New Economic Policy for Terra Classic: Set of 4 Proposals to Align Incentives

Governance & Proposals
1

Summary

The following is not a single proposal but rather a series of 4 proposals for better economic alignment for Terra Classic. The aim of these proposals are:

  1. To increase demand via staking by enhancing staking rewards
  2. To increase developer funding by increasing community pool funding
  3. To decrease supply by increasing burns
  4. To increase chain utility and volume by whitelisting smart contracts

1. Increasing Demand via staking by enhancing staking rewards

v1.1.0 modified the burn AnteHandler to split the Burn tax to the Community Pool. Rather than this, I propose to modify the burn AnteHandler to split the Burn tax to the Distribution Module instead.

Why? Because the distribution module already splits 50% of the proceeds with the CP. By splitting the burn tax with the distribution module instead of the CP, stakers also stand to benefit, thus creating a broader alignment with the community and increasing demand for staking and for LUNC.

This has already been discussed here:

Signaling Proposals around 3 Optional Features in the next release - #8 by dfunk

and here:

[CODE v1.1.0] Optional Feature # 3 - Burn Tax Split to Community Pool - #4 by dfunk

A signalling proposal to include this feature in the next release by L1TF will be raised on station.

2. Increasing developer funding by increasing community pool funding

The above proposal will likely impact developer funding since it will reduce the funds going to the community pool. In order to compensate for this, I propose to modify the Burn Tax AnteHandler split from 90/10 to 80/20.

This shall be raised as a parameter change proposal on station.

3. Decreasing supply by increasing burns

As we focus on increasing LUNC demand via staking, we also need to focus on reducing LUNC supply via burn tax. As a result, I propose to increase the burn tax to 0.5%.

Why 0.5%? Burn Tax is a form of Currency Transaction Taxes such as Tobin Tax. While financial transaction tax rates of the magnitude of 0.1%-1% have been proposed by normative economists, James Tobin himself had suggested a rate of 0.5% in an interview.

This shall be raised as a parameter change proposal on station.

Note: The burn tax has been repurposed from Tobin tax and so apart from increasing the rate to 0.5%, I would also like to recommend to change the name of Burn Tax to Tobin Tax.

4. Increasing chain utility and volume by whitelisting smart contracts

Increasing the Burn Tax is likely to cause a drop in volume and usage of dapps such as DEXes. In order to compensate for this, I propose to whitelist dapp contracts, such as Terraswap and Astroport from Burn Taxes.

This has been discussed in detail here:

[Proposal] Exclude Smart Contraction Transactions from the scope of Burn Tax

This should counter any negative effects of increasing the burn tax.

A signalling proposal to include this feature in the next release will be raised on station.

Note: All 4 proposals will be created separately and shall be voted upon separately.

Feedback is welcome.

17 Likes
2

YES to all these proposals. Great work and some good progress for LUNC.

8 Likes
3

Suprise suprise

2 Likes
4

Oh no, taxheads again. Tax idea failed right after CEXes didn’t support it. God, I hate memecoiners.

3 Likes
5

I agree with No. 4 but for No. 4, you will need to implement the other 3. And the other 3 has to deal with changing the tax calculation once again. I won’t ask for the calculation to prove that this is gonna work cause I remember what happened last time. The question rather is, why do you think this restructuring is required? How much money is flowing into the community pool currently?

P.S. Are you Sneedpiled? :slightly_smiling_face:

1 Like
6

The restructuring, as mentioned earlier, is required to better align incentives between stakers, devs, holders and dapps - there is room for improvement in the existing incentive structure, which is what these proposals aim to bring.

4 Likes
7

Could you talk to the developers and get some ideas? Could you include the developers that we want to come on the chain and ask for their comments? Share those comments with us and the community will say yes if it’s something the developers actually support. Otherwise, we cannot support the developers and anything that we think will reduce the volume.

@JESUSisLORD is persistently trying to increase this tax increase by buying and selling. The chain isn’t just about buying and selling something, you know that.

8

Thanks for your feedback. Like previously mentioned, the 4 proposals will be put up separately - if you are not in agreement with one of them you can always vote against it.

All 4 proposals aim to solve fundamental issues and align the community without being detrimental to any.

4 Likes
9

We have serious concerns about point 3 and I think the only solution is to consult the developers. I hope you will take an initiative in this regard and we can get rid of these worries. It would be an initiative that allows us to show developers we care, and we want to keep the chain attractive to them.

Thank you for your effort and vision.

1 Like
10

Point No.3 has been addressed by Point No.4

Terraswap devs have also commented on the following thread: [Proposal] Exclude Smart Contraction Transactions from the scope of Burn Tax - #69 by terraswap_io

Also for your knowledge, staking remains the #1 activity on-chain which is tax exempt so raising tax will not impact ~97% of the on-chain volume.

4 Likes
12

thanks @dfunk I can say yes because I find your explanations useful in theory. I think you will work on the proposal for a while and I answer all your suggestions with a yes vote. Taxation has become a very sensitive issue. We are worried about losing our supporters or rendering the chain unusable. I can see that you are aware of this. Good work

2 Likes
14

@dfunk

I think it is to soon for number 3 and 4. Terraport is going live in 12 days and this is dapp which is expected to drive volume and burn up. If there is a whitelist for Terraswaps and Astroport others will want the same.

I’m not saying that I don’t agree with all 4 proposals, but I think it might be worth waiting another month with them?

2 Likes
15

This is not guaranteed. At the end of the day, it is a DEX that has way less liquidity than uniswap or pancakeswap. The DEX is only as good as the userbase. If nobody uses it, then there is no volume.

6 Likes
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Well what do we actually risk if we wait to see what will happen? It is highly anticipated project in community. So maybe user base will be there.

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Thanks for your feedback @Jetam

Yes I don’t see the risk in waiting but I definitely see the risk in waiting too long. A couple of weeks from now is fine.

However, we can’t pin our entire hopes on a single entity - be it Terraport or Binance. We need to fix some fundamental issues and find ways to support all entities collaborating with Terra Classic. As per my proposals, Terraport would be exempt from taxes which will help them get more volume that would generate more gas fees and so benefit the ecosystem as a whole.

5 Likes
18

On point number 2 i don’t see the need of increasing that amount , assuming that the tax increases 10% will be more than enough.i believe.that bieng said ,well done mate.

3 Likes
19

Hi and thank you for your work. Can I ask you why you feel it is important to increase staking rewards? I look at all the crypto staking I do and - nobody except for LUNC offers me rewards at this level. LUNC leads by a huge margin too. I cannot find anyplace I could stake and get more returns. It is likely the best reason for holding LUNC. I could not agree more that we need to increase chain utility which would in turn increase burns. I believe all efforts should be there. Thanks in advance.

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How can we get the community to realize that we need to increase the burn tax? Validators are not supporting it. A number of them are sitting on the fence.

2 Likes
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We can’t because it’s not the way to go

1 Like
22

No one can accept an unreasonable and hypothetical increase. You should be able to answer the question why. It seems quite reasonable to me to read this discussion. Yes, we can provide this increase. Why should we increase it and what kind of effects (positive/negative) explanations are sufficient, but I think it will be detailed.

No one will accept a ridiculous and complicated offer like @JESUSisLORD . I think it’s a reasonable offer. @dfunk congratulations

2 Likes