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HIVE Inflation | Is it too high? | Part 2

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Dalz
@dalz
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This is part 2 from the Hive inflation series.

In the first post HIVE Inflation | Is it too high? | Part 1 we went through the following:

  • Top Cryptos Inflation, for comparison
  • Hive projected and actual inflation
  • What is needed to offset inflation
  • Possible scenarios for lowering the HIVE inflation

In short, in most cases the top cryptos have around 5% inflation, with BTC having the lowest 1.8%. Most of them are lowering the inflation over time.

The HIVE inflation although projected at around 9% in the past years, have been higher than that because of the HBD to HIVE conversions that have added around 14M more HIVE, pushing the inflation on a rough estimate around 10% in the last years. Going forward the HIVE inflation should go down to 1%, in 2033.

For the next 5 years the projected inflation should go down from 8% to 5%. With the HBD to HIVE conversions this will most likely be around 8% average for the whole period. In absolute numbers this period has the highest inflation per year with 26M new HIVE projected, and the HBD conversions on top of this. This will add around 174M more HIVE in 5 years, pushing the supply from the current 364M to ~540M in 2025. A ~50% increase from the current supply.

From the above, the goal would be to lower the inflation to at least 5% per year, meaning we need to cut 3% of the 8% current inflation.

Growth can easily offset the inflation, and there is massive potential for growth. Thing is how to jump start that growth? Lower inflation can partially contribute to this.

How to lower the inflation?

The first candidate for lowering the inflation is the DAO/DHF fund. This fund will have a massive 20+ million HBD after the HIVE conversion is made, and that will account for a 20+ years development fund with the todays rate of project funded for around 1M HBD per year.
If we remove the DAO/DHF inflation this will reduce the overall HIVE inflation for around 0.8% We need to find 2.2% more to get to our goal of 3% cut in inflation.

After this short recap now let’s take a look at other possible ways for lowering the inflation.
The next candidate for this would be the Author/Curation rewards.

Author/Curation Rewards

The author and curation rewards account for 65% of the overall HIVE inflation, 32.5% each.
To get to the 5% inflation from the current 8%, counting in the 0.8% from the DAO/DHF fund we need to cut the author/curation reward for 38%. Meaning 38% lower author/curation rewards. For easier understanding let’s just say half the current rewards.

Cutting down in half the current author/curation rewards.


Now the above might look like playing around with numbers, but the overall conclusion is this. Going down bellow the 5% mark in inflation, right now will mean to cut the author and curation rewards in half. I know this would not be a preferred option for a lot of people here, as they might feel that they are robbed from their rewards. But just think about it.

Cutting down your rewards in half, but having a more valuable token would means that in general your rewards can be the same or even increase. For the rewards to stay the same, HIVE need to double its current value and be around 0.5$. This is achievable. Everything above 0.5$ HIVE would mean that you will get higher rewards.

SMTs to the rescue!

Second layer tokens are already here with the help of the Hive Engine. A lot of users are already taking advantage of them and earn extra income on top of the base token. LeoFInance recently put out a post showing that some authors are already earning more in LEO than HIVE. This shows clearly that a project can be build on Hive with real use cases that can provide value for that token.

When enough of these tokens emerge from the Hive ecosystem authors can lean on them for author rewards.
Now I don’t know when will SMTs finally be out, but at that point I would say it would be safe to cut the author/curation rewards in half.

I have seen a lot of users are even promoting cut down the author/curation rewards in total. My personal opinion is that it would be nice to have at least some rewards in the base token. First cut it down in half and later maybe even reduce it further.

Till now we have looked into:

  • DAO/DHF inflation
  • Authors Inflation
  • Curators inflation

What we are left with is:

  • Staking rewards (Hive Power Holders)
  • Witness rewards

Staking rewards. I have talked about Hive Staking Rewards Model before. These rewards shouldn’t be lowered, as they are the incentive for holding HIVE and earing passively. What can be improved is maybe the model itself. As the way they are now, they are not visible. You want to show off with your staking rewards, not hide them. A daily transfer to the wallet would make a lot of difference, instead of the current one, that magically increase the HP, without you noticing it.

Witness rewards. For most of the cryptos these are the only rewards that the token gives out. This is the equivalent of the mining rewards, and the block producers’ rewards in DPoS.

Currently the top 20 witnesses earn around 10k HP per month. At these prices this is just above 2k USD. This is not a lot of money for miners/block producers. For average users maybe yes. But what if HIVE gets to 1$ or 5$. Then this becomes 10k, or 50k. Bitcoin miners get lower rewards after each halving. Although not sure how comparable this is. The point is that maybe at some point in the future if HIVE appreciate in value, witness rewards should be lowered as well.

I think in the current inflation model, that projects 1% inflation in 2033 the witness rewards will also be lowered as the overall inflation pool will go down.

One more thing about the witness rewards is the curve. Witness rewards drop massively after the 20th position. It might be better if we have almost like linear witness rewards, where the no.1 earns the most and then they go down. At the moment it doesn’t matter if you are a no.1 or no.20 witness you get the same rewards. If they are linear, the rewards will slowly go down, creating more competition in the top 20, but without a sharp drop after the no.20 spot. This might not be totally in line with the consensus mechanism of the blockchain, that predicts 20 witnesses confirming operation.

Price = Supply VS Demand

Inflation is all about supply. As we know the price is a balance between demand and supply. To have higher price of the token we need to create demand for it or buy pressure. Not just hype. This is crucial for a health Hive economy. We will explore this topic further in a separate post, as it deserves attention.

Here I will just mention the obvious way, that a lot of projects are doing, is fist create revenue, then make buybacks and burns with a share of the revenue. Since we want to promote a real decentralization here it will be tricky for one central entity to create the revenue and make buybacks and burns. Looks like the path forward is communities and projects build on HIVE that will utilize the decentralized nature of the chain, and then each of them creating revenue, buybacks and burns. This will create a truly decentralize chain with multiple projects and revenues, that will be almost unstoppable :)

All the best @dalz

Posted Using LeoFinance