The relation between rewards, price, scaling and the rest

Here I will express my view on the evolution of Cardano starting from the fact that some people are concerned about the low return from staking.

If you have a high return from the reserve that means a high rate of printing ADA and everyone knows that printing equals inflation (lower value for ADA). Yet, with a lower return there is a higher scarcity meaning that the value of ADA will go up and it will compensate the lower returns from staking. I don’t see any loss here.

Do not think at this returns the same way as you think when you get a percentage for your dollars or any other fiat. For example if you are getting a fixed 4% yield from an investment in a fiat currency, you want to make sure that the inflation rate it is smaller compared to your yield. The issue is that at a certain point the government can decide to print and print and print which will lead after a while to a higher inflation compared to your yield, meaning that you will start loosing value. That is a situation where your yield it is disconected from the production of that currency. That is why we say that the government is using the printing as another tax on all of us.

Now in the Cardano network the yield it is directly affecting the price of your ADA. If you print more ADA, you will have a higher percentage return but a lower value for each ADA. If you print less you will have a lower percentage return but a higher scarcity will force the price of ADA to go up. The result it will be that at the end of the year when you will transform your ADA in $ (at curent value) you will get similar results in bouth situations.

Also, as Lars_Brunjes mention, the returns aren’t based only on the ADA reserve, but also on the transaction fees and those depend only by the succes of Cardano. This transaction fees can raise your return in ADA but they aren’t going to create inflation. By contrary, if you will get higher transaction fees it means that there is a higher demand for ADA which will result in a higher value for each ADA. This is what I belive that it will do the trick.

There is still a catch though. If the transaction fees are going up it means that the TPS capacity of Cardano is at the limit and the higher fees are going to limit the number of transactions on the network. The higher fees are going to lead the people to find cheaper solutions and at that point the Cardano will start to stagnate, similar with Ethereum which has reached it’s limits.

By oposition, if Cardano will be able to scale and scale and scale, the transaction fees are going to stay down, close to the minimum in terms of dollars (at curent value), but the price of ADA can explode because the users will keep coming and coming and coming since the fees aren’t going to scare them. In terms of ADA this means that the yield will always fall, but it will be a smaller yield from a higher valued ADA which will result in constant returns in terms of dollars (at curent value).

The treasury system, the governance and all the other good things will help Cardano to always go forward and evolve and this is what makes me think that in the long term Cardano will always be able to keep the fees down while the value of the network and that of ADA will keep going up. To me it looks like Berkshire Hethaway wich don’t offer yields but its price it keeps going up while it keeps aquiring various businesses.

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