Cut SPS Max Supply and Emissions

in Splinterlands10 months ago (edited)

b71f95d05cafb59a2b2e2fb9ef6a0e92d9c8916d

The Issue

Until now past proposals have tried the address the SPS supply issue in a roundabout way by producing proposals that attempt to get DEC to peg and start up "The Flywheel". Realizing this effect could take many years, even if DEC is brought to peg simply because the emissions rate/supply of SPS is so high. It is clear the emission rate is far too high and we will continue to see a slow decline in SPS price which is bad optics for a web3 game we hope to attract new players to and does not instill confidence to current players spending money to P2E. The initial SPS supply decided upon years ago was ambitious for sure, but now we have years of data now that show us this max supply is far too large for the size of the player base. I think its time to act on this data for the good of the game.

The Proposal

I am proposing to deal with the max SPS supply in an amount totaling 500M SPS or roughly 25% of the outstanding supply. A total of 400M of this will be burnt/never minted and another 100M will be given to the DAO for future unforeseen needs/project development/new game token pools. I am proposing the caveat that this SPS CANNOT BE ACCESSED until all other current SPS pools are exhausted. This can be edited with player feedback if they feel all should be burned.

I am proposing that the SPS distribution phase should not be extended as a result of this cut. Thus, this 500M supply cut should reduce emission rates of the remaining pools by roughly 25%. I will wait for team assistance in how each pool would be impacted and this number is accurate. In the purpose of fairness I feel all pools should bear the brunt of effects of these cuts equally (Land, LP, Brawls, Ranked Battles, Validator Nodes, ect.) The team is free to subsidize any of these pools with Team SPS if they see fit.

Benefits

  1. The goal of reducing the SPS supply is achieved quickly instead of taking years.
  2. Emissions are cut to better align with the demand and the token price should stabilize and instill more confidence in the game economy.
  3. More accessible riftwatcher packs 😘

Potential Drawbacks

  1. Rewards are reduced, but hopefully higher token prices offset this loss in absolute token amounts obtained.
  2. Certain investors (particularly validator/LP providers) may be upset that they bought into these assets with certain expectations on earnings.
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I don't understand why this proposal now, before SPS replaces CP for ranked.

It seems almost certain that the SPS requirements will need to be based on the already-issued supply, not the token issuance rate, in order to have any effect. We have a giant use-case for staked SPS coming up.

Nearly every player agrees that the top priority for the game is more players, and this is the opposite of that

  1. We want these players buying cards, combining up, buying SPS, etc, etc.
  2. Based on the high quantity of issued SPS relative to the projected rewards and "real players," Splinterlands is likely to set high minimum requirements of SPS per league hurdles to gate the top leagues and keep earnings high at these levels.
  3. A higher nominal token price will mean that buying SPS becomes harder to reach for most new players.
  4. Meanwhile larger SPS holders will have way more than they need so there will be price competition in order to rent out the unused SPS cheaper than the next guy, instead of sitting unused.
  5. So for the new player, the low leagues will be very congested, and give very little incentive to continue beyond "giving Splinterlands a try".

So then, it sucks for the new player. Then the only justification for this is tokenomics. But even there, I question whether this is sound:

  1. Emission rates for SPS is about to be reduced by 25%
  2. You aren't magically burning 25% of the current substantial "oversupply" so the base supply isn't changing
  3. So if the same oversupply exists, it seems unlikely that a 25% reduction in the rate of new supply will increase market value by 25%.
  4. So it seems the result is overall rewards and returns on all assets drop. Some will call this "stabilizing" if there is an offsetting increase, although for the reason above, it is likely less than 25%...
  5. A decrease in returns from staking, LPs etc reduces the appeal of holding SPS
  6. A decrease in returns from playing reduces the appeal of owning cards

I hate to say it, but to me this falls into short term tokenomics voodoo... and I think we all want the team to focus on delivering an ambitious roadmap and an amazing product, instead of fussing with tokenomics yet again.

This is sort of admitting players who have been around for a long time have too much SPS when you say they are going to set the threshold high. New players are going to have to buy a ton of SPS anyway to be able to even enter those leagues that pay good levels of SPS, so there really isnt a way around buying more SPS and the emissions dont play much of a role here for new players. I personally dont think the current supply is too much, its the 66% more coming with a 2 cent token thats being given out in such large quantities there is no incentive to buy it that's the problem.

Thanks for the response. Yes, that's actually exactly what I'm saying. There is CURRENTLY WAY WAY too much SPS already minted, and also too much coming - relative to the currently available use cases.

But what does Aggy say? There are not enough cards, not enough SPS, not enough land, not enough anything, push and shove politely please.

So we KNOW that Matt and Aggy will try to lock it up to earn.

However, by pushing this now, before THE BIGGEST ECONOMIC USE CASE from the SPS white paper comes into effect, this proposal kinda tells the team "we don't trust you enough to let you execute your plan"

This is a "feel-good" idea that would actually have terrible consequences if implemented.

Another project recently tried a similar idea. They cut token rewards in half and at the same time cut the prices of their products that were purchasable with the token in half, so everyone still had the same production of in-store buying power.
(That's even better than the idea here since rewards were technically not cut at all since you still earned the same buying power in-game)
This is what happened

image.png

These are daily candles, the blue arrow is the day they cut inflation.
You can see the big green hype candles for a day or two, then the price normalizes at about 30-40% higher than it was. Eventually dropping back to where it started and is even lower now.
In effect, all of the assets that generate the token now produce less than half the value that they used to. And all assets in the game are worth around half as much. So instead of the slow downtrend they were seeing, they accelerated the downtrend by this attempt to bolster their token price.

If your idea were implemented, we would need SPS value to increase by 33% for rewards to maintain their current value. If you are earning $1.00 in value currently (45 SPS x 0.0222) after the change you'll get 33.75 SPS, meaning SPS would need to be worth 0.0296 in order to maintain the $1.00 value. That's a 33% gain required just to break even on this.

If that doesn't happen and/or the price doesn't hold, then we just accomplished a rewards cut for everyone here. Making holding assets here less desirable, and making outside investment even more unlikely since the ROI is worse now.

We don't need less SPS inflation, we need more demand. We already have a bunch of things in place or coming soon to help increase demand. Cutting people's rewards right now could literally be the death of the ecosystem by accelerating the downtrend right before we are about to have a reversal.

While I appreciate what you're trying to do, I think this is the wrong way to go about it. With "supply and demand", cutting the supply side doesn't do much if there's still no demand. I'd much rather be adding in more use cases and reasons to want SPS than cutting supply. Personally I don't think the supply is the problem here at all, we just need more demand.

We've been waiting years for more SPS use-case and at the same time players are getting huge stacks of SPS. There is no incentive to buy SPS people are earning it so fast. Even if more use cases come you want the emissions to be low enough people want to go out and buy SPS. I dont think that is going to happen when I can earn a few thousand a month. Maybe a strict emissions cut is more palatable, but I also dont want the SPS distribution phase to last another 3-5 years.

They should've just let people stake DEC for governance or something like that. I think we're going to definitely look back at this time and laugh about how everyone thought we could make so many tokens and that they'd all somehow hold value.

While I think the proposal has no chance it is one of the few trials I support no matter if i like SPS or not.

Until you figure out how to attract new players and keep them in the game, no matter how much you burn SPS, the price will still fall.

We need to make mechanics that are interesting for beginners (for example, give out decks to those who have passed KYC) and make a normal mobile application, because people now play through the phone. Web games are the last century.

I don't think limiting the supply is a solution. As most of the players have gathered too much SPS here for the last 2-3 years with aggressive distribution and now want to change distribution for future players. It doesn't really matter what supply is if the tokenomics or flywheel is broken and is not functioning.

@splinterlands is still in the stage of building and there has been multiple changes over last year from burning SPS to mint DEC to SPS delegations. from an attempt to list future products to DEC and update existing ones as well. Foundations are being laid, Validators need to go live. Cutting Supply is not a solution but a short term measure and only favor's people who already have big bags of SPS when demand arrives.

Wait, is there such a thing as too much SPS? 😋

Interesting Proposal. I personally dont think the current max supply of SPS is a big problem. But i can agree that the emissions could be reduced.

Do you have any information on how difficult this would be for the team to implement?

If the emissions is cut of by all sources equally. I would support it.

I think equal is only fair in this case. Too many people have too many various interests and it wouldn't be right if certain pools had to suffer more than others.

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Updated At: 2023-05-14 23:15 UTC

Summary

Thanks for sharing! - @azircon

you got my vote. finally something worth considering

Thanks. I'm just happy this discussion is happening.. Long overdue for a formal consideration.

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You do realize that simply cutting the emissions is not going to solve things right? It in fact most likely will hurt things as APRs for all the DEFI pools would also drop as less and less rewards are being dished out. There's a lot more to it to consider then just cutting the emissions rate and it primarily comes from buy backs from markets would make sense to start injecting some value back into SPS and the game and giving SPS more use cases including vouchers.

I want to reduce emissions but this should be scheduled for stability. A token with mechanics that change on a whim is not enticing.
I suggest reducing all emissions not the total supply every 2 years by 50% or every 1 year by 25%.
The 2 year anniversary of the SPS token launch is coming in 2 months. I suggest it be scheduled to reoccur on that day.

I don't like the idea of burning the SPS and reducing the total supply. With a scheduled emission reduction rewards can be sustained for many more years. This is crucial to the long term survival of the game. I don't like the splinterlands team answer of "We have plenty of time and will deal with that when the time comes." when I asked about rewards beyond the whitepaper.

Extending the reward pools more years is an alternative option, but I think there is just as many people who want the distribution to wrap up and would be equally contentious. It seems a lot more people agree something needs to be done to address the emission rates, but its hard finding the way to do that which brings on board the most people.

Why not keep emissions the same, but end a year earlier? Same outcome at the end.

I dont think we want certain activities to stop paying rewards early. Land hasnt even started yet really and cutting rewards early from LP would be worst case scenario (here we are hoping emissions cut is offset by higher value). How do you cut the distribution early without altering emissions without cutting the max supply unless you are a proponent of that.

Simple. look at the emission chart in the white paper, select a date, stop it there. You have the same outcome if you draw that line at the proposed number of token burn. You reward activities now instead of later at a lower rate.

All SPS pools will end. When the DAO takes over it should only reward modern play at a much lower level and wild much less than modern.

Only vouchers for staking rewards.

Pools filled from DAO with no reward.

i think sps supply is not the problem. instead of sps, why not dec?

The tremendous Inflation/Supply is the #1 problem with the Splinterlands economy currently. Yes, cutting it now does give the early investors a small advantage, but that's the whole point of being early, right?

This proposal should be brought up again after the SPS staking requirements goes live as it will then have a bigger chance to pass.

Upvoted! We need out of the box thinking. Keep it up

Thanks! It was time the elephant in the room got dragged out of the corner kicking and screaming.

Hey azircon, I always respect your opinion on these proposals and you are one of the first responses I usually look for. I'm honestly pretty surprised to see you vote in favour of this. You aren't usually one to vote to change terms from a white paper just because of market tokenomics... usually you are a champion for "don't change expectations unless it's absolutely necessary". I fail to see how this is a necessary change, when the team's roadmap has a huge SPS requirement coming VERY SOON in ranked play?

Anyways, if you would care to expand your thought process on this, either here or in a post, I'd love to get a better understanding - thanks!

This is a daring proposal, to the point of being a folly. This will not pass in a million years. I upvoted just to encourage the out of the box thinking!

Gotcha, I understand. Sometimes we can get so caught up with debating our ideas, it's easy to forget that we need to a find ways to support each other in this community. Thanks for the reply!

for more people like NerdCthulhu!!