CIP: reduce inflation #249
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February 4, 2025 15:27
rootulp
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Feb 4, 2025
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[blocking] the reference implementation code looks incorrect b/c it contains escape characters.
IMO the current CIP doesn't have a convincing motivation section. I think it would help to articulate clear quantifiable goals and how the proposed inflation schedule meets those goals. Currently the proposed schedule seems arbitrary.
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| ## **Motivation** | ||
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| Celestia launched in October of 2023, and since its launch there has been a high demand for posting blobs to the network, while other solutions have not been able to scale in a decentralized manner. However, TIA’s bonding has been continuously high (peaking at around 72% and currently at about 65%) meaning that stakers are overly incentivized and the system is overpaying for security. |
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This doesn't seem relevant.
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| Celestia launched in October of 2023, and since its launch there has been a high demand for posting blobs to the network, while other solutions have not been able to scale in a decentralized manner. However, TIA’s bonding has been continuously high (peaking at around 72% and currently at about 65%) meaning that stakers are overly incentivized and the system is overpaying for security. | |
| Celestia launched in October of 2023, and since its launch there has been a high demand for posting blobs to the network. However, TIA’s bonding has been continuously high (peaking at around 72% and currently at about 65%) meaning that stakers are overly incentivized and the system is overpaying for security. |
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and the system is overpaying for security.
This claim seems unsubstantiated. If the system is overpaying for security, how much should it pay for security?
| Reasons for this CIP are: | ||
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| 1. Current issuance is too high, especially in dollar-terms. We want to avoid accelerated dilution of non-stakers. | ||
| 2. To empower applications to compete effectively with staking yields. While it is important to maintain a high bond ratio to secure the network, we also envision a vibrant ecosystem of diverse applications emerging on Celestia-secured rollups. Using TIA as collateral onchain competes with staking yield and reducing inflation makes onchain use more attractive. |
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While it is important to maintain a high bond ratio to secure the network
Can this quantify a target bond ratio?
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| 1. Current issuance is too high, especially in dollar-terms. We want to avoid accelerated dilution of non-stakers. | ||
| 2. To empower applications to compete effectively with staking yields. While it is important to maintain a high bond ratio to secure the network, we also envision a vibrant ecosystem of diverse applications emerging on Celestia-secured rollups. Using TIA as collateral onchain competes with staking yield and reducing inflation makes onchain use more attractive. | ||
| 3. By reducing inflation we reduce the amount of forced selling due to taxes and other offchain liabilities. High Inflation can contribute to centralization of a network by diluting non-stakers. If a set of users are staking with high inflation their stake and inadvertently their network power increases while a non-staker would see their network power decrease. While this is a property of PoS systems, higher inflation accelerates it. |
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Suggested change
| 3. By reducing inflation we reduce the amount of forced selling due to taxes and other offchain liabilities. High Inflation can contribute to centralization of a network by diluting non-stakers. If a set of users are staking with high inflation their stake and inadvertently their network power increases while a non-staker would see their network power decrease. While this is a property of PoS systems, higher inflation accelerates it. | |
| 3. By reducing inflation we reduce the amount of forced selling due to taxes and other offchain liabilities. High inflation can contribute to centralization of a network by diluting non-stakers. If a set of users are staking with high inflation their stake and inadvertently their network power increases while a non-staker would see their network power decrease. While this is a property of PoS systems, higher inflation accelerates it. |
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| * The chain upgrade process includes the new inflation parameters without disrupting block production. | ||
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| * The new schedule is included in the next voting proposal to reflect the updated inflation rates on-chain. |
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in the next voting proposal
What is the next voting proposal? Is this referring to a governance proposal?
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| ## **Parameters** | ||
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| Below is the illustrative table showing the original versus the accelerated schedule. The “New Adjust Inflation” column is an example of how inflation might look if we reduce it by 33% starting in the next upgrade. Note that for simplicity, the table assumes the inflation drop is applied at year 1.5 but if this proposal gets accepted, it would be immediately applied with the next upgrade. |
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Suggested change
| Below is the illustrative table showing the original versus the accelerated schedule. The “New Adjust Inflation” column is an example of how inflation might look if we reduce it by 33% starting in the next upgrade. Note that for simplicity, the table assumes the inflation drop is applied at year 1.5 but if this proposal gets accepted, it would be immediately applied with the next upgrade. | |
| Below is the illustrative table showing the original versus the accelerated schedule. The “New Adjusted Inflation” column is an example of how inflation might look if we reduce it by 33% starting in the next upgrade. Note that for simplicity, the table assumes the inflation drop is applied at year 1.5 but if this proposal gets accepted, it would be immediately applied with the next upgrade. |
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| // For AppVersion \> 3, adjust the inflation rate: | ||
| if ctx.ConsensusParams().Version.AppVersion \> 3 { |
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[blocking] why are there escape characters in this code?
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| // For AppVersion \> 3, adjust the inflation rate: | |
| if ctx.ConsensusParams().Version.AppVersion \> 3 { | |
| // For AppVersion > 3, adjust the inflation rate: | |
| if ctx.ConsensusParams().Version.AppVersion > 3 { |
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| Similarly, the Solana community is currently considering a similar approach but with vastly faster corrections than the Cosmos hub (see [SIMD-0228](https://github.com/solana-foundation/solana-improvement-documents/pull/228) for details). | ||
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| Generally, the dynamic approach is more complex and less predictable. Celestia's community has a strong commitment to base layer simplicity and minimalism. A fixed inflation schedule is simple and less complex, probably less controversial, and the right answer to this point in time |
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[typo]
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| Generally, the dynamic approach is more complex and less predictable. Celestia's community has a strong commitment to base layer simplicity and minimalism. A fixed inflation schedule is simple and less complex, probably less controversial, and the right answer to this point in time | |
| Generally, the dynamic approach is more complex and less predictable. Celestia's community has a strong commitment to base layer simplicity and minimalism. A fixed inflation schedule is simple and less complex, probably less controversial, and the right answer at this point in time |
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| ### **Alternative 0: Do nothing** | ||
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| If we continue to do nothing, Celestia’s inflation schedule may not be competitive with other networks’ and TIA’s onchain usage may be limited. |
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This is phrased confusingly b/c the inflation schedule doesn't need to be competitive with other networks'. The yield earned from staking may want to be competitive with other networks but if the inflation remains high then the yield earned from staking will be competitive. This proposal is advocating for reducing the inflation rate so that would reduce the staking yield which makes it less competitive with other networks'.
Can you rephrase if that's not what is meant here?
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| If we accelerate the schedule *slower*, the system continues overpaying for security and the change would not really move the needle as it would be too close to the current schedule. If we accelerate even faster, we risk hitting the target inflation of 1.5% too fast or generally risk lowering the inflation too much too early. Celestia mainnet is just about a year old and while there is already a thriving ecosystem, we want to err on the side of caution. About \~5% inflation seems ideal for a proof-of-stake system which is still early and whose tokenomics will play out in the future. |
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About ~5% inflation seems ideal for a proof-of-stake system which is still early and whose tokenomics will play out in the future.
Ideal seems incorrect here b/c we don't know what is ideal.
Hypothetically, if 5% is ideal then this CIP would state that in the goals at the top and revise the inflation schedule to be a fixed 5%.
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Overview
This CIP is focused around dropping this years inflation by 33% and reducing the disinflation by 33%. We propose this change be applied in the next upgrade (v4)