Economics and Monetary Policy

Didn’t see an obvious category for this, but this is a general concern of mine in the new currency spaces. Just seeing the topics about Ada whales dominating governance reminds me of the issue. Obviously, volatility of currency value is a concern for most applications, and we should in general want some stability from our currencies. Fiat currencies are not immune from these issues. The academic debates in these fields are often dominated by the whales of traditional finance, and therefore there is a need for new theory with greater independence of thought.

I think one of the sustainability diagrams mentions an inflating currency. Seems to me that deflation although good for holders is generally bad for most currency use cases. Is there any work to show models and analysis of any of this sort of thing?

Someone I’ve exchanged ideas with in the Iota forums makes a claim based on Metcalf’s N-squared value growth of a point to point network, that a currency’s value should also grow that way. I thought that if this were true, you would want a monetary policy that mints currency as the network grows and redeems/retires it when it shrinks. I would expect that you could implement monetary policy mechanisms to maintain value targets.

But is there a coherent theory we can use to think about any of this? If not, don’t we need that just as much as crypto theory and practice?

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I cannot see any issues, as it’s a closed system (not like traditional finance i.e. money from thin air) w/ certain amount of ADA and growth. Means, Ideally, it will converge to some equilibrium, so whales will have less and less by the time. However, in the ideal case, they will have more in value.:slight_smile:

Agree, and there are high incentives to keep it in that way.:slight_smile:

Where did you get that from? Cos, afaik currently almost all the cryptos, Cardano’s ADA included, are deflationary ones, so inflation could be just an illusion.

IMO, It’s more complicated than that.

I am not sure how valid that claim could be, but he probably did not take us into the account.

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The problem with any approach like this is that it must be done at the protocol level in order for it to be decentralised. This opens it up to be gamed in unpredictable ways.

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Not saying there is an issue, but that it is an important topic and needs a response on several levels. You may be right on this point, my question is whether we have any good theory and if not who will be working on it.

Again, not taking a position except speculatively. Asking, what is the desired outcome as a policy? We agree on the need for new economic theory. I’m not an economist, so I won’t try to say what they should think or do, but shouldn’t the Cardano ecosystem be investing in new economic and social theory just as much as in the technical theory of currencies? The seed is there with the inclusion of governance, but again the focus is on more technical issues relating to implementing it on the blockchain and not the related process architectures whose practice is more rooted in social sciences than math and information theory.

By profession, I’m a computer scientist and highly technical in my career path, but I have always thought we need to innovate more in our social architectures than technical even to make the most of our technical progress to date.

I’m saying that the focus on technical research is a great thing and the necessary focus at this point of development. I’m also saying that it would be a good idea to get started on many other tracks of research that will support the growth of these networks while at the same time delivering on the features of BC 3.0 and more.

Even 3.0 may be overblown, although I take the point, and it is great marketing. It is just that it invites someone to articulate 4.0 in contrast to 3.0 unless you have the necessary governance architecture to expand the vision. The principles expressed by the founders of this project are inclusive of a larger as yet unarticulated vision.

Fur sure, it is more complicated, hence my call for more/better theory. Likewise with the N-squared growth, I was already questioning exactly what it meant by value growth. One of the systemic problems I see with traditional finance is the use of a single measure of value that is theoretically de-contextualized. Cardano is great for addressing these issue because of how it connects any sort of chain your application/system needs to connect. These other chains and the potential extensions via meta-data and other chain features gives the ability to represent any sort of value in a side chain, which can have its own governance and other processes of value creation and exchange.

The mention of inflation was on an arrow of a diagram. I think the theory is that mild, stable inflation encourages “velocity” in currencies and gives them more power to contribute to production growth. Of course it is more complicated, but the flip side is the the expectation of (high) deflation can’t really be that good for a currency.

That probably goes without saying in this community. The research would need to be done to support any treasury policy or constitutional proposals considered. This is probably also where the theoretical models require on-chain support for governance processes. It is understood that these chain-to-governance process links will be critical when/where ever these systems make contact with other domains, legal and otherwise.

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Yes, the best thing about this space is the reliance on research (did I say that already).

I’ve been digging in and finding lots of great technical work, but not the sorts of thing I looking for (yet). I think part of my concern and interest in contributing is about teasing out just where the state of the art is in the larger space. If Cardano is successful and I see no reason it won’t be, then it will impact the entire currency space and hopefully inspire much much more research in diverse areas. Cardano can’t do it all, these things can be built within the ecosystem, probably should be do that way.

Sort of a side note but related. I’ve also been interested in Singularity.Net and that project seems to be more of a research program that could end up being of deep interest to this community as well.

Another systems architectural concern I have is about data and data science, and these topics are more technical and closely connected to all of these issues. Good research needs open access to data of all sorts, and we have concerns about privacy and compliance to address in theory and practice. Big data the respects the data source and the best data science AI program is good or bad depending on the interests represented in theory/design.

Yeah the research hasn’t really been focusing on that. I think adjusting the money supply in a way that can’t be gamed is in the ‘too hard’ basket. What they’re doing already is hard enough.

Anyone who cracks this one though would probably want to stay anonymous, they’d end up being second only to Satoshi in terms of changing the game.


I agree this is one of the hard problems, and that they are addressing many hard problems already.

I’m just anticipating that good governance will need this work even if it is incomplete. The new currency systems also have great potential to generate the data really needed to test theory in real life. It is happening without the work and understanding in any case.

All I’m suggesting is that the space be made to have the right sort of dialog with the right sort of experts. I’m not even saying they Cardano needs to make this sort of investment to prime the pump in this space, but they have the standing to convene the discussion within the parts of the wider community who understand the importance of unity with respect to good governance with decentralization.

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