Cyclical Inflation Instead of Fixed + Burning?

in LeoFinance4 months ago

Economy and macro finances are something complicated, right? If they weren't, all economies would flourish all the time, while providing at least a decent life style for all people. Which is not the case, not even in the so-called civilized countries.

By applying the same logic to crypto, juggling with tokenomics to create the most sustainable or the most prosperous project cannot be an easy thing.

One thing that the crypto space has had pretty well defined both in time and in amplitude has been a cycle, where the bull follows the bear and the bear follows the bull.

While nothing is set in stone nor one can tell with certainty when one starts and the other ends, they have been quite reliable.

I don't pretend to be an expert in the tokenomics that exist in the crypto space, but from my own remarks, most if not all of them are thought out for a bull market and using burning mechanisms to attempt to get the project safely through a bear market until the next bull starts.

Thinking the tokenomics in terms of a bull market and then adjusting it through burning may not be the worst thing that happens, if the tokenomics isn't too optimistic for the actual results during the bull market too.

But what I don't think I've seen before is a cyclical tokenomics by design, that takes into consideration the fluctuations in demand from bull to bear.


Thinking about Splinterlands now and how much they've been struggling during this bear market to bring DEC to peg in order to start the flywheel effect that would start the burning mechanism for SPS.

Much of what they've done in Splinterlands for the last year or so is focused in this direction. Which is ok, it is just a huge amount of work trying to fight the market, basically.

In a bull market, with all that's been done and announced, DEC should be at peg and SPS reaching for the skies. But during uncertain market conditions at best, it's almost like a sisyphean task. Even so, it's getting close to being accomplished, with all the concurring elements designed to help with this task (DEC burning, DEC staking needs, SPS staking for ranked battles rewards, etc.).

This may not be a solution for SPS, since changing its tokenomics might be a controversial issue, but I was wondering if having a cyclical inflation based on demand makes sense.

It could be hard coded to switch between a bull market and a bear market inflation based on preset parameters which can be directly linked to the token in question or may rely on information like the transaction fee for bitcoin or ethereum, in which case a dependency on an oracle is introduced too.

The alternative, for ecosystems that have a DAO, would be to vote on when to switch between the bull (high) and the bear (low) inflation.

On centralized projects, I suppose the project owner can switch too, but that opens up the project and its owner to criticism for disagreements on when this should be done.

Just some thoughts.

Posted Using LeoFinance Alpha


I think creating a dynamic way to tackle inflation will reduce most of the problems associated with it when the market shifts direction. Hard coding it could be a good option as it prevents further tinkering when minor changes happen.

Hard coding it could be a good option as it prevents further tinkering when minor changes happen.

Maybe, but the parameters need to be flexible enough to account for differences from one cycle to another. I don't think this can go 100% on auto-pilot, the parameters might need updating from time to time.

Right. There will be the need for adjustments over time even when the parameters are flexible enough. The economy is really complex system that continues to evolve.

It's not just a bull and bear market, but it's more about "capturing" the value in one and using that value to "survive" in another... Splinterlands had a huge explosion in users, assets, and tokens, but now, we are paying the price of not "capturing" that value before... Players are leaving and it hurts even more because of that...

Well, in Splinterlands' case, it didn't help that the explosion happened right at the end of the bull market. Even if they focused on that, it would have been very hard to keep players during the bear.

I was talking about the "funds" collected in that period... Similar to some DEFi protocols... You get a lot of attention and tokens during the bull market, if you don't build your stash, make bad decisions, spend money on tons of developers, fomo-in... When all that passes, you run out of money... Something similar happened to Splinterlands, and we are paying (part of) the price now... But at least, they recognized the problem relatively early...

Yeah, I agree with that. I think they are of the opinion they should push it to the limit while the market is favorable, but that sets the conditions for a pretty complicated bear market. Khal seems to act differently with Leofinance and his solution seems better during the bear market.

It's hard but the economy/tokenomics is something that is always changing. One strategy can work now and later it won't work. So I think change is to be expected and I don't agree with all the directions by the Splinterlands team either but I do think he is trying to improve the sustainability of the game.

Yeah, that's what I see as a con too. It can be very difficult to set parameters. Could work as a DAO vote, but we know how they generate conflicts too. I don't have much of an issue with how Splinterlands handled things, given the circumstances. This was more of a general idea, and have given Splinterlands as an example since I know it well.

The current situation for crypto investors as we all know is that there are many people who invested and lost their money and the lucky ones who still have it. There is also money, they can invest money at this time and wait for a year to earn a very good profit because that is the time.

There is one thing about losing money in crypto. You only lose when you sell. Investing in projects that have been around multiple cycles already makes them less likely to disappear during the bear.

I agree that it is very complicated. It seems like a whole lot of work to have to do to fight the cycles. I don't envy them

Yeah, if a business doesn't have proper funding during the bear, it will suffer.

I imagine so. And it's very bad if a particular business is doing good things but falls apart because it can't get adequate funding to move forward.

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Very nice read. I like your perspective.

Thanks for sharing!