The Game Theory Behind Speculator Fees

in #hivelast month

Instead of calling it a tax, which is not a very marketing friendly term, we can call them speculator fees (or whatever we come up with). Essentially the goal of the fee is to allow short term speculators to power up Hive yet take advantage of market volatility without causing a security risk to the blockchain. The market is mostly made up of short term speculators and very few long term hodlers like Warren Buffet, for example.

In order to have instant power downs + decentralized governance, you need a fee to exit. That is pretty much it. If there is no penalty for getting out early, exchange attacks would be very easy.

So the exit fee is first and foremost a security measure that enables the ability to power down instantly. Now the next question is, what to do with that exit fee? We could burn it, but I think the better idea is to give it back to those that stayed powered up, to reward the ones most loyal to the network.

You give short term speculators a way into the Hive ecosystem where, who knows, what happens when you get whales with big egos splashing around Hive upvotes? It could be an entertaining event. And when the short term speculators have had their fun and move on, the long term investors are rewarded.

There is a lot of energy in short term speculation. It's exciting, it creates immediate network effects, and overall it not a crowd you want to discourage, especially when the underlining technology relies on the token having economic value.

You can run, but you can't hide from DEFI, and we had better make sure we are not lazy when it comes to game theorizing the best approach to benefiting as much as possible from what good tokenomics can bring.

5% Speculator Fee

The 5% fee on power up, where let's say half went immediately to those who are already powered up, is something that would add even more APY. The goal is to try and make as high a APY as possible to lure in investors. If you see, you can get a high APY and think, we'll I was going to hold this Hive for a little bit anyway. A 5% entry fee isn't much if the APY is, let's say 100%+ on top of being able to upvote your favorite authors.

But I did see a lot of pushback on the entry fee, so I'm happy to exclude it for the first iteration of this. However, once people see how much the ROI raises when they power up with the exit fee, I think we'll see more support for various other fees that go back to the long term community.

10% Fee For Liquid Rewards (Not HP rewards)

The fee on rewards seems to be split, giving a exit fee to those that choose to get liquid rewards as appose to HP rewards. This obviously will give much better rewards over time to the authors that at least keep some HP powered up at the expense of those dragging the price down the most.

Why should someone who powers down all their rewards instantly be rewarded exactly the same as someone who powers up all their rewards? What sense does that make? Shouldn't we give the user a better reason to hit 100% HP rewards? These are the questions I ask myself and fellow authors who consistently power up. There is nothing wrong with taking your rewards instantly; I just think you should get slightly less vs. those that choose to stay powered up.

Overall I am happy with all of the feedback. Posting ideas to you all ensure it gets poked and prodded for any holes or leaks. Overall I see a very positive reception for allowing Hivers a instant way to power down. The only way to do this would be to have a exit fee, and having the fee go back to Hive hodlers was also very well received. So it feels that if this were to get past, the first measure would be instant PD + exit fee with the possibility of a liquid reward fee as well. I'm happy just to go straight instant PD + exit fee if there isn't support for the rest.

Proceeds of this post go to @pettycash - a grass roots marketing effort by Hivers.

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Hey @theycallmedan,

I like the idea of an instant power down fee. I think there needs to be some flexible in regards to how much someone wants to instantly power down. For example, a person may only want to power down half their stake. Therefore, the 10% fee should be based on the amount desired to be powered down and not the full amount staked.

I understand the logic of the powering up fee and I see how it could greatly benefit anyone who wishes to remain powered up for a significant time. However, I think the fee will discourage people powering up, especially new investors who are still unsure about Hive and how long they want to be invested. I don’t believe speculators will be interested in powering up, as they are unlikely to remain powered up long enough to cover the 5% + 10% fees.

The fee on liquid rewards makes sense. Choosing 100% HP should produce a higher reward, as it has a cost of less liquidity. A fee would balance things out. When HBD is above $1, there is no incentive to choose 100% HP, as rewards are lower than when they are split 50/50. Fingers crossed HBD pegging problems can be fixed.

In summary, I’m in favour of the 10% power down fee and the 10% fee on liquid rewards. I’m not in favour of the 5% power up fee.

In regards to duration of power down

I think 13 weeks power down is rather long. I think many people are powering down because of this duration and want to be able to cash out some of what they have accumulated over the past years. I think 6 weeks would be an improvement. For example, someone may only want to want to sell 1/3rd of their stake; a 6 week power down would enable them to do that in just 2 weeks.

For example, a person may only want to power down half their stake. Therefore, the 10% fee should be based on the amount desired to be powered down and not the full amount staked.

I guess it was understood that the fee only implies to the amount being powered down. Not to the full hive power. Thanks for you feedback. :)

I mentioned it because from what I gathered from conversations people seem focused on full power downs. In reality, people are likely to only want to sell part of their stake rather than all of it. An instant power down function should accommodate that.

Ya, the 5% power up fee is not very popular. Which is good to know. I still like it in theory but in practice, it may not work as I thought. This is why I like brainstorming out loud with the community. Thanks for the feedback.

I like the idea of a speculator fee that allows instant power down. I would like to see an account lock added with it so that we have the extra security of being able to lock our accounts to prohibit an instant power down.

Agreed, the main focus on this idea is how to better protect the users. Lots of ideas coming forward. And the account lock would be a must, the ability to remove the feature, freeze the account, opt for a time buffer so maybe its not instant but takes a hour or two.

Ok, I'm sold on the instant powerdown, they are coming as soon as klye gets it going, anyways.
Minus the fees.

I can see taxing those taking 100% liquid rewards, too.
If we aren't worth powering up half of what we give you, wth?
These people would kill the golden goose.

As for coding in the incentives, I'd just as soon see a community response to toxic behaviors as a code solution.
When 'we' get a grip on those bleeding us out, we won't need code, just right acting stakeholders.

We are coming into an age of abundance because of math, better we let the math change us rather than we bring the old ways into the new paradigm, iyam.

I read the comments so far.

While I now understand what theycallmedan meant with the PU and the liquid rewards fees, I also understand the resistance towards them.

Personally I would go with the least controversial option: fee for instant PD.

I reiterate what I mentioned a few times before. Only add instant PD option if the instant access to all funds of compromised accounts will not be possible. You can't rely on a front end switch for that, it must be implemented at the blockchain core.

I also want to mention for those reading this the instant PD would be an extra option. There will still be the free power down option taking 13 weeks to complete. It's not a replacement.

I saw in one or more of the comments the argument of second layer defi in the Hive ecosystem which would provide a better APR than all those fees you proposed combined could, while Hive would be liquid. I'd like to address that:

  1. Hive on a second layer is not Hive, it's a pegged token on a different chain.
  2. Hive on a second layer does not contribute to the governance on Hive, voting proposals, reward distribution.

That doesn't mean I don't like the idea of more sidechains on Hive. The richer the ecosystem the better. I'm actually very excited by the few projects I know are being worked on as sidechains.

Back to the instant power down. I don't think we have much to object to this.

  • speculators will be penalized, but also have their opportunity to do their thing
  • it won't create new inflation
  • fees will go to existing stakeholders, stake-weighted, increasing benefits for long-term holders

Yea I'm happy to go with straight insta PD + fee or 13 week free.

I tried to think about these entry/exit/instant-pd fees from game theory point of view. I agree, in theory, these fees can add value to long term holders. However, the problem I see is that fees will discourage majority of people from powering up.

I don't think it will encourage people to power up. There are already incentives like certain percentage of inflation goes to the HP holder, but I doubt any of the HP holder really care about that, since they aren't that significant.

I agree anything that adds more value and benefits to HP holders is good. But not sure it can be achieved with fees. It may make sense from whales' and speculators' point of view when these costs can be offset by the potential profits. However, for an ordinary participants with less than orca/whale funds to invest, this will serve as a discouragement from powering up.

13-weeks power down already does that. There are many who don't power up just because of this reason. People keep misunderstanding this 13-week pd obstacle as presenting as long term investor vs short term investor thing. In reality, it is about psychology of knowing that one cannot withdraw funds quickly when needed. I would even argue with shorter period power-down, more people will hold their Hive as HP for a much longer time, just because they know they can get out when they need to.

That's why 4-week power down makes sense. Ideally, the shortest possible pd time would be best. But at least 4-week serves as some kind of compromise to keep everybody happy. While yes 4-weeks is still long time, but the fact large sums are already released in one week maybe just enough of confidence to power up.

Also, these percentages are very high. Let's say I have $100K to invest. I probably would not power up knowing I would have to pay $5k as a fee. I also probably would not power up knowing I will have to pay $10k to withdraw my money.

In my opinion, Hive Power serves as alternative to other forms of investments. Many people hold assets like Bitcoin, Litecoin, Ethereum, etc. They just hold, not doing anything with them. Question is how would we attract them to park their assets as Hive Power? Why should they go with Hive Power when there are assets that keep appreciating in value. Fees wouldn't do that, long period lock ups wouldn't do that.

If we continue to have power up periods, yes it makes complete sense to have some sort of mechanism for instant or near instant full power down even with fees and certain security measures in place. Maybe 3-4% would be reasonable.

Having the lowest power down period possible would be the best. Free market works best when there is more freedom provided for the participants on how to handle their assets. Security vs Freedom arguments have been around for a long time. I think if we really wanted to, we can have both. And that can be the innovation of Hive that will attract many to join. Everybody wins!

Excluding all other fees, an exit fee is still required if you want an instant power down for network security purposes. 4 weeks vs. 13 weeks is good for those that want a quicker free power down, but for investors that like to capture market volatility it does nothing for them. What I'm proposing is allowing investors the chance to enjoy market volatility all while benefiting long-term power holders.

If we exclude the 5% fee for powering up, which I said I'm happy to do, this option does zero to discourage people from powering up compared to the current system. Because this is optional. So one could opt=out of this feature, and their hive life would not change at all except they would get more Hive rewards.

Hear me out, if you want to be a speculator, you should have coins on exchange ready to push that sell or buy button.

If you are choosing to power up for 13 weeks you are telling everyone on Hive that “these coins are locked and cant be sold unless I start to power down.”

If we can choose to pay whatever % to cash out at any moments notice to power down then we are stripping away one of the few things that makes Hive speculation interesting. At the same time those who lose their keys can now lose everything immediately because of this new function.

I am sure the 5% entry fee will never get any significant support, and the 10% instant power down is not necessary because participants have the choice to not power up their whole bag if they want to speculate on the side.

We need more buyers than sellers. We have perpetual nonstop selling coming from inflation and curation/author rewards. That’s what we are up against, we need perpetual buying pressure that exceeds inflation+ salaries for everyone.

Ok, I understand it better now. The more options for users the better. Thanks.

and you can hold all liquid and pay nothing. But have all benefits.

Do you mean liquid Hive? What are the benefits for holding liquid Hive?

no fees at all if power-up would cost 5% and power down 10%.

the % you can earn are not worth IMO. The only thing that would happen is power up less.

Also with a defi that comes for sure at one time, liquid hive would generate some returns too.

And if you want hive power, leasing would be a solution. Should be also cheaper as the fees.

There seems to be some confusion on the exit tax. The exit tax is if you want to power down instantly. It's optional. The 13 weeks are still free. So nothing changes except you give people a way to instantly power down that simultaneously benefits all remaining Hive holders.

If we do a combined power down like my proposal and charge gov votes over 13 weeks, we would receive the same effect. Hive would be at this point a less emotional investment as it is today.

2 independent power up times can be a solution. From security points it would be pretty much the same ( even more secure because of 13 weeks for gov).

Also for wallet security because of the 2 power down times the user can decide.

Would be cool if you give me some feedback. I would be also open to talking with you about it if you like :)

BTW @theycallmedan, I know you are deep in defi and hot cryptos. You maybe think at some point make a fund we can follow you? Would be an awesome thing between social + finance :)

If the HBD cap works can open new doors for stuff like this :).

Btw, I would ape in with some funds :) Special in bull markets :D haha

OK, I'm starting to see the light as far as the reward tax goes. Taxing only liquid rewards would most likely be fine with me after HBD gets pegged down in the next fork. I already plan on doing 100% HP rewards once it starts making financial sense.

I'm still curious about tax distribution though. If it's distributed based on vests, I'm afraid that whales will end up with the overwhelming majority of tax. But maybe that's the most fair way to do it.

I wonder if a cap on the distribution would be appropriate. If the tax is distributed based on the number of vests, maybe no single account can get more than 1% of the daily distribution (or whatever percentage is fair). I think whales should be rewarded for being powered up and feeding this community with their votes, but I'm afraid of seeing 95% of the tax being dumped into the top 10-20 accounts.

I think everyone getting an equal share of the distribution would be gamed too easily. Maybe a tier system? 1-100HP gets the lowest percentage, 101-1000HP gets the next lowest, etc. Then 1 million+ is the top tier and everyone in that tier gets the same percentage. I don't know, just spitballin'.

It would be equally based on stake. No one would get more or less per HP than anyone else. Relative to risk/reward, whales are actually the ones most hit in this situation. They risk the most to gain the least compared to a smaller account. This is no way to benefit whales over smaller accounts, and I can argue quite the opposite.

Instead of a direct power up fee, I think an indirect power up fee should be considered. For instance, newly powered up Hive would not collect from the tax pool for say 30 days, or some length of time that everyone agrees on or that is a witness setting. It benefits current Hive Power holders because the fees that would have gone to the new Hive power will go to them instead, which is basically the power up tax in reverse. The pain is not felt at the power up though so it doesn't seem as bad to me.

Ya I can see that as a better way to put it.

We know that when governance makes a change to taxing citizens, they rarely if ever reverse their initial tax. We must respect any change as such. This makes me like the idea of starting with one tax instead of two. Obviously the 100% power down tax is more popular than the power up at this point.

Game theory wise burning the tax revenue would directly help the small Hive balance accounts more, and issuing the tax equally to HP holders would help the whale accounts more.

🌹 🌹 🌹

I can fully get behind the tax for powering down(even then 10% is too much.) but not the rest.

I know this opinion won't get much recognition but as the last Rwandese in a community that at point approached 20, who knows and understands why most of them left, I can confidently say that the more you guys will keep chasing whales, the more you will keep chasing away the little guy.

Paying attention to the apy, inflation and all the other economic aspects is cool and dandy, necessary, but at the end of the day it's how being here affects users pyschologically that will determine if they stay/leave, or spread awarness, whether through positive or negative word of mouth publicity.

It's already hard enough to get a leg up here, don't make it any harder.

This whole proposal is to help every long term Hiver, big or small. This gives serious accounts of all sizes a way to leg up.

After thinking about this more I don't see a reason to come off of 13 weeks for the power down. Instead leave it at 13 weeks and introduce the early extraction fee to instantly get payout now of 10%.

Is part of the issue however that HIVE simply has too many APRs and is printing out too much HIVE that we never see an increase in price really? There's plenty of increase in tokens but there's really no decrease in tokens being that there's no fees etc on the chain. Perhaps that should be another topic of discussion which would be how to we incorporate sinks to keep the supply in check. Having a APR on Hive and now HBD simply just pumps out that many more tokens. A APR on staked hive makes sense such as a PoS system. But you now have...
Hive APR
HBD APR
Curation rewards
Author rewards
Maybe I'm missing something else? All pumping out hive. Is there a set rate to this each day? I don't know the inner workings well enough to know.

Since the extra rewards come from speculators who exit instantly, there is no inflation. What this does is raises the APR on your hive power holdings without diluting the supply. So there would be no more sell pressure as there are not more coins being printed besides the inflation we already have. That's why I'm a fan of this method, raise rewards for HP holders without raising inflation.

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exchange attacks would be very easy.

That's why the 13 week powerdown is perfect and shouldn't be changed, and if they want to do instant powerdown raise it to 30%, I don't mind because I don't want to take it all out at once.

The other fees still seem to me to be unnecessary and, on the opposite, could drive away new investors.

I've heard as high as 20%. Seems a bit too much to me. But I can understand the logic. I feel 10% is a good start. Exchange won't power up users' funds and risk burning 10%, 15% if there were a entry fee. Another reason for a entry fee.

If it is about protecting resources and the blockchain and all that could be at risk if everyone decides to quickly get out of hive, I agree that the fee should be 30% or more for instant powerdown, to all other fees I am against.

If everyone got out, the ones that did stay would earn such a high APY, so it would somewhat offset the temporary increased sell pressure. We have been through an extended bear market, the whales that wanted to powerdown and leave did a long time ago. I highly doubt we would see a huge wave of instant powerdowns but if we did I would certainly welcome it to get all those extra rewards for sticking around.

One thing to keep in mind regarding liquid reward fees is there is a significant difference in payouts if you take 100% Hive rewards when HBD is over $1. The difference will likely be larger than any fee/penalty.

To overcome the difference, HBD needs to be pegged to 1$ as well there should be ways where blockchain can auto sell HBD on internal market and power those hive directly to author. That would be an interesting turnaround & an auto liquidity provider.

To game, the system hold liquid hive would be superior? No fees Inflation is low, so it would be the long-term thing to do.

Because if power up cost $ and power down cost $, why someone should do?

Edit: If at some point Defi second layer (with hive token) would be available, holding 100% in liquid would beat everything.

Buen dia gracias por esta valioso información que tienes en este post, gracias.
Saludos desde Venezuela Los Teques.

At the end of the day, the Big question is: Will the instant powerdown or quicker powerdown attract new investors or whale speculators (or existing Hivers wanting to add to their hive stack) into our ecosystem. I’d like to think the answer is yes, but really I’m not sure.

Only one way to find out.

Yup, let's experiment!

For a trader, I get that. I'm in the 'emotional attachment" group.

How are you dear friend @theycallmedan good night

This is my personal opinion. To grow our company (Hive) we need the arrival of many investors.

This proposed modality is an excellent way to attract new investors. (I think the shutdown in 13 weeks is a negative point when investing)

I don't care if the new measures that are adopted are going to affect me, or not; What matters is to do what is best for Hive, because if our company does well, I will certainly do well

I take this opportunity to wish you a prosperous week

can you tell us more about @pettycash and the marketing effort?

I'll put up a post shortly. It's exactly as it sounds, just an account for small Hive expenditures, such as paying for an article, a conference ticket if we have a speaker presenting about Hive, exchange listing trading competitions and similar.

This tax or speculator fees concept still confusing 😕. How it will be distributed? But I think it will do great in future in blockchain.

Distributed back to all Hive power holders equally.

If to all holders, so it's good !

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The fee for liquid power down I do not thin I would agree with, It is to much like double taxation. You take ten percent from the liquid, and then when they want to do a power down withdrawal you are taking another ten percent from them. I think the no interest on liquid holding, and no withdrawal fees on the liquid withdrawals. I also think the interest on savings deposits should only be half the powered up interest rate.

If you get liquid rewards you don't have to power those down again so it's not a double fee. If you get HP rewards, and instantly PD down after the fact, it's one fee. You can't have instant PD without an exit fee.

Lets say right now I have 500 Hive sitting in my account and decide to move it off of Hive to convert it to fiat. It sounds like there will be a fee to do that. Liquid Hive is a one step process to send to an outside source.

Now lets say I Have 1000HP and I want to power down 500 of that HP...Fee or no? If there is a fee for powering down, so then in 7 days when that second 500 HP becomes liquid Hive, when I take the second step to remove it as 500 Hive it is charged a second fee.

Bear in mind I do not fully understand crypto, and Hive power down. Can you power down direct to an exchange with out it hitting your Hive Wallet?

I think this is a good idea but not really too clear with all

We should start with a 10% tax for instant power down practices, and postpone or reschedule a 5% tax on power-up.

If this proves to be the right choice, we can gradually implement more other variations.

Hive needs smart contracts. Once they are deployed, we can play around with different ideas on how to reward long-term holders as opposed to short-term speculators.

Given that #Hive is feeless by a design, I doubt there will be any Hive-based Dex using Hive as a native currency, however, no one said that HP holders can't have any benefits.

For instance, discount on fees.

Going further, launchpads are extremely popular these days, and HP could be a good parameter to get the most loyal community members whitelisted before speculators.

Things like that actually improve the demand side.
Something like you've done with sip and miners.

X10 that I boom, there will be a lot less supply.
Taking 5% of the rewards won't save us, like cutting the inflation will not save us either.

10% on instant power down is a great idea, but I wouldn't go beyond that, at least not for now.

Great update. Definitely support this.

Interesting conversation.
I skimmed over the comments so if this was mentioned before, please forgive me.

I like the idea of an Instant power down, it could be a good way quickly exit if something bad is going on or, if you need the funds for something important in your life, I am also in favor of a power down tax.

I don't understand why Tax a Power up, or perhaps I don't understand the logic in that, we want people to power up HP, not cash it out, so, that should be free or may I suggest even rewarded.

Power down tax

I suggest, we tax it on the speed at which you want to power down.

Normal 13 week power down = 0% tax
7.5 week power down = 10% tax
3.25 week power down = 15% tax
1 week power down = 30% tax
instant power down = 40% tax

or something along those lines... then depending on the rush you are in to exit, you would pay a higher fee to exit that quick.

Just and idea. ;)

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Why would short-term investors power up Hive? Are short-term investors particularly interested in blogging and curating?

The high APY provided by people who want to instantly PD, curation rewards, RC's, governance decisions (esp DAO proposals) and just being known as a "whale." And you don't have to be short term to instantly PD hive, some want to try and sell "tops" and buy "bottoms" - quotes because that isn't as easy as it sounds.

Hello sir as you have metioned that the power down fee will be like a punishment fee, but why there is tax fee for the power up user, what's the meaning of that tax if you have to return it back to the power up users this is a little bit confusion.

I would be in support of just the instant PD + exit fee (redemption fee, departure fee, market timing fee, early redemption penalty).

sounds good to me

this actually is a nice idea, only if it will be looked into.