LRC-3 (Block Reward Restructure)

[KeeJef]

Overview

I'm creating this issue to strictly define what options the Loki team and Loki foundation has raised in unison with, LIP-5 @CryptoFirefly raised this same issue in #9 but the choices presented were not exactly in line with those that are being proposed by Loki Foundation or Loki Project team right now.

With the introduction of LIP-5 Service Nodes will fully take over block creation which means Miners will no longer have a role in the Loki ecosystem. This naturally raises the question of what we should do with the 45% mining reward that currently goes to miners. The Loki team and Foundation has been discussing 2 distinct proposals.

Proposals

1. 1. The 45% mining reward is never created and the existing rewards (50% Service Node and 5% Loki Foundation) are re-balanced, so each block distributes 95% of rewards to Service Nodes and 5% to the Loki foundation. This change would result in an overall reduction of new Loki being created by 45%

   Loki per block (9/10/2019) approx would be 14.736 for SNs, 0.736 for LF. (95% SN, 5% LF)

2. The 45% mining reward is given to the Service Node network, this means each Service Node reward would increase 45% to replace mining. This would mean 95% of the rewards go to Service Nodes and 5% goes to the foundation. The emissions curve would remain the exact same with the same amount of new Loki being created as now.

Loki per Block would be approx (9/10/2019) 26.6 for SNs, 1.41 for LF (95% SN, 5% LF)

*Note: transaction fees will also be paid to Service Nodes

Other questions

If you have any additional suggestions as to how to restructure the block rewards then you are free to make them here aswell.

There is an additional bonus question, which is when should this block reward restructure occur? Should there be a hard cut over where miners are eliminated immediately when PoS is enabled? or should we continue paying miners until we are sure PoS is stable and working live on mainnet? If ambitious we could decide to commit to a decreasing schedule now which slowly reduces the miners rewards overtime, reallocating that reward to Service Node operators.

Please write your feedback as a comment below, if you support either of the major proposals please signal that as such.

[pailakapo]

Reduce emissions to 20 per block as follows: On switch to PoS until proven stable:

1. 95% of 20 to SN
2. 5% of 20 to LF
3. 8 loki to miners When stable: Remove miner reward

***EDIT Since there is not a plan to change the emission schedule outside of #1 or #2, I definitely think #2 is the best option.

[CryptoFirefly]

@keejef Could we do the following and probably edit / add to your original message, as most would read that.

1. Add the absolute Loki per block. Like in Option one the Loki per block would be 14.736 14 for SNs, 0.736 for LF. (95% SN, 5% LF) Option two the Loki per Block would be 28 26.6 for SNs, 1.4 for LF (95% SN, 5% LF)

In either case the 95:5 is sort of the likely direction. What's open between the two options and a possible 3rd option, is the absolute Loki per block.

Option three would be, a plethora of options like to generate (whole number) 16, 18, 20, 22, 24, 26 Loki per block and distribute that across SN & LF.

I feel the ideal decision is something from Option 3, with the right modeling done for rewards in future. I like 18 or 20 Loki per block, option the most.

On mining rewards, I prefer 2 step process,

1. Implement the big drop to say 20 Loki per block and within that have 70:5:25 ratio SN:LF:Mine
2. Next fork, 95:5:0 - End of mining.

[KeeJef]

I can put absolute amounts in, but obviously the block reward is still constantly decreasing, so they can only be considered accurate for a short period of time.

Regarding 3rd options I really don't think its a good idea to design an inherently new emissions schedule, there was alot of work put into the current assumptions we have made with with two papers being published on the cryptoeconomics.

I would prefer to keep the possible changes as simple as possible and not make major alterations to the block reward.

[CryptoFirefly]

True, I hear you on the work put in the cryptoeconomic papers :)

On the update above, i was suggesting more from final block emission at those options, as we are tending towards them. And those no.s i put are ~final figures. Option 1 would halt at 14.736842105 Loki per Block (to maintain 95:5 or 14 : 0.736842105) & Option 2 at 28 Loki per Block _(like today, with 26.6 : 1.4 ratio)

Having read all the point of views and i understand that its best to not change the emission curve too often and keep it stable, i prefer Option 2, to keep it 28 Loki per Block and 95:5 ratio.

+ 1 for Option 2

[Lucifer1903]

Okay so I went back and re-read the cryptoeconomics paper and decided to make the charts for the 2 proposals mentioned and 2 additional proposals that are a compromise between 1 and 2. Please see here https://github.com/loki-project/loki-improvement-proposals/issues/12

I would personally choose proposal 4 but I'm not opposed to proposals 2 or 3.

After re-reading the crypto economics paper I am very much against proposal 1 as it goes against the goals stated in the paper.

Edit: I'm also for the ambitious option of committing to a decreasing schedule now which slowly reduces the miners rewards overtime, reallocating that reward to Service Node operators.

[Skelaton4]

I am withdrawing my opinion to gather more information.

[KeeJef]

@Lucifer1903 what your analysis fails to account for is how a decrease in new Loki being created affects the real world USD price of Loki. If we assume that demand for Loki is fixed and the newly minted Supply is lowered as in option 1 we would assume an increase in the USD price of Loki. This has the knockon effect of increasing the real world ROI of Service Nodes, which is arguably more important than the Loki ROI.

Note too that with any increase in the USD ROI of we should see the amount of people willing to run Service Nodes increase (to a point), as the profits are now increased.

[alex76888]

My vote would be for option 1.

[Lucifer1903]

@Kee yes that is arguably true, yet it is difficult to predict what the price of loki would be, that is why I copied the assumptions from the cryptoeconomics you guys released and why I'm for a middle of the road option.

As you said "there was alot of work put into the current assumptions we have made with with two papers being published on the cryptoeconomics" and I think people should go back and read those cryptoeconomics papers because it would be a shame to ignore the conclusions that were came to there.

Edit: maybe we need another cryptoeconomics paper if you think the conclusions in the originals are no longer relevant.

Edit: sorry I have to challenge this argument "If we assume that demand for Loki is fixed and the newly minted Supply is lowered as in option 1 we would assume an increase in the USD price of Loki. This has the knockon effect of increasing the real world ROI of Service Nodes, which is arguably more important than the Loki ROI.

Note too that with any increase in the USD ROI of we should see the amount of people willing to run Service Nodes increase (to a point), as the profits are now increased."

Even if the there is an increase in USD value of Loki it would only increase the value of loki held by individuals, it would not increase USD ROI or Loki ROI and it wouldn't increase willingness for new people to run service nodes because they would have to buy in at a higher price with less ROI in both Loki and USD.

You could argue that it would increase USD ROI if you look at early investors and compare their original investment with USD ROI but if we look at the actual value of their stake with the USD ROI then it it would be lower under option 1, if a better ROI can be found elsewhere they might as well sell their stake at the higher price and get the better ROI.

I hope that came across clearly, I'm not the best at putting my words together. In summary option 1 prioritizes the value of Loki over the USD and Loki ROI for service nodes, giving less incentive for for newcomers to run service nodes and giving more incentive for current service node operators to sell.

[Lucifer1903]

I corrected an error on the original proposal 1 chart (changed block reward from 15.4 to 14.7).

@Kee I've made a new chat for the value of capital staked in service nodes + profits, instead of using the prices assumptions from the economics paper I have assumed that the price is unknown but will vary between each proposal by the amount of inflation.

[KeeJef]

Even if the there is an increase in USD value of Loki it would only increase the value of loki held by individuals, it would not increase USD ROI or Loki ROI and it wouldn't increase willingness for new people to run service nodes because they would have to buy in at a higher price with less ROI in both Loki and USD.

An increase in the USD value of Loki leads to a direct increase in the USD ROI of Service Node operators, since the Loki that they will earn from Service Node operation is now worth more in USD value. My contention is that USD ROI here is more of a motivating factor to new entrants to the Service Node network than the barrier of entry being raised (To a point, in my estimation about 55%-60% of locked supply)

[Lucifer1903]

@kee that's a fair assessment if we assume the main contention is the USD return for work put in to running a service node.

However I think running a service not isn't a contention because following the set up instructions is pretty easy and after that it's not difficult to passively monitor them with the LokiSNBot. In my opinion what it really import to get more service nodes is USD % ROI for the amount of USD capital that is staked at any given moment. Its the % that's important. Even if proposal 1 is going to give operators a slightly higher USD return for the work put in, I think most potential operators would be looking at the USD % ROI for their initial capital investment. We cannot know what the price will be in the future but we can assume that all other things being equal inflation will affect price by the by the amount that it is i.e. Let's say by year 3 all other conditions would cause loki to go to $10 (I'm using this because its a nice round number). Proposal 1 year 3 inflation is 6.68% so that would mean loki would be worth $9.33. Proposal 2 year 3 inflation is 12.72% so loki would be worth $8.73. Proposal 3 is 9.09%, price would be $9.09. So yes re reduced inflation of proposal 1 would give a higher price but we can't predict the other conditions that would cause price change. So any potential new operator can only consider the the amount of USD invested into loki Stake, then the amount of rewards, then the effects of inflation on both the initial capital investment and the rewards. I've already done this in the last chat I posted and it can be seen that under proposal 1 even though the price of loki would be higher the total value of capita investment plus rewards is the lowest out of all options.

There's one more thing that I just thought of that I think is something that should be considered. The premium services that will have to be paid for by burning loki, I understand the prices for these are going to be set in equivalent USD, so If it costs equivalent $10 for a service then more loki will be burnt when the price is lower. This means that even though higher inflation would mean a lower price, it also means more loki would be burnt for the same amount of services. Under the higher emissions proposals inflation would be offset by a higher degree by burning. I don't know exactly how this would effect inflation and price, I guess the only thing that can be stated is that higher predictable inflation also comes with higher unpredictable deflation.

[shishi8565]

I vote for option 1. Makes the most amount of sense if you're holding a LT view.

[Cactii1]

You guys finally decided to go for the kill?

[jagerman]

Let's say by year 3 all other conditions would cause loki to go to $10 (I'm using this because its a nice round number). Proposal 1 year 3 inflation is 6.68% so that would mean loki would be worth $9.33. Proposal 2 year 3 inflation is 12.72% so loki would be worth $8.73. Proposal 3 is 9.09%, price would be $9.09.

Just a clarification: you're conflating coin inflation with price inflation here, but they are two entirely different (and only loosely related) concepts. Basically the only way that the two inflations can be equal is if the market cap of loki is perfectly fixed and that seems hard to believe to me.

I believe that the determinant of Loki's future is far more dependent on building demand for Loki and that, compared to increasing demand, the two supply options being considered here are basically going to be a rounding error.

What it will affect, however, is the number of SNs operating on the network, and I think that is where we should be focusing.

Will 14/block give enough return for the number of SNs we want? Does 28/block? Something in the middle (for example: we could just jump off the block reward formula to a fixed reward of 20 and just remain there forever).

Changing the emission curve is something that should not be undertaken lightly: a lot of decisions have already been made knowing that we have a 28 LOKI tail emission. We've already changed it twice before; both decisions were firmly rooted in the network itself: first that the original curve tail emission could not sustain the SN network; and second that we wanted to avoid a problem caused by the first curve's long run 10k -> 15k ramp-up when introducing infinite staking.

I think if we want to change away from the current emission formula here the decision similarly needs to be based on technical consideration for the network and not solely on the effect such a change would have on the price of LOKI (in part because such a change is nearly impossible to predict).

[trekman7]

+1 for proposal 2 with the ambitious option (decreasing schedule of miner rewards)

[Azazel020]

I would go for option 1 but prefer to have a 45% to the SN's and a 10% to the LOKI Foundation. This 5% extra needs to be taken from the miner rewards so 45% of the rewards will not be created. Dash also works with a 10% and is a good example of how it could work. I think that's necessary to secure future developments.

If we go for that 10% then the LF shouldn't run a ''10% foundation nodes''. Instead of those nodes the foundation should use the Foundation funds to stake on pooled nodes that have a max fee of ….% . This will encourage more people to set-up a node.

Not sure if it fits in this discussion but maybe it's also an option to give the nodes a different reward % based on their geolocation. Not sure if this would be technical possible but it gives the incentive to a SN Operator to use other provides and create diversity in the geolocation of the nodes.

[VINCEG-afk]

I am biased towards option 2. Don't mess around with the social contract. This is the emission which was agreed to and the whole basis for your crypto economics paper. Risk is however economic incentive if LOKI price goes too low and it become not viable to run node. So my suggestion is option 2 with staking requirement increase.

[Lucifer1903]

@jagerman, I agree with everything you wrote but I think you misunderstood my earlier comment (I'm not the best at explaining sometimes)

What I was trying to convey is that coin inflation does have an effect of price inflation, to what extent is debatable but from what I understand higher coin inflation causes more price inflation and lower coin inflation causes less price inflation (though building demand for loki via use cases is going to be the determinant factor of loki's future and price). I main point I was trying to show is that even if lower coin inflation causes less price inflation under proposal 1 the USD profits of service nodes would be lower than the other proposals (and I would think less USD profits = less incentive to run service nodes).

Maybe I am mistaken but I just want to make sure that what I'm saying is understood correctly so that it can also be debated correctly.

I agree with you on everything else you wrote.

[will-miningstore]

I would go for option 1 but prefer to have a 45% to the SN's and a 10% to the LOKI Foundation. This 5% extra needs to be taken from the miner rewards so 45% of the rewards will not be created. Dash also works with a 10% and is a good example of how it could work. I think that's necessary to secure future developments.

If we go for that 10% then the LF shouldn't run a ''10% foundation nodes''. Instead of those nodes the foundation should use the Foundation funds to stake on pooled nodes that have a max fee of ….% . This will encourage more people to set-up a node.

Not sure if it fits in this discussion but maybe it's also an option to give the nodes a different reward % based on their geolocation. Not sure if this would be technical possible but it gives the incentive to a SN Operator to use other provides and create diversity in the geolocation of the nodes.

I think an incentive based on geographic location is paramount, I am not sure how this would be made possible, and I am also not sure what the risks could be in such an incentive, but geographic distribution is paramount to achieve real decentralisation.

One issue I can think of is more instability in the network (nodes opening up and down) as node hosts may chop and change location to chase higher incentive rewards.

I think the incentive would need to be very small, so a new host would benefit from hosting in a "dry geographic location" but an existing host would not be incentivised to move to that location.

[will-miningstore]

After engaging in conversation with Loki Developers @KeeJef and @jagerman, as well as reading the responses above and communicating with the Mining Store community, my opinion is left below.

First of all, I believe eliminating PoW was the right move for the following reasons.

1. PoW was not necessary for the Loki project and therefore it was a waste of developer resources. We have seen Loki change algorithm several times since inception in order to remain ASIC/FPGA resistant, and the hours spent on maintaining an element of the project which I believe is unnecessary was wasteful. Furthermore, the PoW was heavily centralized as 80% of Hash rate was with a couple of mining pools.

2. I agree with @jagerman that this issue is not about changing the emission curve it is about making a change that is best for the "technical consideration for the network".

3. I think option 2 is the best decision moving forward as from my knowledge it does not affect the original emission curve, however, it only affects the incentive model. I believe that adjustment to incentive is positive both for network stability and for price appreciation for the following reasons.

a) A higher reward to service nodes will result in more users wanting to stake on the network and set up nodes. This will reduce the supply further and also increase the node count. Higher node count means a more secure network. B) The reduction in circulating supply will cause increase price, and so to will the demand for Loki, as you need Loki to host nodes.

Option 1 might increase price because of the reduction in rewards, but this is manipulating the original emission curve. It also will not lead to the benefit of increased node count and therefore network security.

I am open to all opinions and I do not think my input is superior to anyone else, I simply have left my input for others to see.

Keep up the good work Loki team!

[smore12]

It seems that tail emmissions would once again be changed if option 1 is chosen.. Price of loki shoud not matter , is there a solution for tail curb emmision for option 1? Changing blocks from 26.6 current to 14.8 seems drastic.

for this reason or until something is brought up to curb the emmissions I vote option 2

[jagerman]

In our case I think there is something to the idea that there is a greater propensity for miners to sell LOKI than stakers: I think that a significant majority of miners are pure profit seekers and dump right away. Sure, there are a few people mining to accumulate the coins, but I don't think they make up a huge share of PoW-derived rewards. People earning rewards from PoS, on the other hand, already have made a committment to the project, already know what it's about, and have already decided to hold some LOKI in it -- and so I think are much more likely that they will hold more of the reward than miners would. Or to be a little more economic-jargony, miners have a much greater marginal propensity to sell rewards than stakers.

Thus I think that if we take 1 LOKI from miners we would expect to see daily LOKI being sold drop by a little less that 1 (say, 0.95 LOKI), but if we turn around and give that 1 LOKI to SN operators/stakers we'd probably see a noticeably smaller increase (say 0.3 LOKI) in amount being sold daily -- and thus I think that even if we went with the full shift in rewards from PoW to PoS (i.e. option 2) we'd still see a reduction in supply (though of course not as large as under option 1) but also an increase in demand.

[Skelaton4]

I would vote for option 2, I am not in favor of changing the emissions curve again.

[GraftSpy]

A couple points that I have not seen raised:

Option 2 dilutes the premine faster than Option 1 (and at approximate the same rate of dilution that currently exists) while increasing Loki-flows to the LF; Option 1 would slow the rate of premine dilution while maintaining Loki-flows to the LF at current levels.

Option 2 would increase the reward for running a SN, which I believe is desirable -- particular if/because node operators will need to increase their VPS capabilities when Lokinet is live.

[Haafingar]

I have a lot to add to this discussion, I am nearly finished with my so far 12 page long diagnostic into this problem...bear with me!

[spacecatpixel]

I am biased towards option 2. Don't mess around with the social contract. This is the emission which was agreed to and the whole basis for your crypto economics paper. Risk is however economic incentive if LOKI price goes too low and it become not viable to run node. So my suggestion is option 2 with staking requirement increase.

Keep in mind that option 1 is the closer option to what was promised to SNs. Option 1 gives SNs the same amount of rewards so removing the mining emission completely results in the initial study still being relevant.

Option 2 in essence bumps the rewards the SN receive and option 1 keeps the rewards the SN receive at the same level as the economic study.

[spacecatpixel]

Every time I think about this problem it seems that both sides have their pro's and cons.

In my mind option 2 seems like the better solution due to:

• Increase of SN count due to the larger circulating supply through time
• Increase in SN count due to the larger reward.
• Dilute premine at the promised rate.
• Foundation reward doesn't change.

My only hesitation with option 2 is the emission rate. I've always thought that if we ever get the chance to reduce the inflation of the coin then we should. Basic supply and demand right.. Decrease inflation/emissions and thus the price increases. This raw statement is true however it neglects a bunch of other relevant information. I think inflation is irrelevant and daily emission schedule is more important and should be looked at.

Our current $USD daily emission is considerably low compared to other coins.

I'm leaning more to option 2 and here is why: Our current $USD daily emission is considerably low compared to other SN coins.

I've collected some data from masternodes.online, masternodes.pro and coingecko.

Note the data shown below is only a snapshot of these cryptocurrencies for the 29/10/19.

Coin	AVG Block Time	Blocks/day	Block Reward	Coin emission/day	Price(USD)	Usd emission/day
Loki	1m 59s	725	28	20300	0.3	$6,090.00
Dash	2m 37s	549	3.11	1707.39	73.49	$125,476.09
Zcoin	5m	288	50	14400	5.02	$72,288.00
NRG	49s	1,741	22.84	39764.44	2.4	$95,434.66
PIVX	58s	1,467	5	7335	0.25	$1,833.75

If option 2 is chosen (the mining reward is given to Service Nodes) then our daily USD emission is only $6,090 which means the price of Loki:

• Could increase 20x before it has the same USD daily emission as Dash.
• Could increase 11x before it has the same USD daily emission as Zcoin.
• Could increase 15x before it has the same USD daily emission as NRG.

In my mind the USD emission/day gives us a loose understanding of the selling pressure a coin will experience. This coupled with the sentiment that Service Node's are less inclined to sell the Loki they receive, we do not have that much to worry when looking at our daily emission.

I've added PIVX to show that this finding may not be true as they have a lower USD emission/day than Loki however they are not increasing in price. I'm under the impression that Loki is more innovative than PIVX and sits within the ballpark of SN coins such as Dash and Zcoin.

TLDR: If our demand is growing quicker than these other coins and our USD emission/day is lower than theirs then I can see our price increasing quickly, regardless if we remove the mining reward or give it to the SN operators.

Therefor my vote goes towards Option 2.

[Haafingar]

I have conducted a comprehensive analysis of our cryptoeconomics and present to the community this paper for discussion, which I will release shorty LokiEmissionsSchemeReview2019.pdf

[Lucifer1903]

@Haafingar interesting analysis. It's a bit confusing how you wrote option 1 as giving the mining reward to service nodes and option 2 as removing the mining rewards completely from emissions, as throughout this discussion they have been the other way around. Though I assume that's why you've removed the link so you can edit this.

Throughout this discussion I've been very much against option 1 (removing mining rewards completely from emissions) and your analysis has strengthened my belief that it's a bad idea.

I am for option 2 (giving mining reward to service nodes) or option 3 (reducing block reward to 20 loki) I used to be leaning towards option 3 however @Sonofotis and @GraftSpy have made some very good points regarding why the block reward should not be reduced so now I am leaning towards option 3. I think discussion should continue and the loki foundation should vote between option 2 (28 loki per block) and option 3 (20 Loki per block).

@Haafingar I would also like to start a discussion regarding what you've said here in your analysis "Even at $2 per Loki, the Foundation reward would barely cover current annualised costs of the project, so I think a deeper conversation about this is worthwhile". As the mining reward is going to be removed, whether emissions are adjusted or not. This is the perfect time to implement the Loki Funding System https://docs.loki.network/Governance/LokiFundingSystem/ 2.5% of the block reward could go to the funding system and while the price of loki isn't high enough for the loki foundation to sustain itself off the 5% governance reward then the loki foundation could submit funding requests through LFS for additional funds.

[Lucifer1903]

I have created a new discussion regarding funding for the Loki foundation which can be found here https://github.com/loki-project/loki-improvement-proposals/issues/13

[GraftSpy]

Another consideration is that increasing node rewards while ridding of other avenues for new coins to come into circulation will increase the exponential rate at which SN operators can grow by reinvesting.

So, for example, if someone has 100 nodes and each node earns 20/loki/day, then they can open a new node approximately once every 10 days. If they keep reinvesting then they will eventually be able to open a new node every 9 days..then every 8 days...and so on.

Higher exponential returns compounds with the fact that there will be no other avenue for new coin introduction, whereas before miners would sell coins (or open nodes themselves), thus diluting node rewards away from reinvesting node operators.

Given these two factors, I think that option 2 will result in greater centralization of node operations, and over time this effect could result in a high degree of centralization. Option 1 would do the same, insofar as the only avenue for new coin introduction is node rewards.

[Haafingar]

I have reuploaded the discussion now that I have had it reviewed again by another team member. Nothing of note has changed, and yes, it is worth noting that the Option 1 and Option 2 in this paper are different to the way they've been discussed here, I've only just noticed that. The reason is because I wanted to go back to first principles and conducted this review without really factoring this discussion in - so just pay that in mind. Maybe we should refer to each option by the resulting block rewards (ie. 15, 20, and 28) LokiEmissionsSchemeReview2019.pdf

[Haafingar]

Also regarding your comments @GraftSpy - we want node operators to restake - We know the current set of operators are likely not malicious, and the longer they keep their Loki off the market, the healthier it is for the network - there's more on this in my paper.

Your argument is the classic 'rich get richer' argument against Proof of Stake, but in actual fact the exact same scenario exists amongst miners, except it has to do with hardware and electricity instead of coins and nodes.

[GraftSpy]

Well, for one it's not an argument -- it's simply an observation. And two, I don't think it's a classic 'rich get richer' observation. Rather, it's an observation that the rich will get richer faster and there will be less of a check on that insofar as there will be only a single way new coins are minted (whereas before there was SN earnings and mining; as discussed miners are more likely to sell). I think it's a worthy of consideration.

But with that said, I am still in favor of giving mining rewards to SN operators. Although, I do think it will lead to lead to greater centralization, faster.

PS: I would challenge your assumption that we know the current set of operators are not malicious; I'm suspicious of KuCoin (China), who has a large portion of current nodes. But I digress.

[pailakapo]

Well, for one it's not an argument -- it's simply an observation. And two, I don't think it's a classic 'rich get richer' observation. Rather, it's an observation that the rich will get richer faster and there will be less of a check on that insofar as there will be only a single way new coins are minted (whereas before there was SN earnings and mining; as discussed miners are more likely to sell). I think it's a worthy of consideration.

But with that said, I am still in favor of giving mining rewards to SN operators. Although, I do think it will lead to lead to greater centralization, faster.

PS: I would challenge your assumption that we know the current set of operators are not malicious; I'm suspicious of KuCoin (China), who has a large portion of current nodes. But I digress.

Does KuCoin operate any nodes? I thought they just contributed.

[GraftSpy]

I suppose that's true -- I don't know if they operate any nodes. Either way, after further consideration, I think the ability to utilize pooled staking to reinvest mitigates much of my concern.

[William-E-Coyote]

@Haafingar, thanks for writing the paper. How much will exit nodes change this dynamic? How many exit nodes are you hoping to have by percentage? Another idea is to set up a LOKI distribution for exit nodes. Say 70% SN, 5% Foundation, 25% Exit nodes.

[CryptoFirefly]

I like the paper tries to keep a lot of the fundamental parameters constant as much as possible, as the economic model does have a large number of moving variables.

• 95% Nodes \ 5% LF (Nice to keep this constant for current change & discussion)
• Max 10% of the Nodes to be staked & run by foundation
• Rewards for Exit Nodes (Excluded from current paper only makes sense)

On the Options, each option actually does change the economics, so both Option 1 and Option 2 while they don't change one element in each, they do effect the economics vastly, so from what i see all the 3 options required the modeling and the thinking.

Option 3, (Eventual 20 Loki emission) is a good balance on inflation and sufficient profitable reward for upto 2000 nodes range in the coming future even at current price of Loki.

A 30% bump-up in rewards for the SNs will help sustain the Node growth at the current pace all through next year and then stabilizing towards end of next year, when the price / burn features would start to take some effect.

+1 for Option 3 (20 Loki block reward tail-emission)

[pailakapo]

I like the paper tries to keep a lot of the fundamental parameters constant as much as possible, as the economic model does have a large number of moving variables.

• Rewards for Exit Nodes (Excluded from current paper only makes sense)

On the dynamic road map on the website, the lokinet mainnet transition is scheduled for EOY 2019, and exit node functionality sometime later.

Originally the back of the napkin proposal was for exit nodes to receive 2x the rewards of non-exit SNs.

If so, and even if the difference is not this drastic, the economic assumptions of this paper for SN ROI are changed as soon as exit nodes are given a reward over and above the regular SN reward, unless the emission schedule is also changed. And this could happen in the next 6-8 months.

[Lucifer1903]

@lewisphil that's a good point.

Am I correct in my understanding that it's not that exit nodes will receive double the reward form the current situation but that non-exit nodes are going to have their reward cut in half?

It would be good if the analysis took into consideration that relay nodes are going to receive half the reward in the future. The current economic analysis only works if we assume all service nodes will be exit nodes and receive the full reward, as opposed to relay nodes that will receive half the reward.

[pailakapo]

I think the current paper deals with the block reward and SN/LF split. Once that is done, the next step would be splitting the SN to non-exit and exit ratio. Twice the current reward is not on the table, one of the options above is the reward.

So if they choose 20 loki / block reward, the exit node reward would be 2/3 of 19 (12.6 loki), and non-exit would receive 1/3 of 19 (6.3 loki).

It would be good if the analysis took into consideration that relay nodes are going to receive half the reward in the future. The current economic analysis only works if we assume all service nodes will be exit nodes and receive the full reward, as opposed to relay nodes that will receive half the reward.

And the ratio of non-exit nodes to exit-nodes is expected to be significant enough that assuming everyone is an exit node is not ideal.

[Lucifer1903]

@lewisphil I think analysis of exit node and non-exit node reward should be done at the same time as block reward analyst.

The analysis is assuming that service nodes will receive a certain amount of loki for a set amount of nodes on the network. If service nodes are going to receive different amounts when exit nodes come online then that makes the current block reward analysis pointlessly as the rewards will be different. Only by considering the differences of exit node and non-exit node rewards into the current block reward analyst can we make an informed decision on what the block reward should be.

[pailakapo]

@lewisphil I think analysis of exit node and non-exit node reward should be done at the same time as block reward analyst.

The analysis is assuming that service nodes will receive a certain amount of loki for a set amount of nodes on the network. If service nodes are going to receive different amounts when exit nodes come online then that makes the current block reward analysis pointlessly as the rewards will be different. Only by considering the differences of exit node and non-exit node rewards into the current block reward analyst can we make an informed decision on what the block reward should be.

I agree, which is why I brought it up. I was just saying what I thought the reasoning was.

[Lucifer1903]

@Haafingar I know you've spent a lot of time working on the analysis, maybe this is a lot to ask but would it be possible to do another one that takes into account the difference in rewards that exit and non-exit nodes will receive instead of basing the analysis on the current situation where there's only one type of service node?

[Haafingar]

I'm afraid it's not really possible to say much about exit nodes at this time. That's at least 6 months away for a start, but the bigger problem is that we just don't have any data on how willing node operators are going to be to run exit nodes. The amount of human work is going to be quite a bit greater than a standard node, as they'll have to be able to deal with requests from.

The issue with exit nodes is that the server providers can shut them down quite quickly, so it may not be advisable to run the entire service node on one machine to avoid getting completely de-registered if the machine running the exit gets forcibly terminated.

I really haven't done enough research into what kind of additional rewards operators would accept for the additional work and costs. The final design for Service Node exit provision hasnt been explored fully yet either, so in my option it is too early to factor in a potential design into this discussion.

I will however say that the original idea of exits receiving double the reward probably wont end up being implemented exactly like that. Assuming that we want a third of nodes to be exits, we'd have to know what reward they'd want in order to correctly carve out a reward for them. Off the top of my head, I'd stipulate that we'd likely want to add an additional stream off the 20 Loki per block we are considering now, but that's a later discussion.

[William-E-Coyote]

@Haafingar You have stated that, "Assuming that we want a third of nodes to be exits..." and " the original idea of exits receiving double the reward..." Therefore one can assume that exit nodes will be receiving approximately 1/2 the emission of all SN.

So here is an idea: Wait until Loki Messenger is up and running as a functional product. Then market the rebrand of LM. Then implement check-pointing and simply turn off mining rewards. No reallocation or increasing of rewards to SN. With a reduced emissions the LOKI price will trend upward. Also at this time increase marketing for the new LM and make sure you state it is based on Loki Net technology. Also state that exit nodes will be active soon. Your marketing will coincide with increasing price of the coin, creating synergy therefore increasing adoption and awareness.

Then, when exit nodes are ready, give the mining rewards, 45% to exit nodes. Many new people will help create the exit node network, further increasing security and decentralizing the network.

[Lucifer1903]

What @William-E-Coyote says sounds like a good idea. It's quite easy to to reduce the emissions but increasing emissions is difficult because of the social contract. If it's clearly stated that mining emissions will temporarily stop and be allocate to exit-nods at a later date that would keep the social contract intact and is probably the most flexible option.

[pailakapo]

@Haafingar You have stated that, "Assuming that we want a third of nodes to be exits..." and " the original idea of exits receiving double the reward..." Therefore one can assume that exit nodes will be receiving approximately 1/2 the emission of all SN.

So here is an idea: Wait until Loki Messenger is up and running as a functional product. Then market the rebrand of LM. Then implement check-pointing and simply turn off mining rewards. No reallocation or increasing of rewards to SN. With a reduced emissions the LOKI price will trend upward. Also at this time increase marketing for the new LM and make sure you state it is based on Loki Net technology. Also state that exit nodes will be active soon. Your marketing will coincide with increasing price of the coin, creating synergy therefore increasing adoption and awareness.

Then, when exit nodes are ready, give the mining rewards, 45% to exit nodes. Many new people will help create the exit node network, further increasing security and decentralizing the network.

I like this.

Even simpler, just assign the miner reward to exit nodes now. There are no valid exit nodes, so nothing now, and when they come online, the economic and social aspects are accounted for.

[Lucifer1903]

Even simpler, just assign the miner reward to exit nodes now. There are no valid exit nodes, so nothing now, and when they come online, the economic and social aspects are accounted for.

I vote for this idea.