Different inflations on different networks

Voting is currently open: Different inflations on different networks - #18 by aggre


At the time of writing, the APY in Dev Protocol on Ethereum (the Ethereum) is 49%, and the APY in Dev Protocol on Arbitrum (the Arbitrum) is 13%. APY is a relative number determined by the total number of stakings relative to annual inflation, so that this topic will focus on “annual inflation” as an absolute number.

I raised an issue with APY (at the launch of the Arbitrum) on this topic. The Arbitrum has made the following changes to achieve the same inflation as Dev Protocol on Ethereum:

  • If the number of authenticated assets is less than 1647, 1647 is set.
  • Calculate the same inflation as the Ethereum at the same staking ratio as the circulation supply to staking ratio (about 30%) in the Ethereum. (The Ethereum calculates the inflation by total supply to staking ratio)

With these changes, inflation on the Arbitrum began at the same level as the Ethereum. We thought Dev Protocol was fair to multi-networks and a good start to start an unbiased discussion.

Today, annual inflation on the Arbitrum is below the Ethereum. This is because the staking ratio in the Arbitrum is higher than Ethereum’s “circular supply to staking ratio.”

There are several ways to correct this imbalance.

  • [Absolute Inflation]: Design a curve that depends on the absolute number of staking, not the staking ratio.
  • [Move Ecosystem Fund]: Move the Ecosystem Fund so that the circulation supply to staking ratio on the Arbitrum equals the Ethereum.
  • [LM]: Reduce the staking ratio by starting a liquidity mining program in Arbitrum. (This already planned)

Inflation by absolute number

A “staking ratio” changes depending on the circular supply, which is difficult for DAO to control. We will develop a new inflation logic that depends on the absolute number of staking as a new Policy to replace it. This allows Dev Protocol to provide perfectly fair and clear inflation for multiple networks.

However, it takes days to develop a new Policy, and it takes at least 1-2 weeks before it can be published. (Still, I will work on it as long as I have time)

Move Ecosystem Fund

We have already done this once, and we can do it right away. However, the ratio of circulating supply to staking is fundamentally uncontrollable, making it unsuitable as a permanent measure.

LM

Dev Protocol on Ethereum has a liquidity mining program, but Arbitrum’s one does not. Therefore, it is expected that many users who bridge DEV to Arbitrum are performing staking. Therefore, it is expected that the staking ratio will decrease by starting liquidity mining in Arbitrum. Also, this is already planned and is expected to start at the end of this month.

What approach is best for our DAO?


I was also asked about the idea of ​​using different values ​​for the Ethereum and the Arbitrum inflations.

We should first recognize the difference between inflation and APY. Inflation is an absolute number that dilutes DEV. APY is a relative value, and APY increases when there is relatively little staking relative to inflation. When the Arbitrum starts, I think many people have seen more than 1000% APY. Therefore, different APYs do affect the value of DEV, but different inflations do not.

When Dev Protocol arbitrarily provides different inflation to different networks, low inflation networks are synonymous with being punished. So if we allow it, we think things should be done more carefully.

3 Likes

Hi agree, thank you for bringing this discussion here.

I think the team should immediately move funds from L1 to L2 to temporarily solve the problem. My opinion is that L2 should not have higher APY than L1, because we got stuck, L1 with high gas and L2 with low APY.

I think it is good to kind of force current users to go to Arbitrum. We cannot foresee a solution for Ethereum high gas fee in a short time.

Another thing to take into account is that in other projects, mainly on BSC, newcomers are used to +80% APYs when betting on low cap tokens. An APY lower than that will not attract new users. I understand that we have the whole creator thing that should be the main reason to someone stake, but in the end, the APY counts a lot.

I like the idea of a liquidity mining program on Arbitrum but I don’t believe it will change anything in short term. We don’t have enough holders connected to the project willing to create liquidity that would make a difference.

I don’t know, because I haven’t studied so deep but it seems to me that absolute inflation or another formula not based on staking ratio will be the final solution.

3 Likes

In my opinion moving the funds would be the easiest way to do it right now.

Regarding ‘penalizing L1’ I don’t see this as a problem at all, L1 penalized Dev Protocol for a long time and all its users, the high gas fees made stakes.social unusable, paying such gas fees made community members feel a bad experience overall and scared new users away.

L2 on the other hand is an opportunity for us to show case the real power of Dev Protocol with acceptable gas fees and transactions time. It’s a great experience. This should be incentivized. Dev Protocol should attract more users with good use experiences, Arbitrum is the best opportunity we have.

The differential APY is the tool that Dev Protocol has to create this inflow of users, the difference has been negative for 4 days already and it not only slows down the process but leaves individuals that moved between layers and paid a lot of gas to do so >$600 in most cases with a bad taste in their mouth (they should be rewarded for the work of moving between layers and the price they paid).

Edit1: there are 3 combinations to do this:

1st: reducing L1 APY by staking with a big amount of funds on the Dev Protocol project. Doing nothing on L2, but L2>L1. This would mean really low APY on both layers.

2nd: just send funds to L2. This would increase the APY on L2 but would leave the ecosystem in a high emission rate.

3rd: reduce L1 APY by staking on Dev Protocol with funds and move funds to L2 to increase the APY. This is the optimal way in my opinion.

2 Likes

I am stuck in L1 due to not being able to afford gas fees. L2 is important for Dev but most of us can’t spend $600 on fees to move

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I can get behind this seeing that it’s very expensive to onboard all stakers from L1 to L2 due to the fees.

This process will take time and whoever thought we’d see a change within a fortnight, surely didn’t take into consideration the high gas fees. I’m confident that in a month or so, the majority of people will have moved to L2.

Also, I agree that an incentive of sorts should be given to people regarding L2 staking.

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Wont L1 fees get better once eth is fully proof of stake?

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Probably, once a lot of the load has moved to L2 solutions + ETH being fully developed all of them might reach an equilibrium long term. But, the fact is, currently to onboard a project on Arbitrum for exmaple, is 100x cheaper than mainnet, and this is very significant for the use of the dApp.

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What about sharding, I thought that was what would help L1

If we want to punish L1 and favor L2, we can propose a Policy that results in lower inflation in L1 without using stakes by the Ecosystem Fund. But so far, I haven’t found my own rational for doing so: since L2 provides clearly lower gas prices than L1, if there is no difference in inflation between the two, i.e. using absolute inflation, wouldn’t that be enough?

My reasoning for ‘punishing L1’ is temporary, it’s a tool to, move most of the usage of Dev Protocol to L2, a better environment for everyone at the moment . As we know, Ethereum Mainnet might get better in the future and, even on the short run, if it doesn’t and most of the staking is happening on L2, APY can go back to an equilibrium in all Networks.

Because of this temporary nature, an incentive or reaction, I don’t think incorporating this difference in a rule is the best approach, using the funds is just that, a temporary, active, solution.

Given the current situation, even if everyone thinks that Arbitrum is the best environment to use stakes.social, caeteris paribus; rationally, they won’t move their funds there, because Ethereum mainnet, even if it’s way worse for them to use, is paying 5x+ more at the moment.

APY on Arbitrum is 8% and APY on Mainnet is 51%. When investing, individuals look at the APY. If they’re equal, why would individuals remove their stake, use the bridge, transfer, approve and stake again? This adds up to hundreds to thousands of dollars, there needs to be an incentive if we want to see migration.

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Yes i definetly agree and support this idea. Today i bridged my devs and it cost over 400$+ for me and i probably need to bridge more Ethereum since i need to pay the costs on arbitrum network and will need to pay more for bridging.

Dev Ecosystem needs to be liquid. I mean sTokens, Perks all these needs to be comfortable and cheap. Ethereum network doesnt provide this right now. But arbitrum can provide it.

In crypto most projects rewards the early adopters. I think a airdrop for early arbitrum bridgers will be a good reward. Because most people and project who moved to Arbitrum are the ones that most active community members and projects that share about dev. Because bridging costs $ and APY is really little on L2, it makes no sense for someone to bridge.

I would suggest a airdrop for early adopters, dont know but maybe for example first 1 month bridgers get snapshot and reward $DEV tokens. Because most of the people will keep their tokens and stake it again on Arbitrum. And atleast same APY with l1.

I would suggest the APY should be the same on both networks. Because for example uniswap or aave. They offer the same benefits on l2 or eth network. If one chain has advantage over other it doesn’t make much sense. But people who use Arbitrum will always move freely on stakes.social since the fees are low.

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Can you guys please just explain the inflation rate better in general? The documentation on it isn’t understandable. How can the inflation rate stay so low APY like around 3%-4% while giving out 30% APY to both stakers and projects. I got several posts deleted for saying it sounds odd but it just feels like censorship to me, can you guys answer the question.

It sounds like you do burn dev on market contracts but the whole system isnt explained well

(First, please understand that this is off-topic)

APY is the ratio of the total number of staking to the projected annual inflation. So even a 3% annual inflation can result in a 30% APY. To mention further, please consider the following:

  • Currently, annual inflation increases as the number of tokenized assets (OSS, in the near future, YouTube) increases, and decreases as the staking ratio increases.
  • A new mechanism is being considered for Dev Protocol Tokenomics v3. Therefore, it is expected that the inflation mechanism will change in the coming months.
  • Creator rewards are capped at withdrawals by DIP-55. However, the annual inflation shown on Stakes.social does not take this into account.

Disclosure for fairness: I have not removed your comments, but moderation will check for compliance with the CoC.

I am also in favor of increasing the interest rate of Arbitrum.
The reason I haven’t moved to Arbitrum yet is partly because of the cost of gas, but more so because of the taxes.

This is off-topic, but Japan’s tax system is the worst.

3 Likes

Please let us know what you think. This voting will close at 1:00 a.m. UTC Nov. 17.

  • We will develop Absolute Inflation. Absolute inflation is designed to return results close to the inflation calculated by the staking ratio on the mainnet, depending on the approximate total staked on the mainnet. Then the team will be deployed it. However, if there are unforeseen difficulties, the discussion will be held again in the forum.
  • If the total staked on L2 is lower than on L1, Absolute Inflation will inevitably produce large inflation on L2.
  • Until the development of Absolute Inflation is completed, by moving the part of the Ecosystem Fund to L2, Ecosystem Fund temporarily creates the same level of circulating supply on L2 as the mainnet.
  • Approve
  • Reject

0 voters

3 Likes

It’s only fair and good way to encourage L2 migration

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Today this vote passed, and we have moved part of the Ecosystem Fund from L1 to L2. The team has already started to develop Absolute Inflation, and we will share the progress again.

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APY is the ratio of the total number of staking to the projected annual inflation. So even a 3% annual inflation can result in a 30% APY.

Honestly this doesnt make sense to me if most people were staking and the creator and the staker are both 30% APY I would think that would drive annual inflation up to 60% annual so long as most people are staking unless dev is being supplied in fees or burned somewhere else.

Can you explain this somewhere so lay people can understand the flow?