Summary
The introduction of a 1.2% tax on all transactions on-chain is in itself an unprecedented action. We can’t count on other projects because such an experience doesn’t exist. Now, we can confidently state that the tax introduction, as expected, has led to significant drop in amount of chain transactions. The drop itself requires to take retaliatory measures.
Motivation
At the moment, we can highlight just two main directions of on-chain transactions because of insufficiently branched blockchain infrastructure:
- Movements of funds from CEXs to cold wallets to provide security;
- Movements of funds from CEXs to the staking pool for profit-making purposes.
For most investors, the imposition of a 1.2% tax is enough reason to neglect security and keep funds in hot wallets of CEXs. Unfortunately we can’t help it. Another issue is staking conditions with which we can and should work.
The undelegation period in usual conditions (free from taxes) serves as a deterrent to keep a considerable amount of coins out of the market. In our case, the tax itself acts as a deterrent, but a long undelegation period prevents the inflow of a significant amount of funds from short-term investors into the staking pool from CEXs, and therefore, prevents efficient burning.
Understanding the psychology of the market, we can suggest that during FOMO period, a significant amount of funds from casual and short-term investors will flow from hot wallets of CEXs into the staking pool. During panic sale period we will observe the reverse situation. This will result in an increase in volatility, but in the first and second cases we will get a massive surge in the volume of transactions and an increased amount of burned coins accordingly. In the future, the rate of burning itself will be a factor that reduces volatility and the system will be finally compensated.
In addition to this, the circulation of coins in the staking pool leads:
- Firstly, to an overall healthier on-chain;
- Secondly, to a more natural distribution of coins between validators;
- Finally, to a greater decentralization.
At the moment, this is as important as reducing the emission amount.
I understand that the proposed solution is non-standard but the situation we are in is also non-standard. We will not be able to achieve a significant reduction in emissions without taking radical steps.
Proposal
To cancell or reduce the undelegation period as much as possible.