[Discussion] Proposal to Increase the Shimmer supply for a Community Treasury

Nice proposal, well-supported. Can’t give a personal verdict yet but looks good tbh. Ecosystem needs some boosting and this is definitely one way to accomplish that.

I sympathise with your proposal and yes increasing the supply by 20% can help to boost.
the quality and amount of impacts needed. But which entity guards, decides and controls the
process . You gave some first thoughts on connceting it to the Swiss EDF but it to me would need and own independent legal entity and clear definete rules to operate and decide a DAO alone is legally
not capable to act accordingly. This needs to be discussed and solved beforehand.

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! :blush:

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.

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In order to make a good assesment, I think we need to know something essential from the IF. Why does IF had not organized the token supply like that in the beggining? I could not imagine they did not thought about it so there is for sure some reasons they did not went that way. Perhaps those reasons remain fully valid. Please IF let us know in order to help the discussion

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As much as the proposal might hold merit, i do not believe that changing the SMR amount is a good idea, for the reason that it opens the door for SMR amount changes at any point in time and proposals to change the inflation rate at any point in time. Why would this proposal be the last proposal that should be taken under review. It means that i as an investor cannot be certain of fundamentals of the investment. I agree it might be a missed opportunity, and a 20% additional stack as a development fund might be beneficial (though the selling of the allotted funds will drive the price down). It also means that the trustworthiness of token creators is reduced. This weighs heavier then the missed opportunity in my opinion. There must be other ways then increasing the supply to form a community treasury.

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Thanks for bringing this up. Very important to talk about and excellent ideas from everyone.

A possible solution is having two entities, a centralized body which is transparent has strict criteria to access and is overseen by a legal body. This entity is essentially a grant system and can be accessed by bigger players who are going to build/ significantly value add to the space, as well as go through the slower/ longer & more arduous but important grant application process essentially like any government grant you go for.

Another entity is community driven and essentially acts as an opt in (see tangleswap proposal) where the people who opt in to the DAO, donate some of their shimmer and are rewarded in kind with airdops/ token access as well as a vote in who gets access to the treasury.

One issue which needs to be kept in mind with onboarding particularly quickly is that if it is performed poorly and the funds are spent without good forethought you will end with the typical crypto boom bust cycle. A whole heap of hype with limited infrastructure because you are throwing tokens at people to onboard them will likely be worse for the platform than slow organic growth.

Another factor to consider, is it is important to onboard developers but it is equally important to onboard users (obvious I know) but if you get a whole heap of builders with no end users both will die off.

Better to build something that works, let there be natural ecosystem growth and let the platform gain some momentum on its own. Bigger players who need access to funding can go through a grants process and the smaller teams can go through the community DAO.

If the IOTA tech is as good as I believe it to be people will onboard themselves.

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I’m strongly in favor of the TangleSwap version of Kappy’s proposal. But I worry that if it passes a vote, that those who voted against it will feel cheated, or lose trust, or simply feel like the community is leaving them out.

How can we make sure the community stays together and stays strong?

What about a game theory style adjustment to the TangleSwap community airdrops proposal that somewhat compensates the No voters if they lose? A 20% bonus multiplier on the airdrops. So if the community is getting Y, No voters would get 1.2×Y.

How might this affect the vote?

Pros:

If it passes it will have been passed by those who are enthusiastic enough about it to forego voting no just to get a possible boost.
Since fence-sitting voters would be more likely to chance the No vote hoping for the 20% boost, if the vote does pass it means it passed with a strong community mandate.

If it passes then those who voted No will receive some compensation from the rest of the community.

No voters would also understand that the community cared enough to do that, and hopefully that kind of good will is especially meaningful. It builds trust and inclusion even through disagreement.

No voters might also feel better knowing it wasn’t a close vote determined by casual voters going along with the crowd or uncommited voters selfishly looking for airdrops. Since those categories of voters would more likely vote No while hoping Yes in order to get the boost.

Cons:

It’s harder to implement.

There’s another layer of stuff to agree on, like the boost amount.

If you’re for the idea this makes it harder to pass the vote as there is an incentive to vote No while hoping Yes.

People committed to the proposal get less rewards than people who didn’t want it. (Although maybe that shows they’re more committed to the Community and so many would be OK with that?)

The boost would probably have to have some kind of time limit agreed upon and implemented. For the first 2 years maybe?

This approach isn’t something I’m strongly pitching here. But it seemed interesting enough to think about and maybe worth more discussion?

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Typically, if someone were to start a project, they would mint their tokens and launch a presale to raise funds. Then they would use part of the funds to fund their operations and put a part of it in the liquidity pool. As project makes money, they will distribute part of the profits to token holders and use the remaining to grow and create more employment.
Why do IF need more Shimmer for this?

Moreover if this proposal gets approved, who will decide which projects to fund?

I would not like IF to decide these things. I would like the projects seeking funding to guarantee that they will create a certain number of jobs for community members.

One problem I see is people will buy the tokens which secure funding. This may reduce interest in other projects.

I want IF to stop interfering. Shimmer was supposed to be up to the community and now already IF are asking for tokens so they can selectively support certain projects. Reject this!

IF quit Shimmer. Go away!

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Make a second vote, after the buidl one: buy with those 50Ti (or half) 10% extra supply of shimmer token.
At 25 Mio$ would mean 250 mio $ valuation for shimmer to start with. From community treasury to community treasury

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Total Shimmer Ecosystem Growth Fund - Insead of changing supply after the supply has already been set, what about an option where we can choose to reinvest or stake 20%, 25% or some maximum amount of our initial Shimmer tokens back into the ecosystem. Those reinvestors could be paid via the TangleSwap proposal of earning individual airdrop tokens from the projects that grow out of it, or maybe that whole reinvestment could be treated like a stock Total Market Index Fund where investors are paid back in Shimmer tokens based on the profitability of a large segment of businesses that grow out of that fund. Many of those new projects will never make it, maybe even most of them but for the few that do make it and hit it big, they should pay well. The expectation is the payoff will be passive and consistently growing overtime. The growth could continue to compound if the projects repay the fund and investors and the replenishment of the fund is available to reinvest in more new projects over time. The fund could be a significant source of liquidity for new projects and it may double dip on the profits of those projects by being an initial investor with the expectation that the Shimmer provided would be paid back with interest over time as well as the expectation that tokens or other assets/income created by the new projects could be distributed to the fund investors

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I don’t believe in centralising a treasury or increasing the supply of the shimmer token. I believe establishing lending hubs driven by the community for new projects. You want more shimmer for your projects? You will need to convince the IOTA community that you are worth it.

All projects that grow quickly will fall as fast, and I believe we should’t let greed drive our community.
Let us grow slowly so we acquire stability and make the iota community great.

Though as proposal I would love to have system where we could hinder our networks getting flooded with trash projects and rugs as seen on Soonverse and other networks, it is like looking for diamonds in
a dumpster. We should protect our users from this and create a great user experience with IOTA.

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Three points from me:

  1. Web3 is all also about assuming responsibility by taking back some kind of power from centralised platforms and cloudproviders and managing it oneself.

  2. Although strong communities are important, they also tend to become kind of centralised since they need strong leaders in order to be able to get the majority on board and to act quickly (espescially in web3 market environments).

  3. The true advancements in human history have taken place due to splitting up of communities, allowing the groups to develop differently but also to compete against each other.

I therefor conclude that A) we do not need consensus in this matter and that B) angel investors or groups should compete to fund the best projects.

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Instead of increasing the Shimmer supply, I would recommend running the community similar to a traditional capital market. If someone wants investment to build on Shimmer, give them a platform to pitch the idea and sell shares to the community. This way projects will have to compete for funding and there is less risk of wasting funds on a project that will never be completed. It shouldn’t be up to the IF to verify the credibility of Shimmer projects.

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Shimmer does need to remain a viable testbed for IOTA. That’s it’s number one job for awhile.

IF is part of the community, no?

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But selling “shares” = Selling securities. You can’t just go doing that wherever you like.

But a DAO can fund an ongoing project(s) , pay for hours or for a result, have bounties, share profits and ownership, etc. Probably is easier to register a couple big DAOs as LLCs (or equiv) than to have every project trying to sell its own securities?

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First of all I want to thank all of you for these in depth contributions.

While this proposal is very smart, I’ve the feeling that people forget that Shimmer is going to be an extensive testnet for IOTA. Yes I know, we are all impatient and want to use the new features as soon as possible. Also I’m aware that Shimmer is a “staging network”. But please, let’s recognize the fact that new features are going to be tested on Shimmer for a couple of months before arriving on IOTA mainnet. This is true for Stardust, Coordicide and Shading in the future.

So know imagine we hand out a lot of incentives and lots of people start building on / porting to Shimmer, totally unaware that the network might still have some issues. Eventually a bug might appear and the network together with it’s TVL serious crashes. This would be a horrible incident for IOTAs reputation and it would rather scare developers away then attracting them.

The corresponding IOTA mainnet upgrades will follow shortly after they have been properly tested on Shimmer. I’m sure we can wait just another 3 months for the mainnet upgrade. Furthermore this time isn’t lost at all as everyone interested can profoundly test their product on Shimmer for a couple of months before launching on IOTA. Basically what would happen if TVL in Shimmer is too high we would need a staging net / testnet for Shimmer itself.

This is why I’m against the proposal. Better use the (short) time before the mainnet upgrade to beta your project and then fully focus on IOTA.

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yes - i think there is no reason to panic. the late guests coming to a party are the best ones…

Personally, I’m in favor of the proposal. The way I see it, if you are going to vote ‘build’ in the upcoming treasury vote, you would naturally vote to increase the shimmer supply to build as well. Both votes come down to vision: either you are primarily concerned with the potential of short term gains or you take the longer term view with a much higher potential reward. That being said, I know it can be frustrating when plans change and expectations must be revised.

Perhaps if we use the extra 20% to give preferential funding to projects that pledge to repay the community when successful it will be more palatable.

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Shimmer´s value is yet to be gained …please keep in mind that Shimmernet´s main goal is to battle-test innovations before deploying them in IOTA 2.0, therefore some disasters are to be expected. That´s why Shimmer token was distributed as “free money”. I think nobody should expect to collect financial gains directly with Shimmer token, mainly developers that would dedicate long hours of work. If anything wants to test its success on Shimmer network it shall be mounted and tested the same as any other application on Shimmer. The Community Treasury shall be a DAO with its own token. Pushing “start” in the money-making machine button is an element always present in crypto project death spirals, lets not do that with Shimmer.

What I don’t get with this funding proposal, is why do we need it in the first place. You compare Shimmer, which is supposed to be a staging network to upgrade iota, to definitive L1 networks. Is there on top of the money raised for the projects you quote a comparable amount raised to build on solana’s, fantom’s or Avalanche’s testnets ? I believe not.

As I understood it, there’s already a 100M$ fund that has been raised for assembly : shouldn’t that contribute to fund dapps that want to launch on the broad iota ecosystem ? And what about the unclaimed Iota’s that could be voted for Buidl in a treasury fund ?

As a iota holder, I’m not aiming at shimmer’s growth for its own sake, I want shimmer’s success to fuel iota’s. So to recap, how do I view funding for projects on shimmer :

  • the end goal should be a release of said project on iota. Releasing an early version on shimmer should be seen as a natural step before launching on iota mainnet and not an end on itself. So if the project enventually aims at releasing something on iota, it can naturally tap its funding from iota’s buidl treasury (that I will vote in favour) or assembly’s funding fund. If the projects uses smart contracts, it will most probably run on assembly, so that makes perfect sense.
  • if it needs additional funding, it can procede as many other great projects did : look at soonlabs, lendexe, tangleswap, tanglelabs, tangle pay, etc…
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