Hey Kappy,
Thanks a lot for your proposal.
In the following I want to lay out the joint opinion formed by the TangleSwap crew after having quite a few intense sessions & discussions on the matter.
We fundamentally share the sentiments laid out above: IOTA and by extension Shimmer are late to the Layer 1 Wars and thus have to find other paths & outlets of making up for this.
The root cause of the above-mentioned issue is — quite ironically — that IOTA was a front-mover and very early in establishing a proper governance structure by setting up a German non-profit foundation in 2017 and seeking — in hindsight — only a very moderate amount of funding by way of community donation. Had IOTA, with its very bold & ground-breaking ambitions, launched with a different timing, the funding opportunities available to the IOTA Foundation and by extension the ecosystem might look completely different.
That being said, no matter the outcome of this battle the war is far from lost. The technology currently being spearheaded by the dedicated members of the IF has the potential to fundamentally alter the way the mainstream uses and views cryptocurrencies and distributed ledger technologies. Those who recognize this form part of the ever-growing IOTA ecosystem & community. The above is why we are here, why TangleSwap & many other applications are being built on top of IOTA and why — ultimately — you are taking the time to read this right now*.
With that in mind, we would like to highlight one last fact before delving into the pros & cons of this proposal. As we laid out above, we have seen that being a little late to the party can counter-intuitively pay off in the end: let’s prove it was actually the other Layer 1s that were too early and raise the bar for an all-new level of funding & ecosystem involvement.
The groundwork for that is being laid by the IF as we speak. It remains on us, the builders, the community as a whole and each one of us individually to determine how to best use this groundwork and leverage it to become the leading Layer 1 platform in the crypto space.
Besides letting the tech speak for itself — which it will — we wholeheartedly concur that we need more efforts allowing us to give a proper kickstart to the ecosystem. The way we see it, the IF is currently building one hell of a rocket. What is very much needed is a sufficient amount of fuel to get this IOTA rocket into orbit. From there, we have no doubts about that, this thing will fly itself! 
While we are going to take a closer look at your proposal, Kappy, in the following, we feel the devil does actually not lie in the details, at least not at this stage of your community proposal. Let us instead focus on coming to a common understanding as a community on whether to go through with this at all or not.
The gist of the governance proposal laid out above is an increase of the Shimmer token supply in favor of increasing the amount of funding options available to the ecosystem. The suggested supply increase is 20 %.
Let’s take a look at the apparent downsides of this proposal first.
The Cons
A supply increase will result in a corresponding dilution of current (rather: soon-to-be current) SMR holders. Everyone’s tokens will — ceteris paribus — lose 20 % in value. This might be particularly detrimental to those who specifically bought IOTA tokens under the promise of a certain value proposition, which included a certain supply.
While an argument can be made that not all IOTA were staked during the relevant 90-day period and as such the total SMR supply is not as high as it could have been, the point stands: an increase of the token supply now could be seen as a direct contradiction to the “ground-rules” laid out before the staking period and as such an affront to those who were counting on these rules being respected. This leads to a second downside, which has already found itself voiced by many concerned individuals within the community: a decrease of trust in the IF, the community or whomever ultimately responsible for breaking the perceived rules of the game.
Lastly, and we believe this to also be a valid point of view, the question arose of why we need a “semi-centralized” entity to take on the ecosystem funding when the community participants might very well themselves be able to use their SMR to fund and support up-and-coming dApps, content creators or other projects. This way, after all, everyone is free to make their own decisions by using their own tokens to fund projects based on their own evaluation and criteria. Is this not equal or even better than the proposal laid out above?
The Pros
Not necessarily! There are several advantages that come with the proposed token supply increase.
Firstly, there is an argument to be made that there are a significant number of investments that individual members of the IOTA community might not be able or willing to undertake, allowing for a more formal and in that regard — centralized — committee, legal entity or DAO to fill that void. This not only includes seed and pre-seed funding rounds of promising projects that have yet to demonstrate their full potential to the broader community, but holds especially true for “common goods” within our ecosystem that might not directly appeal to individual investors.
An even more important factor might be the amount of value derived from effects that go beyond the actual funds provided by the supply increase. These are most notably marketing and network effects from launching ecosystem-wide funding initiatives and campaigns. “Lots of individuals on IOTA looking to invest” is simply not bound to make Coinmarketcap’s headline of the day.
Lastly, and this might seem trivial but should be carefully considered as a strong indicator for this proposal: we have seen such moves work for other protocols. As such, they have not only become a de-facto necessity in trying to keep up with an enormous amount of capital that other ecosystems can provide, but they also show a great amount of promise based on the perception and actual results observable in other ecosystems.
Our Opinion
Ultimately, everything boils down to this one question: do the benefits derived from the supply increase outweigh the downsides?
Considering everything laid out above, we think they do, which is why we are in favor of the SMR supply increase. Nonetheless, we are also very aware that a relevant number of community members do not share our final verdict on the matter.
We feel very strongly that what we cannot afford at this crucial moment is a proposal that splits the community. Being able to rely on a large, vibrant and loyal community such as IOTA’s comes with an immense amount of inherent trust and a responsibility to uphold that trust above all else. As such, we believe a solution must be found that can unite those in favor and those to whom the downsides currently outweigh the benefits.
As the biggest perceived downsides of the proposal are the effects of the dilution of individual SMR holders, we believe we must find a solution that can eliminate or at least highly mitigate these direct economic consequences to SMR holders.
We believe to have found such a solution, at least on a high level. The details remain to be discussed and worked out by all of us.
The TangleSwap Proposal
Let’s go through with the supply increase and let’s keep it at 20 %. We believe this number set forth by Kappy above represents a middle ground of allowing for relevant funding opportunities while keeping dilution at a reasonable level.
While we truly believe the benefits brought to the ecosystem through this proposal will indirectly make up for the downsides, we believe a direct value proposition to SMR holders voting on this proposal is further needed to onboard even those sceptical of the supply increase. We propose this direct value proposition to be a prevalent (i.e. applicable to the very majority of cases) funding mechanism that directly benefits SMR holders by requiring projects incubated by this funding to airdrop a certain amount of their token supply to SMR holders. The relative amount of tokens to be airdropped could be tied to the (relative) amount of funding supplied by funds derived from the SMR supply increase.
An additional cherry on top from a game-theoretical perspective could be rewarding only those SMR holders via airdrops that voted in favor of this governance proposal. Whether this would be an optimal approach from a long-term perspective would remain to be discussed though, as there are valid arguments to be made against tying these airdrops to SMR held at the vote and what was voted. This is — by all means — not a necessity within our proposal.
We are more than interested to hear everyone’s thoughts on the matter and on our proposal. We sincerely hope this proposal might be able to convince even the remaining sceptics, while keeping all the benefits of the original idea. Only united can we — the IOTA Community — emerge even stronger from this.
It has become apparent that one thing is as true for DLTs as it is to maintain our healthy and vibrant community for a long, long time to come: We need consensus.