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What's the actual inflation rate?


brianwalden
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Flare and Songbird have 10% inflation per year to pay for the FTSO rewards, but that's calculated based on the total supply, much of which isn't in circulation.

I'm no economist, but those rewards are all pouring into the circulating supply. So I think to get a good estimate of inflation you need to calculate it as a percent of the circulating supply.

I think the formula should be something like:

Inflation rate = [(circulating supply at end of period) - (circulating supply at start of period)] / (circulating supply at start of period)

Anyone have any estimates for good numbers to plug in there? Is there a better formula to use?

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13 hours ago, brianwalden said:

Flare and Songbird have 10% inflation per year to pay for the FTSO rewards, but that's calculated based on the total supply, much of which isn't in circulation.

I'm no economist, but those rewards are all pouring into the circulating supply. So I think to get a good estimate of inflation you need to calculate it as a percent of the circulating supply.

I think the formula should be something like:

Inflation rate = [(circulating supply at end of period) - (circulating supply at start of period)] / (circulating supply at start of period)

Anyone have any estimates for good numbers to plug in there? Is there a better formula to use?


I don’t care about those numbers or formulas because they are all irrelevant.  The ONLY thing that matters is the sentiment.

 

If the economic formulas had effect in the crypto world then when Stellar burned half its supply the price would have reacted.  Instead because sentiment was uninterested,  it just had a tiny momentary effect immediately undone.

I would go further and say that the only time the economic formulas have any sway at all is when they affect the sentiment which they sometimes do….  so underlying inflation MAY affect SGB price at some point but ONLY if the market gets excited or upset about it.

 

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5 hours ago, BillyOckham said:

I don’t care about those numbers or formulas because they are all irrelevant.  The ONLY thing that matters is the sentiment.

Disagree with this. To an extent the supply matters. We know this because large cap coins trade at fractions of a penny while 10k cap coins trade at 30k dollars. The amount of tokens in circulation is having an effect, even though I grant you we would barely notice the difference when talking about a few million here or there out of a cap of billions. I agree sentiment matters more and ultimately the appreciation or not of the token will have relatively little to do with the overall inflation. 

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46 minutes ago, Seoulite said:

Disagree with this. To an extent the supply matters. We know this because large cap coins trade at fractions of a penny while 10k cap coins trade at 30k dollars.

In my view,  although you are correct that there is a market cap/price correlation,  the reason for it is purely sentiment.  The belief it should be so makes it so.

The proof for this was that XLM burn.  If there truly was a invisible hand economic relationship between market cap and price, then halving it in one fell swoop could NOT have had NO effect.  But it did.

So yeah, I understand that this inverse relation exists,  but it is purely a consequence of sentiment and belief,   not real economic factors.

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3 hours ago, BillyOckham said:

In my view,  although you are correct that there is a market cap/price correlation,  the reason for it is purely sentiment.  The belief it should be so makes it so.

The proof for this was that XLM burn.  If there truly was a invisible hand economic relationship between market cap and price, then halving it in one fell swoop could NOT have had NO effect.  But it did.

So yeah, I understand that this inverse relation exists,  but it is purely a consequence of sentiment and belief,   not real economic factors.

But this distinction between circulating and non-circulating supply is exactly what I'm trying to make. The XLM burn had little effect because they burned the non-circulating supply. If they had bought up half the circulating supply and burned it, it would have had a big effect.

Songbird and Flare both mint 10% of the total supply every year and dump that into the circulating supply through the FTSO rewards system. My theory is that this will have a larger effect precisely because it's going into the circulating supply rather than the non-circulating supply in Flare's reserves or something like that.

The FTSO rewards cut both ways. They set a baseline passive income rate for the network. Whatever people can earn just by voting, other apps need to offer higher returns than that to get them to switch. At the same time it also creates an inflation rate that you have to earn each year just to tread water; that is, if you want to keep pace with other SGB/FLR holders. As long as the price keeps going up, some people may not care that their wealth is dropping compared to holders who vote.

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9 minutes ago, brianwalden said:

If they had bought up half the circulating supply and burned it, it would have had a big effect.


Oh yes a BUY and burn would have an effect.  But I think a burn of half the existing circulating supply would have the same effect as XLM had.  None.   UNLESS the market got excited about it.

Having said that,  the market is a skittish and excitable beast, and if marketed right,  that burn could send it on a run.  Certainly Stellar thought they could do that.  They failed.  In your theory…  because it wasn’t ‘circulating’ supply.

But that’s a very amorphous concept.

If they burned coins held by a large whale that weren’t moving anyway….  what is the mechanics of the effect.  None.  That creates no pressure in any direction.  Unless the market sentiment is that it will raise price, then,  it perhaps will.

‘Circulating supply’ when large blocks are held unmoving by whales, is not really circulating.  It’s as likely as not for those coins to move as for the uncirculated ones to come onto the market.  The distinction is fine and mostly a perception.

The fact is that the price is moved by the invisible hand and that hand ONLY responds to sentiment.  So if the bulk of the market are like me and unmoved,  then nothing happens to price.  On the other hand if the conventional wisdom is that it will rise after the burn then there is a chance it does.  
 

Of course, as we have seen many times, it could also confound expectations and collapse.  :) 
 

But none of its behaviour is because of economic laws…. it’s all because of sentiment.


To bring this back to Songbird and FTSO….    the only effect the rewards will have, in my opinion, is increase the desire to hold the coin,  which will tend to support the price.  
 

I just don’t see anyone other that policy wonks (like us?) who care about these fine distinctions of supply enough to affect what they will pay for the token.

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I should add that there are also ‘non sentiment’ forces on price…. bots, shorts, flash crashes by liquidation….  but these also track back, at their base, to the sentiment of those who put the automations in place.

 

Just wanted to cover that base.   :) 

 

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