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An analysis of the two tokens Neo Economy (Milestone 2) #20

Closed grantshares-dapp[bot] closed 1 year ago

grantshares-dapp[bot] commented 2 years ago

Abstract

The entire project, “An analysis of the two tokens NEO economy”, is composed of two milestones (milestone 1 and 2) and will take place in 12 months. It will consist of two scientific papers. In the first paper, Milestone 1, which has already been handed: This link, together with my CV, contains Milestone 1's paper

https://docenti-deps.unisi.it/nicoladimitri/curriculum/

in after the initial 6 months, I discussed some fundamentals of two token economies such as NEO. In the second paper (Milestone 2) I intend to extend the analysis to investigate the users' dynamics of tokens holdings. More specifically, how the NEO and GAS token holdings could co-evolve over time, for a generic user, based on the distribution mechanism specified in the NEO white paper. In particular, I plan to study the extent to which NEO token holdings could affect GAS holdings with time, GAS being indispensable for functional purposes such as perfoming transactions and to invoke smart contracts.

Proposal Information

Description

The theoretical framework that I plan to use in the paper “An analysis of the two tokens NEO economy” “The Representative Agent”, (Blanchard-Fisher, Lectures in Macroeconomics 1989) a widely adopted model in dynamic economic theory, an example of which is contained in this recent paper of mine The Representative Agent approach has limitations, but also several advantages, and appears to be particularly suitable to investigate the monetary dynamics in NEO. Among the advantages it allows to model the following, fundamental, trade-off that NEO users seem to face. The larger the amount of NEO tokens held by a user the more the user could affect governance and receive GAS tokens, however the lower the immediate benefit obtained by performing transactions paid with NEO tokens. This is because the Representative Agent approach is based on an explicit specification of a user’s utility function, which can embody her preferences for more, or less, liquidity in one’s wallet, as well as for current vs future use of the tokens. One specific topic that I plan to investigate in detail, and that was already partly discussed in Milestone 1's paper, is the existence and functioning of a direct market for trading NEO tokens with GAS tokens, and the forces determining their exchange rate. Indeed, even though the platform is planning to have 100mln units, of each of them, in principle nothing prevents their exchange rate to be different from one, because they perform different functions and also because they are introduced in the community at different rates over time. This is in fact what the empirical evidence is suggesting; indeed, for example, on 25 March 2023 the ratio between the NEO and the GAS price was about 3.6. Finally, it is important to point out, as I did already in the Milestone 1's paper, that a price ratio different from one may depend also on the fact that GAS tokens can be obtained for free by holding NEO tokens, "as if GAS was an interest rate", which might provide an intuition on why, until nnow, NEO tokens have been more valuable than GAS in the market. Whether or not such difference will persist in the long run, and under what conditions, is a most interesting question to study.

Motivation

As you can see from my CV I have been working on blockchain, and cryptocurrencies related issues, since 2017. To speed up access to my contributions, for your perusal below I have extracted the following publications from my CV, which represent my publication record in the area of blockchain cryptocurrencies.

Bitcoin Mining as a Contest, Ledger, 2, 31-37 (2017)

The Blockchain Technology; Some Theory and Applications, Maastricht School of Management Working Paper, 2017/3 (2017)

Transaction Fees, Block Size Limit and Auctions in Bitcoin, Ledger, 4, 68-81, (2019)

Skills, Efficiency and Timing in a Simple Attack and Defense Model, Decision Analysis, 17, 227-234, (2020)

Monetary Dynamics with “Proof of Stake”, Frontiers in Blockchain doi: 10.3389/fbloc.2021.443966 (2021)

Who are the arbitrageurs? Empirical evidence from Bitcoin traders in the Mt. Gox exchange platform (with Saggese P, Belmonte A., Bohme R., Facchini A.) Working papers n 860, Department of Economics and Statistics, University of Siena-Italy (2021) (under revision for the Journal of Economic Behaviour and Organization)

Consensus: Proof of Work, Proof of Stake and Structural Alternatives, in Enabling the Internet of Value, (Vadgama N., Xu J, Tasca P. eds) Springer Verlag, (2022)

The Economics of Consensus in Algorand, Fintech, 2, 164-179 (2022)

Quadratic Voting in Blockchain, Information,18, 305 (2022)

Proof of Stake in Algorand, ACM Distributed Ledger Technologies: Research and Practice (2022)

Liquid Proof-of-Stake in Tezos: An Economic Analysis, Information,13, 556, (2022)

Still from my CV, it could be interesting to mention that I’m currently Associate Editor of the journals Frontiers in Blockchain and IET Blockchain When I came across the NEO platform I have found the two tokens system particular interesting to investigate for two main reasons. Standard economies, like those for example of OECD countries, typically are not based on two fiat currencies (tokens), except perhaps for the very rare cases of price hyperinflations. Therefore, from this point of view the NEO two tokens economy is a very interesting novelty to investigate from an economic perspective. Secondly, the ambition is to write a second paper that could provide useful insights and conceptual instruments for the NEO community policy decision making.

Goals

As said above, the main goal is to write a, second, academic paper from which the NEO community may obtain useful insights on the possible economic evolution of the two-token system. Such insights could then be used for governance and policy making. A goal will also be to publish also the second paper in an academic/scientific journal.

Deliverables & Roadmap

Estimated Duration: 6 months

Also, provide a roadmap overview for the deliverables.

The proposed roadmap refers to after the possible approval of the research project

Month 3 (month 9 of the entire project) Almost final version of the paper Month 6 (month 12 of the entire project) Final version of the paper and seminar (if requested) (milestone 2)

Deliverables Verifiability

How would the community be able to verify that the promised deliverables (or milestones) were successfully achieved? For each deliverable/milestone, add supporting info on how it can be verified by the community.

With reference to the proposed road map, this is how the deliverables could be verified by the community

Month 3 (month 9 of the entire project) Almost final version of the paper. I will send an almost final version of the paper.

Month 6 (month 12 of the entire project) final version of the paper plus a seminar (if requested) (milestone 2). I will send the final version of the paper plus a seminar (if requested)

About You / Your Organization

Proposal Info :clipboard:

[ {
  "target_contract" : "0x6276c1e3a68280bc6c9c00df755fb691be1162ef",
  "method" : "releaseTokens",
  "params" : [ {
    "type" : "Hash160",
    "value" : "ef4073a0f2b305a38ec4050e4d3d28bc40ea63f5"
  }, {
    "type" : "Hash160",
    "value" : "3962987a42463d7ffa97487d8b4c18a08472ebf0"
  }, {
    "type" : "Integer",
    "value" : "1875"
  } ],
  "call_flags" : 15
} ]

👇 React with 👍 if you liked it, or 👎 if you think this proposal can be enhanced!

grantshares-dapp[bot] commented 1 year ago

🚨 This proposal was edited by the proposer.

grantshares-dapp[bot] commented 1 year ago

🚨 This proposal was edited by the proposer.

grantshares-dapp[bot] commented 1 year ago

🚨 This proposal was edited by the proposer.

grantshares-dapp[bot] commented 1 year ago

⛓ This proposal was created on-chain! 🔥🚀🎉

➡️ Now, waiting for a GrantShares Member to endorse it... ⏰

🚨IMPORTANT🚨 Pay attention to the following deadlines: ⏰

General info:

nicoladimitri commented 1 year ago

I'm pleased to have put on chain Milestone 2 of the project. After having discussed the fundamentals of two-token economies in Milestone 1, in the second part of the project I'm planning to analyze the dynamics of users' money holdings. A main focus will be on one of the distinguishing features of two tokens economies such as NEO, where both tokens are traded in the market. That is, if GAS tokens can be obtained both from free, by holding NEO tokens, and by trading it on the market against any currency, then there could be the possibility of speculative trades that, at least in principle, may destabilize the platform. This point was already inntroduced in Milestone 1's paper, but will be fully developed in Milestone 2. In that I'm also planning to investigate the conditions to prevent such potentially destabilizing activities.

I truly hope that MIlestone 2, as well as it has been for Milestone 1, will be found of interest for NEO policy making and users and approved for funding, so that our collaboration could continue.
As I'm waiting for the voting outcome, I would like to renew my gratitude to Grantshares for having funded Milestone 1 and for considering this project. Sincerely Nicola Dimitri

gsmachado commented 1 year ago

@nicoladimitri thanks for clarifying.

That is, if GAS tokens can be obtained both from free, by holding NEO tokens, and by trading it on the market against any currency, then there could be the possibility of speculative trades that, at least in principle, may destabilize the platform. This point was already inntroduced in Milestone 1's paper, but will be fully developed in Milestone 2. In that I'm also planning to investigate the conditions to prevent such potentially destabilizing activities.

My question about this ☝️, is: in which conditions this scenario becomes a REAL and not a merely theoretical problem? How much GAS should be generated & how much GAS should not be burned in order for this to happen? Did you answer this in Milestone 1?

Another question that I have about Milestone 2: once Milestone 2 is finalized, where do you intend to publish the paper? Journal? Conference? Presentations? This part is not clear to me.

nicoladimitri commented 1 year ago

Dear Guil

many thanks for your interesting comments. BELOW, IN CAPITALS, MY ANSWERS TO YOUR POINTS

My question about this ☝️, is: in which conditions this scenario becomes a REAL and not a merely theoretical problem? How much GAS should be generated & how much GAS should not be burned in order for this to happen? Did you answer this in Milestone 1?

VERY GOOD POINT. THE POSSIBILITY OF SPECULATIVE TRADING IS INTRINSIC TO ANY TWO-TOKENS SYSTEM, HENCE ALSO TO NEO, WHENEVER BOTH TOKENS ARE TRADED ON THE MARKET AND ONE OF THEM COULD ALSO BE OBTAINED FOR FREE BY HOLDING THE OTHER TOKEN. IT WOULD BECOME ATTRACTIVE FOR USERS, AND SO "REAL", ONLY IF THE RELEVANT PARAMETERS TAKE SOME SPECIFIC VALUES. AND IN FACT, IF SUCH SPECULATIVE FLOWS HAVE NOT BEEN OBSERVED SO FAR IN THE NEO BLOCKCHAIN COULD BE FOR TWO REASONS. EITHER USERS DID NOT DETECT THE POSSIBILITY AND/OR THE PARAMETER VALUES ARE THE RIGHT ONES AND USERS DO NOT FIND IT CONVENIENT TO IMPLEMENT THOSE TRADES. THE FINAL PART OF MILESTONE 1'S PAPER BRIEFLY DISCUSSES HOW SPECULATION COULD BE PREVENTED. HOWEVER, WHAT I DID THERE WAS JUST THE VERY BEGINNING OF A MUCH LONGER AND COMPLETE INVESTIGATION TO BE CONDUCTED IN MILESTONE 2.

Another question that I have about Milestone 2: once Milestone 2 is finalized, where do you intend to publish the paper? Journal? Conference? Presentations? This part is not clear to me.

THANKS FOR ASKING. I PLAN TO SUBMIT THE PAPER TO A JOURNAL BUT I'D BE MORE THAN HAPPY TO MAKE A PRESENTATION, SEMINAR, TO GRANTSHARES AND NEO MEMBERS TO ILLUSTRATE IN PERSON THE MAIN FINDINGS OF THE RESEARCH.

THANKS AGAIN SINCERELY NICOLA

gsmachado commented 1 year ago

Just something else:

Do you know this page? 👇

image

You can find it if you go to https://governance.neo.org, and then click on "Network Settings" tab. Then you can hover the mouse over the "info" icon to see an explanation of what each parameter represents. Check this out:

Screenshot 2023-05-09 at 14 50 11

Moreover, I think that the amount of transactions and how much GAS is spent/burned should be measured.

I'm pointing this out because practical and meaningful values should be drawn out of this research for a successful proposal.

nicoladimitri commented 1 year ago

Dear Guil

so many thanks for your comment and for pointing out to me the page which I looked carefully at. I fully agree with you and the page is absolutely key for computing GAS consumption. That will allow me to investigate users' behaviour considering real data on GAS, which will meaningfully enrich the analysis, also as a support for policy making. I'm very grateful to you for this Sincerely Nicola

ioannistsil commented 1 year ago

I don't see any merit funding this proposal

nicoladimitri commented 1 year ago

Thanks very much for your feedback. Actually, I think I would agree with you under these circumstances: i) NEO has already a background paper discussing its economic fundamentals, as two token platform, where both tokens are traded (very important)
ii) NEO does not have a background economic paper and does not need one. Funding Milestone 1 was not a right decision to start with.
iii) NEO needs a background economic paper but Milestone 1’s paper was completely useless and makes no sense to fund Milestone 2. iv) NEO needs a background economic paper, Milestone 1’s paper was an interesting introduction to the economic foundations of NEO, but Milestone 2 is not interesting. v) NEO needs a background economic paper, Milestone 1’s paper was an interesting introduction to the economic foundations of NEO, but the proposer does not have the needed competence to write Milestone 2. If any of the points (i)-(v) apply, I personally would not fund Milestone 2. Alternatively, I would fund it.
However, it may also be the case that vi) NEO needs a background economic paper, the findings of Milestone 1 and/or Milestone 2’s research project are not completely clear. As for (vi) I was happy to be asked to make a 30 mins presentation, clarifying that, which will circulate soon. Thanks again for kind attention and feedback Sincerely Nicola Dimitri

gsmachado commented 1 year ago

i) NEO has already a background paper discussing its economic fundamentals, as two token platform, where both tokens are traded (very important)

☝️ about this, today I've got to know a paper by @vang1ong7ang that discussed the dual-token economy in Neo. I haven't seen this before. Check it out: https://github.com/vang1ong7ang/DualTokenModel (in order to plot the graphs you will need to install and run Jupyter... if you want just to read the text part, without the graphs, you can read it here).

I believe that this paper is a bit outdated (it's from 2019)... but it's still a good design for the tokenomics.

nicoladimitri commented 1 year ago

Dear Guil

I was unaware of this paper. I just glanced at the article and my first impression is that Wang has done a very interesting piece of work, on the same line as Milestone 2's project, namely an enquiry on the possible long run development of the two-token holdings. If funded, Milestone 2 would definitely take the paper into serious consideration. A main difference with Milestone 2 would be that I would take a more explicit economic approach, that is first introduce the users' preferences, that its utilities, and then study their tokens' holdings as utility maximising choices. I would also be interested in reading Wang's paper on incentives, which is mentioned in the article. Thanks again Nicola

roman-khimov commented 1 year ago

Based on #19 results I can't support this one.

nicoladimitri commented 1 year ago

Many thanks for your time and many thanks again to Grantshares members for having funded Milestone 1.

nicoladimitri commented 1 year ago

It is a pleasure to share with all of you the link of the recorded 2 June 2023 presentation,

https://p.axlabs.net/syp-ep7

organized by Axlabs-Grantshares, where I delivered the main findings of Milestone 2 and briefly described the research project for Milestone 2. I would very much like to thank the organizer for this opportunity. I was also very pleased to see that the presentation was well received and that participants asked interesting questions. Just about those questions, which are of general interest, I decided to elaborate more in this message. So, below you can will find a more extensive discussion on the questions together with some final considerations, which include the auspice that Milestone 2 will also be endorsed and funded by Grantshares, and that the project could be completed.

Q1 Is there any evidence or possibility that GAS can overtake NEO in price for a long duration of time (3-6) months. If so what are the scenarios?

A1 A very interesting, thought provoking, question.

The intuition would suggest that this is unlikely to take place. Indeed, since one can get G tokens by holding N tokens the demand for N tokens, hence their market price, should in general be higher than the demand for, market price of, G tokens. Indeed if, and when, the two prices would be the same in general it should be convenient to stop buying G tokens and focus only on N tokens that provide two functions (governance and transactions implementation), which would tend to separate again the two prices again.

However, if there is no obligation to hold N tokens (see below) in order to own G tokens, because they could be bought in the market, in principle we cannot completely exclude that this may happen. For the G’s market price to overtake the N’s market price I can envisage two scenarios, though I could not discard the possibility of some additional ones.

1) Strategic behaviour

There could be two main reasons leading to an “abnormal” increase in G tokens price: the first is generated by the demand side the other from the supply side.

i) (demand side) For some reason, investors may start targeting G tokens as the object of a speculative activity, increasing their demand for the tokens, to try convincing the rest of the market to follow them. If the supply of G tokens, in exchange nodes, remains overall unaltered they may strategically generate a bubble on the G market price, to then sell G tokens when they believe is the right time to do it. Overall, I consider this scenario unlikely since, in principle, any other token could be targeted to generate bubbles unless some specific conditions, peculiar to G tokens, would facilitate and trigger the emergence of a price bubble.

ii) (supply side) an alternative way in which G tokens price may increase due to strategic behaviour is when G tokens holders decide, on purpose, to reduce their supply in exchange nodes. If the demand for G tokens remains overall unaltered the supply reduction would generate an increase in the tokens price.

2) Non-strategic behaviour

An increase in the price of G tokens may take place as in point (i) and (ii) above, however generated by non-strategic, genuine, behaviour. As for the demand side there may be an unprecedented increase in the need for G tokens by users, who do not have enough of them and need more, because they increased their activities on NEO. Rather than buying N tokens they may decide to buy directly G tokens on the market which are less expensive. But if several investors do so this may push up their price. Likewise, if the tokens’ supply reduces because G token holders now use them, rather than exchanging them, the G tokens market price may increase.

To summarise, I believe that it is unlikely for G market prices to be larger than N market prices. However, should this take place, what would happen? In principle it may slow down the activities on NEO since transactions would became too costly, or even discourage the use of NEO. However, the intuition suggests that this should not last for a long period because, at some point, demand for (costly) G tokens would start to decrease, as well as their price. 

To conclude, two final issues? (a) Is there a way to prevent G tokens price to be larger than N tokens price? (b) Is there an “ideal” price ratio for the NEO platform?

As for (a) one way to basically guarantee that G price would not overtake the N price is to require G token holders to own a “certain” proportion of N tokens in their wallet, even if they buy G tokens in the market. But that may perhaps be too much of a constraint for users. Alternatively, the NEO platform can intervene on the market to increase the supply of G tokens, should their price become too high. But, perhaps, this is also against the spirit of the NEO platform.
As for (b) it is interesting to notice that, over the last few months, the exchange rate between N and G tokens ranged between 3 and 4, G tokens for a single N token. Is this a desirable exchange rate for NEO? If not why? In case it has not been done by NEO yet, this I think is an additional point to investigate more in detail.

Q2 Can it harm the ecosystem ? for the question above

A2 See the above discussion

Q3 Do these calculations take into effect the entire market where trading can occur, or just centralized exchanges?

A3 This is also a very interesting question. What I had in mind are centralised exchanges which, to my understanding, on the aggregate are represented by the values available on Coinmarketcap. But if other channels for trading exist, and related data were available, it would be interesting to consider also those channels. In any case, due to arbitrage activities, in general prices on those channels should not be too different from the ones on centralised exchanges.
I take the opportunity to specify here that detailed data on prices are perhaps easier to obtain than detailed data on quantities. For example, it may not be easy (if at all possible) to know how many N tokens have been exchanged yesterday (2 June 2023), againt $, in a certain exchange node,. However, from Coinmarketcap, it is possible to know how many N tokens and G tokens have been traded on 2 June 2023 overall, which could be used as proxies for more specific trades against any other currency. Indeed, still from Coinmarketcap, we can compute that roughly 4-5% of circulating G and N tokens have been traded on 2 June 2023.
These data suggest that, broadly speaking, quantity wise the two tokens’ relative desirability, at aggregate level, is about the same, which would mean that differences, in relative desirability, is only based on market prices. But see the final considerations for more on this.

Q4 Would like to know if we can/should feed these indicators into the Gas generation model.

A4 Excellent question. See the final considerations on this

Q5 Does the relatively weighted price ratio need to take into account the divisibility of each token in order to determine relative supply? 1 NEO is indivisible, the smallest unit of GAS is 0.00000001.

A5 Very good question. The RWPR is defined regardless of the nature of the numbers, that is whether they are integer or fractional numbers.

FINAL CONSIDERATIONS If Milestone 2 would be endorsed and accepted for funding, based on the above questions, I just decided that I should also include an additional section ( an appendix or else) where I discuss in detail the operational side of Milestone 1’s paper. That is, how to use the desirability indicators, in what circumstances, what if Gas generation model would embody those indicators, why and how. Admittedly, in Milestone 1 I focused on the more methodological side but I realised that there is a strong interest for a discussion on if and how to apply them on NEO. To do so, I would propose to extend the duration of Milestone 2 from 6 to 8 months, however without asking any additional fund, as it is clear that I should have done this in Milestone 1. Therefore, I conclude by saying that I truly hope that Milestone 2 will be endorsed on Grantshares within the deadline (June 7) and then approved, so that our collaboration could continue and the project t completed.
However, as a follow up to what I wrote above, even if Grantshares would decide not to fund Milestone 2, I take this opportunity to say that I commit to send an appendix, to Milestone 1’s paper, to discuss the operational side of the indicators. While looking forward to your feedback, whatever the final decision I would like to express my gratitude again for having sponsored Milestone 1, for the time you all dedicated to my proposal and the interest in the project Sincerely Nicola Dimitri

gsmachado commented 1 year ago

@shargon, @lllwvlvwlll, @steven1227, @kiki18z, @igormcoelho, @vncoelho, @roman-khimov, @deanragnarok, @DylanNNT, @hacfox, @csmuller:

🚨 The deadline to endorse this proposal is: Jun 7, 2023 4:09:14 PM UTC

Just want to get your attention to read this comment.

Also, watch the #ShillYourProposal video with Nicola's presentation: https://p.axlabs.net/syp-ep7

grantshares-dapp[bot] commented 1 year ago

🚨 Outcome: this proposal expired! ⏰🤷‍♂️️

General info:

nicoladimitri commented 1 year ago

To Grantshares Members Dear Members

Milestone 2 of the project was not endorsed and so not approved for funding. A pity that the most interesting part of the project could not be implemented but, evidently, was not sufficiently interesting for Grantshares. As said in the previous message, based on questions raised by participants during the online presentation of Milestone 1-2 , in due course I will send a revised version of Milestone 1's paper where I shall develop some of the points made. The goal is to revise the paper in such a way as that it could be submitted for publication to a scholarly, peer reviewed, journal. Should the revised version of Milestone 1 revive an interest for Milestone 2 by Grantshares, I'll be more than happy to know. In any case, for the time being I would like to express my much felt gratitude to all of you for having supported Milestone 1 and for having dedicated your time and energy to my project. I would also take this opportunity to thank Axlabs for the superbe support.
Sincerely Nicola Dimitri