CIP: reduce inflation #249

tac0turtle · 2025-02-04T14:28:33Z

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)

rootulp

[blocking] the reference implementation code looks incorrect b/c it contains escape characters.

[optional] 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. The proposed schedule seems a bit arbitrary.

rootulp · 2025-02-04T18:50:53Z

cips/cip-29.md

+
+## **Motivation**
+
+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.


This doesn't seem relevant.

Suggested change

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.

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?

I dont believe anyone has been able to quantify this, some people would say anything greater than 0 is too much since POA is more secure and simpler while others would claim a percentage. What we do know now is that inflation on Celestia has been high comparative to other networks that have launched before and since Celestia's Launch. Blocking the CIP based on quantifying security means this CIP nor any other in the future will be passed because its subjective.

Blocking the CIP based on quantifying security means this CIP nor any other in the future will be passed because its subjective.

Sorry for the confusion. I'm not blocking the CIP on quantifying the goals. That's an optional suggestion. The only blocking comment was that the reference implementation looked broken.

What we do know now is that inflation on Celestia has been high comparative to other networks that have launched before and since Celestia's Launch.

That seems reasonable. This CIP could remove the line about "overpaying for security" and insert a line about how Celestia's inflation is high relative to others. It would help to include data on inflation for other networks.

rootulp · 2025-02-04T18:55:01Z

cips/cip-29.md

+Reasons for this CIP are:
+
+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.


While it is important to maintain a high bond ratio to secure the network

Can this quantify a target bond ratio?

cips/cip-29.md

rootulp · 2025-02-04T18:57:05Z

cips/cip-29.md

+
+* The chain upgrade process includes the new inflation parameters without disrupting block production.
+
+* The new schedule is included in the next voting proposal to reflect the updated inflation rates on-chain.


in the next voting proposal

What is the next voting proposal? Is this referring to a governance proposal?

This probably meant to say

Suggested change

* The new schedule is included in the next voting proposal to reflect the updated inflation rates on-chain.

* The new schedule is included in the next major version release to reflect the updated inflation rates on-chain in the next app version (v4).

cips/cip-29.md

rootulp · 2025-02-04T19:05:35Z

cips/cip-29.md

+
+### **Alternative 0: Do nothing**
+
+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.


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?

rootulp · 2025-02-04T19:07:16Z

cips/cip-29.md

+
+![inflation change](./assets/cip-29/inflation_change.png)
+
+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.


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%.

Co-authored-by: Rootul P <[email protected]>

liamsi · 2025-02-05T14:38:40Z

Is the formatting/ the escape characters in the ref implementation the blocker or the second point?

Co-authored-by: Rootul P <[email protected]>

rootulp · 2025-02-05T15:03:35Z

The escape characters in the reference implementation.

The second point about quantifiable goals is an optional suggestion.

rootulp · 2025-02-05T15:27:06Z

cips/cip-29.md

+
+* The chain upgrade process includes the new inflation parameters without disrupting block production.
+
+* The new schedule is included in the next voting proposal to reflect the updated inflation rates on-chain.


This probably meant to say

Suggested change

* The new schedule is included in the next voting proposal to reflect the updated inflation rates on-chain.

* The new schedule is included in the next major version release to reflect the updated inflation rates on-chain in the next app version (v4).

rootulp · 2025-02-05T15:30:25Z

cips/cip-29.md

+		inflationRate \= inflationRate.Mul(sdk.NewDecWithPrec(67, 2)) // 0.67 \= 67%
+
+		// Then, if we are in year two or later, apply a one-time disinflation of 6.7%
+		if years \>= 2 {
+			inflationRate \= inflationRate.Mul(sdk.OneDec().Sub(sdk.NewDecWithPrec(67, 3))) // 1 \- 0.067 \= 0.933
+		}
+	}


Suggested change

inflationRate \= inflationRate.Mul(sdk.NewDecWithPrec(67, 2)) // 0.67 \= 67%

// Then, if we are in year two or later, apply a one-time disinflation of 6.7%

if years \>= 2 {

inflationRate \= inflationRate.Mul(sdk.OneDec().Sub(sdk.NewDecWithPrec(67, 3))) // 1 \- 0.067 \= 0.933

}

}

inflationRate = inflationRate.Mul(sdk.NewDecWithPrec(67, 2)) // 0.67 is 67%

// Then, if we are in year two or later, apply a one-time disinflation of 6.7%

if years >= 2 {

inflationRate = inflationRate.Mul(sdk.OneDec().Sub(sdk.NewDecWithPrec(67, 3))) // 1 - 0.067 = 0.933

}

}

rootulp · 2025-02-05T17:57:23Z

cips/cip-29.md

+| **0**   | 8.00               | 8.00                   | Genesis year, no change.                                                                                                     |
+| **1**   | 7.20               | 7.20                   | First disinflation applied (10%).                                                                                            |
+| **1.5** | 7.20               | 4.82                   | 33% drop in inflation applied, disinflation rate reduced to 6.7%. (This will be implemented in the next upgrade of Celestia) |
+| **2**   | 6.48               | 4.50                   | Regular annual disinflation applied (6.7%).                                                                                  |


I'm calculating different numbers for the adjusted inflation. Here are the existing constants:

initialInflation = .08 disinflation = .1

The "New Adjusted Inflation" column is decreasing both of those by 33% so

initialInflation = .0536 disinflation = .067

The formula to calculate inflation rate in a given year is:

InitialInflationRate * ((1 - DisinflationRate) ^ YearsSinceGenesis)

let's skip year 0 and 1 because we can hard-code them to use the previous constants. For year 1.5

.0536 * (1 - .067) ^ 1 = 0.0500088

For year 2

.0536 * (1 - .067) ^ 2 = 0.04665821

which diverge from the values in the table.

I think it's the formula that might not be correct. I just double checked the table in a spreadsheet.

Yea my formula is incorrect.

InitialInflationRate * ((1 - DisinflationRate) ^ YearsSinceGenesis)

no longer works because this proposal modifies the inflation rate and disinflation rate for years > 1.5

Marko Baricevic added 2 commits February 4, 2025 15:27

create cip-29

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jcstein mentioned this pull request Jan 15, 2025

Celestia Core Devs Call 23 #245

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rootulp reviewed Feb 4, 2025

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tac0turtle and others added 3 commits February 5, 2025 15:37

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CIP: reduce inflation #249

CIP: reduce inflation #249

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		## Motivation

		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.


		* The chain upgrade process includes the new inflation parameters without disrupting block production.

		* The new schedule is included in the next voting proposal to reflect the updated inflation rates on-chain.


		### Alternative 0: Do nothing

		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.


		![inflation change](./assets/cip-29/inflation_change.png)

		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.

CIP: reduce inflation #249

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CIP: reduce inflation #249

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tac0turtle commented Feb 4, 2025

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