Possible conflict in wording between monetary Policy and Design Specification for Delegation and Incentives in Cardano

Here is the document for design specification:


Notice page 36 (6.4.3): “Let T be the total amount of ADA in existence during a specific epoch, and let T∞ be the maximal possible amount of ADA in the future. At this moment, T = 31, 000, 000, 000 and
T∞ = 45, 000, 000, 000. Then the amount of ρ · (T∞ − T) ADA will be newly created.”
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Here is the monetary Policy:


Notice the part about “There will never be more than 45,000,000,000 Ada in circulation.”

The way the design document is worded with the heading of “Monetary Expansion” one could think there is a new monetary policy of expansion where we will go over 45 billion ADA. If this is the case I am quite shocked this has not been discussed in the community before making such a drastic decision. To be clear I am not 100% sure this is what is intended and I simply want to point out how this can be interpreted and have a discussion on this.

Another interpretation is that they are talking only about an effective monetary expansion from the bootstrap era to reach 45 billion ADA point. If that is the case I wish this is more clearly written. Especially the “at the moment” part implies this could change.

A third interpretation when comparing with the monetary policy document is that “45 billion in circulation” means that there is monetary expansion but it is limited to 45 billion ADA in circulation (so locked up ADA can be expanded.) If this is the case I wish they expand on the wording here with adding that none circulating ADA can be expanded upon.

A fourth interpretation from the design document is that “at the moment” reflects that the treasury can vote and change monetary expansion policy in the future. If this is the case it should be clear this is something users will be able to vote on in the future as that could affect if potential buyers want to buy Cardano or not. Especially since this would be in direct conflict with the monetary policy document.

Summary of possible interpretations between these two documents:
(I) There is only monetary expansion to reach the 45 billion ADA cap
(II) There is monetary expansion to reach a 45 billion in circulation cap but not locked up ADA
(III) The monetary expansion policy will be free to the users to decide in governance
(IV) There is no monetary expansion possible for ADA.

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Good find Watchdog :slight_smile: Yes there is a difference between “at the moment” and “never”.

Monetary expansion should always be from a current circulating supply to a future one. At the moment this is 45b.

But it’s a good question if this could change and under what circumstances & governance policy.

The important thing is to have enough value of ADA to compensate 1000 staking pools providing the financial incentive to operate a performant, secure & reliable network. As the price of ADA is not predictable, this is pretty hard to do with a fixed available supply. But you have income for the transaction fees, which are much more predictable.

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We need proof that 45 is hardcoded into the protocol to never change.

III) is a terrible idea given how politicized and nasty governance can get in this space.

If that happens, I am out as risks increase that we will have a clusterfcuk of a platform.

That said, it is still early days and I hope we will have a really great governance system in place.

I just don’t trust any “let’s get representatives on the board” methods of governance on open protocols.

They are disruptive to the cause and the timeline as they take away from execution.

Monitoring from outside like this is fine, but we should let the new board do what it is supposed to do which is help launch the product without interruption.

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We only proposed the temporary “representative democracy” of the Community on the CF Board, when CF leaked at Plutusfest that they might directly appoint any exGuardian to the Board.

Obviously once liquid democracy is in place this traditional governance approach would become obsolete, but until then maybe it would be a heathly & valuable experiment for our Community, prepare us for the liquid democracy and allow for a Know-Your-Community experience.

We can absolutely live with having no direct representatives on the board, but rather have the Community of the Voice be heard via another platform, which is fit for efficient open public consultation. At the moment there seems not to be such platform as the Forum is not really responsive from the CF. But what we can´t live with is to have the CF decide and appoint who are our representatives instead of having them being elected by the Community.

Please note this is another topic, let´s spin this discussion off if needed into the Cardano Social Council context, which is dedicated to this: https://forum.cardano.org/t/cardano-social-council-introduction

Let´s focus here on the question of the Delegation Policy vs Monetary Policy.

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My opinion as well. In any case whatever the result is what is the very worst outcome for me is if it could change at any given moment. Either it should be very clear that there is monetary expansion or there should never be such monetary expansion. This gives users of ADA clarity.

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Back to this discussion.

To operate 1000 staking pools for the next 10 years you may estimate the transaction load, corresponding costs and add some profit on top of it.

This has to be paid out by the remaining ADA supply. But as ADA / USD exchange rate is not predictable, dynamic, how can you be sure we will have enough ADA available?

The 0.5 ADA / USD used in the paper is just an assumption made, while ADA can be much lower (like today) or higher.

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Let´s also copy this draft distribution of rewards over the next 10 years into the discussion context:

Year Used for incentives Remaining
1 700,000,000 13,300,000,000
2 665,000,000 12,635,000,000
3 631,750,000 12,003,250,000
4 600,162,500 11,403,087,500
5 570,154,375 10,832,933,125
6 541,646,656 10,291,286,469
7 514,564,323 9,776,722,145
8 488,836,107 9,287,886,038
9 464,394,302 8,823,491,736
10 441,174,587 8,382,317,149

Great question. One model example in the document suggest 14% of supply could get used up in a single year. (Page 43 for the example calculation)

For me the answer lies in the cost of pools. If these pools can run on cheap hardware there is no need for high rewards. If the barrier to make a pool is low there will also be altruistic users doing it not to get rich but to decentralize. Then you can have a smaller reward and still decentralize the network. Given that we do not know the price of ADA In the future this seems a wise approach.

Another model would be to adjust the amount the pool operator receive, this should self adjust in a game theory perspective with the % share the pool takes proportional to its costs. This way even with fluctuation in ADA it can be solved not by issuing more but by pool taking more and the pool users less (and vice versa when prices increase.)

Finally number of transactions should drive decentralization requirements. As transaction X grows number of pools to distribute reward between for maximum reward to each pool Y should increase.

I think it is quite possible to make a finite amount of ADA make pools run even if the price of ADA remains low for a significant time period. But for sure an interesting debate.

I also believe that setting a monetary expansion policy will destroy a lot of perceived “storage of value” in Cardano, but I also believe that the worst is uncertainty. Investors and users hate uncertainty. So if there is going to be a monetary expansion let the users know in advance.

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700,000,000 ADA for the 1st year is 30,245,600 USD on current price level, which means in case of 1000 staking pools we have an average 30,245 USD per staking pool, being average 2520 USD per month.

This is not so much considering the expenses you may have (infrastructure, opportunity cost, human workforce for maintenance).

What happens if ADA drops 50% or increases 50% in value. Such uncertainty is difficult to deal with.

This is why it´s hard to decide if 700,000,000 ADA will be enough to cover for the costs of the PoS infrastructure for the 1st year and it might be a good idea to have some flexibility on this.

Dynamic transaction fees (changing up & down along the value of ADA) is a much more reliable income, then a preset amount of ADA rewards.

Do you have a reference where the transaction fees are discussed?

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My understanding of this “monetary expansion”:
desired amount of Ada in circulation: 45,000,000,000
destroyed / burned Ada through fees: 100,000 (only for the example)
actual amount in circulation: 44,000,900,000
monetary expansion possible to: 45,000,100,000

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Yes this is (I) interpretation. I hope your correct. But if it is the case it should be clearer worded in both documents and in particular clarifying the meaning of “at the moment” since this does not imply this is a fixed amount monetary expansion can possible reach.

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What is important that you should not allow for a situation with the incentive & delegation policies that a competitor (like EOS or Ethereum) could provide an irresistible offer and potentially buy out one by one 2/3 of the staking pool operators for a total of couple of hundred million USD. We have to assume that each staking pool operator has a buy out price (depending on pedged ADA, staked ADA, ADA / USD price, transaction volume / adoption stage, etc.), when it would become a bad actor and give away its control over the pool. The important thing in this calculation is that the competitor who pays the bad actor price for a pool operator doesn’t need to recover it in the Cardano Ecosystem, but it’s enough for him to get it outside by taking competitor advantage.

Obviously this is a fictional, quite unreal scenario, but theoretically should be calculated.

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At first this worried me quite a bit. But the more I think about it the more I am ok with it. The chance of someone managing to buy 2/3 of pools even if at a fraction of mcap cost (as would be the case with covering costs for pool operator not the pool stakers) and the public not getting aware of this in the time period between epochs and then withdrawing stake vote to any affected pools I think is low. And users have the options of private staking in such a scenario if it where public. Network speeds and verification would come to a grinding halt (if my understanding of private staking is correct) but it would prevent the hostile takeover until new pools where formed. The number of pools then becomes quite important to detect such an attack type before it is too late. If say only 20 pools one cannot rule out you can convince say 15 to be “in on it”.

Yeah I have tried to look if I see some math on this scenario but so far no luck. Would love to see some proof on this.

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That’s why there were words like “quite unreal” and “fictional”.

But in mathematics & game theory it’s still something you could calculate :slight_smile:

In the end of the day IOHK have amazing PhD Guys doing the smart thinking, we just chitchat around the topic as we are excited about this revolutionary era of Cardano.

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Valid find. The title is misleading.

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I added possible conflict in the “wording” to post title so to make clear this is what I am asking about. Then again wording in this case could mean more than just word and mean an actual change in policy so I think the original title was ok"ish". Then again the thread is now also discussing other aspects like pool attacks. While off topic from original post I think its an important topic to discuss as well so I don’t mind.

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This is a good point. In addition to being unrealistic, the chances are that an honest pool operator would “spill the beans” to the rest about irresistible offers, way before the 2/3 thrrahold is reached.

This would allow the network to address the issue one way or another.

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First of all I’d like to note that this is probably subject of heavy research by the IF. That’s probably why the paper is not a 100% clear yet. They probably have more insight than we do and I trust them to figure out the ideal initial setup… just like with all the other base features (consensus, voting, delegation,…).

Anyways this thread will become a great list of ideas and thoughts for them to work with. Furthermore, I appreciate clear settings as soon as research allows.

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11%20PM

Hopefully, they can do an announcement for what is being finalized, and people get ready for the stake pools!!! :slight_smile:

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No there will always be exactly 45 billion (ADA out of circulation being considered in a “reserve”). The ledger-spec document is about making sure everything always adds up to 45 billion as an invariant to test their system.

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