On the 8th of May EOS Block Producers burnt 34,171,037 EOS tokens collected in the eosio.saving account. Those tokens have been flowing in the account since genesis and they come from a 4% annual inflation. Although EOS in the savings have now been burnt, the inflation remains unchanged and the pot is filling up again.

Burn eosio.saving Account

EOS has been created with 5% annual token inflation of which 1% goes to BPs to pay for their services and 4% goes to the eosio.saving account which has been thought of as a fund for the Worker Proposal System (WPS). From the moment the savings account grew into a substantial number of tokens and no viable WPS system was in place, Daniel Larimer and Brendan Blumer came up with the idea to burn them.

The community interpreted the reasons for that idea in different ways, but the fear of corruption or bad actors putting their hands on the honey pot seemed the prevailing ones. A few months later the referendum proposing the savings burn has been deployed, as it got an overwhelming support of its participants.

On the 22nd of April, EOS Nation made the burn proposal which required the acceptance of 15/21 BPs.

Daniel Larimer himself came to Telegram in support of the proposal by saying:

I’d strongly recommend disabling 4% and burning savings. Only increase inflation if cost of being a bp increase.”

After that BPs performed the burn but left the inflation rate unchanged. The pot is now filling up again despite the majority of the referendum proposal for this specific argument voted for it to be lowered to 1%. But why does the community want lower inflation and how should we solve the issue of aligning the interests of network participants?

What to do with EOS Inflation Rate

The arguments for lowering inflation to 1% are the following:

  • Inflation rate should be agreed by the community in a referendum process
  • Inflation is diluting token value
  • Until there is no real demand for token inflation should stay low
  • The inflation concentrates in the hands of the whales
  • There’s no viable way of deploying WPS

The arguments for 5% inflation

  • Accumulated inflation can be used for WPS
  • The 1% inflation should be balanced with inflation coming from another source like WPS for example
  • Inflation increases money velocity

The argument against inflation going solely to BPs is that it is very unhealthy long term as BPs are those who receive the new tokens while all other network participants are excluded from it. What’s more that 1% goes mainly to top BPs which further exacerbates the distance from lower rank BPs contributing to network centralization in the hand of few strong BPs.

Scott Sallinen from Greymass BP said that it could take just five months from now until we’ll see a centralized EOS. I recommend viewing this video by EOS Radio Weekly  for a better understanding of the inflation situation on EOS.

Sallinen argued that EOS needs another force to contrast the 1% inflation and it should go to a different kind of network participants. In his view, this is what was the role of the WPS, but the token holders are the obvious choice.

How EOSIO Chains Deal with Inflation

Other EOSIO chains like Telos, BOS, Meet.one and EOS Force provide us some valuable information with regards to the inflation system.

Meet.one adopts 0% inflation model and BPs are being paid from allocated funds.

BOS has been built with 100 million BOS being directly allocated for dapp development and BOS has paid members to manage the fund and projects. EOS came with no one.

Telos is the closest to EOS in terms of the governance. There are many differences between the two chains but the WPS idea as well as the arbitration forum which, until few weeks back was present also on EOS, are what interests us to evaluate the use of inflation. Telos has 3% annual inflation which will decline to 2,5%. 1% of this inflation goes to BPs and 1,5% goes to the WPS. There are already several projects that have been funded from this WPS, but with TLOS low prices BPs keep struggling. The argument to keep the inflation as it is that at one point, these projects will bear their fruits bringing more users, transactions and a higher TLOS price. This is a very valid point.

It is to highlight though that there are some substantial differences in token distribution between EOS and TLOS. It’s been brought to people’s attention from the very start that after the crowd sale the top 1.6% of EOS token holders were controlling 90% of the supply while the bottom 44% had to make do with a mere 1% of EOS.

While doing its token distribution, Telos capped accounts at 40K so the initial distribution was much broader than the one of EOS. This kind of distribution means that the tokens from inflation didn’t go to the 1.6% top holders like in EOS, increasing even more the concentration of tokens, but it’s been distributed to more accounts which is a positive thing.

EOS Force adopts an interesting model because it has a voting system with BP rewards being distributed to the voters. A node that receives more than 0.5% of the total votes of the current network is a profitable node what means that 15% of the income is credited to its account as basic salary, and 15% of the income is credited to its account as a block-generating reward. The remaining 70% of the income goes into its account and rewards pool according to the allocation proportion set by the node. Instead of having block-generating rewards, BP candidates give 15% of the income to EOSForce Foundation account Devfund which supports the developers. The nodes distribute the rewards to users according to the rewards ratio they set and the users’ voting weight.

Paying for votes is something that has been morally rejected by the EOS community, however, but there are some advantages in the EOS Force voting system. The voters are incentivized to stay engaged in the ecosystem.

EOS Force has lately also implemented a 1-token-1-vote system which gets away from 1-token-30-votes currently implemented on other EOSIO chains. This is to prevent BPs from forming alliances and voting for each other which affects the decentralization of the blockchain.

Rewarding users for votes means that the hidden vote buying going around between EOS BPs is made transparent and the inflation is distributed mainly to the voters. Many BPs think though that it drives to spiralling down versus less quality service which would also force BPs to move to low pay labour countries. Also in this scenario wealthier BPs would give less rewards away to the voters while those who will have less resources would need to give away more ultimately declining their business operations.

UBI as The Solution

Daniel Larimer recently said:

“I think allocation of inflation to ubi is the only way to ensure fairness and integrity on use of funds. I would also support a small increase in bp pay to 1.5% as it is clear costs for a well run bp are high.”

Some community members objected, saying that they would rather lower the inflation to 0.5% because vote buying is happening which means some BPs probably have too much EOS. Dan answered that:

“Honest bps would get more funds.”

He also added that…

“Ubi is best marketing and user acquisition strategy”.

UBI could probably be that secondary force to offset inflation going mainly to BPs so rising BPs inflation to help “honest BPs” would make much sense.

Implementing UBI means that the distribution of tokens would be much broader and this improves decentralization. UBI requires unique identity for the inflation to only go to unique individuals.

Pairing UBI with voting is maybe the best thing to do. Implementing it together with REX could be also a viable option or 1-token-1-vote could be also explored.

The identity solution is needed for UBI and that could come possibility this year.

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