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« on: January 09, 2016, 07:17:55 am »
I've been out of touch with this forum for some months, so I may have certain things incorrect or out of context. However, I feel I must express my concerns over this blog post concept, despite the disclaimers that this is just conceptual and not an idea for implementation (yet), so that hopefully others can offer me an alternative perspective.
I am concerned that any implementation of this blog post idea would detract significant value from BTS. I do not feel it would reward behaviour of any material value, that it would unfairly penalise smaller BTS experimenters.
There is a presumption that long term investors add value to liquidity demanders, but I feel this conflates the separate economic concepts of market liquidity and interest. I would offer a different view around each of these as follows:
In economics, the cost of demanding liquidity is the market spread. The provider of that liquidity is the market maker, who receives the spread. The hoarder has no part in this equation, and is not present in the market at all. As a result, BTS users need to source liquidity from other parties, and it is those parties that earn the spread return.
Regarding interest, interest is demanded by capital providers to accommodate time preference - that is, the preference, all else equal, to consume today rather than in the future. While its reasonable for parties willing to lend an asset to demand interest, interest is to be paid by the party borrowing that capital or good for current use. Interest is not paid by all holders of the asset to long term investors/lenders, because the service provided (use or consumption of the asset) is not a common good from which all parties have benefited. (I should add that simple hoarding of an asset does not add any utility or income on that asset to other owners, even if there is a marginal support for the price at the point of initial purchase by such investors, offset by the marginal pressure on price at the point such investors exit in order to realise their investment).
As a result, it's not clear to me why any owner of BTS would be willing to bear up to 15% dilution, paid to holders that are not clearly contributing any value back to them (ie. it's not clear what real work, for the common benefit, has been performed). This forces all owners to either lock away funds to avoid dilution, or to exit and not participate in the system at all. This would seem to repel potential users who may want to use BTS for everyday transactions (e.g. wages, services, purchase etc), smaller stakeholders wishing to experiment with BTS, as well as value-adders such as service providers, and market-makers.
Rather than reward those locking away funds, for whom there is no beneficiary, I'd focus on rewarding contributions to the network. While prima-facie it seems that running an army of computers around the world to solve exotic mathematical problems might be an unnecessary cost to secure a network, certainly a meaningful cost is required to secure the network whether that is PoW or PoS. I'd always thought that for PoS that is the strength of the governance structure that supports the selection and monitoring of the block producers. Greater investment in that governance structure creates higher barriers to attack. If there were a way to reward all the contributors to that governance structure, apart from just the block-producers themselves, that to me would seem to strengthen the overall network, and be a cost owners would be willing to bear.
Also, from the DAC perspective, there is value in work done to support the development and future utility of the network and BTS. That seemed to be the purpose of the introduction of initial dilution on BTS.
However, the blog post suggests rewarding for behaviour directed at neither of these outcomes, and may merely centralise ownership/control even further over time and away from many other stakeholders that have supported this project through using and experimenting with BTS. If the market perceives this the same way, I feel the negative impact on BTS would outweigh any perceived advantage seen from locking away a portion of the supply.
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