[Final] Inflation Adjustment Proposal (to 0%)

Technical Proposals šŸ“ƒ
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Summary

This proposal will signal to set inflation of $OPā€™s total token supply to 0%. The total supply will remain at 4,294,967,296 OP.

Motivation

As we near the end of $OPā€™s first financial year, a total of only ~8% of total supply is expected to be circulating. For FY 2, May 2023 - April 2024, we are expected to see 270% inflation in circulating supply, falling to roughly ~50% till May 2026. Particularly in the Partner Fund + Seed Fund + Unallocated category, less than 5% was circulating as of February 2023.

In light of arguably an overabundance of $OP supply available over the next 3 years, the 2% inflation of $OP is unnecessary.

As an aside, this is thus more of a symbolic proposal (Edit: just to clarify, itā€™s ā€œsymbolicā€ in the sense that reducing 2% when circulating supply inflation is 50%-270% is negligible - this is very much a real proposal), and I hope to see more investigation to improve $OPā€™s tokenomics, as far as possible. I have discussed this matter before multiple times, including recently - we can do better with a more data-driven approach to token distribution.

Data gathered from: [PUBLIC] OP Token Unlock (Estimated) - Google Sheets (updated requested) and OP Allocations | Optimism Docs.

Specification

This proposal would set an inflation rate for [May 2023 - April 2024] of [0%].

If approved, and if not superseded by another Inflation Adjustment Proposal with higher approval, this proposal will result in a one-time mint of OP of [0]% of the current total supply (4,294,967,296 OP) equal to [0] tokens. This inflation will occur on or shortly after May 31 and accrues to the ā€œunallocatedā€ portion of the token treasury.

If not approved, and unless another Inflation Adjustment Proposal is approved, inflation will remain at 2%, which will result in a one-time minting of 2% of the current total supply, or 85,899,345 OP. Inflation will occur on or shortly after May 31 and accrues to the ā€œunallocatedā€ portion of the token treasury.

Impact Summary

This proposal will have no impact until most of the Unallocated tokens are circulating, or we need additional long-term funding for any of the other categories - all of which have plenty of tokens available over the next 3 years. We will revisit the topic next year just in case the Ecosystem Fund has been utilized greater than projections.

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Greetings,

Thanks for this post. The links are so interesting to read about.

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Thanks a lot for this draft, I will be 100% supporting it.

I want to first start by saying that I love Optimism, been a holder since the mainnet launch, been watching every video about cannon, bedrock, superchainā€¦

Hands down OP has the worst tokenomics I have ever seen in any project since the beginning of my crypto journey in 2018. Imagine loving a project so much and wanting to hold it just to get crushed with 150mil OP released in 1 day, and knowing that 800 more mil will be unlocked by mid 2024.

In the official discord there is barely any OP token discussion and if you check the channel its all ā€œHI HEY HI GM HELLO HI HEY HIā€ by bots and any legitimate question is asked is answered with ā€œWe donā€™t know anything about the tokenomics here are some links that wonā€™t make any sense, and keep in mind that these tokenomics charts arenā€™t accurate at all! but just know that if there is any upcoming unlockingā€™s they will be announced ahead of timeā€

In my opinion the tokenomics need to be redone, and massive unlockings shouldnā€™t occur in a single day but rather linearly over the year + setting the inflation down to 0%.

Really doubt anyone will read this or will care and this comment will just end up like any of the concerned messages people sent over in the discord.

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Absolutely agree. OP inflation is necessary long-term, but unnecessary right now given the large supply overhang.

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Interesting and it makes sense. Would like to hear why it shouldnā€™t be done.

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Co-sign. think this sends a strong message.

I am an Optimism delegate with sufficient voting power, and I believe this proposal is ready to move to a vote

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Definitely in favor!

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I am an Optimism delegate with sufficient voting power, and I believe this proposal is ready to move to a vote!

We feel there is no current need for the inflation. We can revisit this in the future, and turn it back on if governance sees it necessary.

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There is no need to print more when the fund still has OP to gives out.

The question of improving OPā€™s tokenomics is nice but perhaps it should be after fraud proof deployment.

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I fully agree technical decentralization should be the #1 focus, however this proposal is mutually exclusive from achieving that goal. Intent #1 in the next season is all about technical decentralization, and a security council and fraud proofs should be top of that list.

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Hey Polynya, thanks for creating the first ever proposal of this type :pray:

I work at the Optimism Foundation, but these are my personal views, not the views of the Foundation.

I strongly agree that the Collective doesnā€™t need inflation of the OP token right now. Itā€™s important that weā€™re able to increase circulating supply of OP while managing risk to Token House governance, and increasing the total number of tokens in existence moves us further away from this goal. Itā€™s possible inflation is a useful growth lever in future years, but it doesnā€™t help right now.

Setting inflation to 0% this year will allow the community to focus on distribution of existing OP tokens to further the Collectiveā€™s core intents.

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This has become a bit hidden on the forum due to the volume of comments and proposals.

We believe token economies are an important aspect of ownership within a protocol.

Signaling to the community a desire to reduce inflation in the token supply seems like a worthwhile topic; looks like most comments above are generally supportive of this initiative.

Noted by @bobby, it allows for more focus on key objectives without diluting ownership.

Flipside Crypto is a delegate with sufficient voting power and believes this is something the community may vote on; we believe this proposal is ready to move to a vote in Special Voting Cycle #12b

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I am worried about this sending the wrong message. I get your point, and I know you get that the main concern must be sustainability. I donā€™t believe inflation is bad as most people do, what is bad is to use it badly as governants do. A good decentralized governance would use it as the tool it is.

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I think the reasoning you laid out here makes a lot of sense.

I am an Optimism delegate [Delegate Commitments - #37 by linda] with sufficient voting power and I believe this proposal is ready to move to a vote.

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I believe this is a good idea, especially considering the context laid out (current and future circulating supply), and the fact that the topic can/will be revisited in the future and modified again if need be.

I am an Optimism delegate with sufficient voting power and I believe this proposal is ready to move to a vote.

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As there are now 4 or more delegates with sufficient voting power approving this proposal, itā€™s now ready to move to a vote, and Iā€™ve updated the title to [Final]

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I fully agree and support the proposal. The huge unlock is a problem for the price development of the op token.

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iā€™m def not an economist, and would really like to understand the proposal better and wonder if thereā€™s a process like machinations.io or other products that could help visualize this process?

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I am a major fan of Daniel Kahnemanā€™s Thinking Fast and Slow. To my fast brain - even though I do not know why OP inflation exists - lower inflation ā€˜intuitivelyā€™ appeals. However, my slow-thinking brain was reminded today (by delegate teammate @pat.zip) of the token engineering ethical responsibility and disciplinary rigour for designing crypto-economic systems.

Vaughan Tan
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Image source: Vaughan Tan

It seems to me that this proposal falls into an uncertainty vs quantifiable formal risk catergory, in that we could fully specify, simulate, test and validate outcomes, but can we know all possible outcomes? I feel its worth testing and validating as many outcomes as possibleā€¦

I am uncertain from this proposal what impact the change of inflation may have on a complex system and hope to see as @alibama mentions investment (time & funding) in further analysis

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I agree, the inflation is not necessary at this stage, the fact that it is there as an option for later is a good thing, so I agree, lets set it to 0, for now, and leave it open in the future to put it back if needed.

1 Like