The tau parameter sets the rate of tax that is used to grow the Treasury. The current Treasury tax (tau - τ) is set to 20% (.20). The treasury tax is applied before the reward calculation and distribution, so the whole epoch reward pot is taxed first.
The current balance of the Treasury as of Epoch 444 is 1.38 Billion ADA*.
*Source: Pots | Cardano Explorer (cexplorer.io)
Looking at the last 12 epochs starting at Epoch 443 to 431 the average growth of the Treasury is approximately 5 Million ADA per Epoch. While the remaining rewards that go to delegators and SPOs is approximately 10 million ADA.*
*Source: Epochs | Cardano Explorer (adastat.net)
So approximately 30 Million ADA is added to the Treasury each month.
We seek determine if this rate should be lowered to its original intended rate of 5% or if some other reduced rate should be considered.
We also seek to understand what factors should be considered as determining factors for adjusting the rate of tau. For example, the price of ADA, the current Treasury balance and so on.
We seek to determine the adjustment frequency of tau rate.
In summary we seek to create a consensus on an acceptable rate of growth for the treasury, the tau taxation rate and if it should be adjusted, and how often the rate should be adjusted.
IOG researchers analyzed the right mix for tau, the parameter that sets the treasury taxation, at the beginning IOG researchers evaluated and had considered setting the tau parameter to 5% (0.05). However, before the Shelley mainnet launch they determined the rate should be set to 20% for the treasury tax (tau).
Reference: Philipp Kant, Lars Brünjes, and Duncan Coutts. Design Specification for
Delegation and Incentives in Cardano
List of Updatable Parameters including “treasuryGrowthRate” - CF Explorer
Protocol Parameters | Cardano Blockchain Explorer
This is the first step of the PCP process of engaging with the community. We are hoping the community will join this discussion and community members will help create analysis, charts and research in support of rate changes, frequency and Treasury growth.
Once the community has had time to discuss and provide analysis over the next several weeks or months, if a consensus seem to have been made, we will formally request a technical review and recommendation from the Parameter Committee at that time.
Please Note: Instead of adding to this post or revising we decided to post supplements below. We will only edit the above post if numbers need to be updated or corrected.
Thank you! - ECP