Hoardable money & no treasury income

Hoardable money is a form of money that can be stored and saved over time with either no or limited loss in value. Hoardable money is often superior to most goods and services that decay or lose value over time. Hoardable money commonly leads to holders of money demanding interest from others that want to access that money due to the fact that hoardable money is superior as a store of value when compared to other goods and services. For Web3 ecosystems that have adopted a proof of stake mechanism, those that hold coins can also commonly generate a return by simply staking their coins to secure the network. This creates a form of appreciating money that constantly grows in value over time. In these situations the user does not need to be productive with their money and can just hoard it and their financial position should grow over time.

No treasury income means that no added fee mechanisms have been introduced to generate income for the network's treasury. This means an ecosystem would be reliant on the genesis allocation to fund any initiatives or be reliant on investment from community members. No income for an ecosystem treasury means the network would not be trying to create a circular economy using the network itself to help with funding any impactful initiatives.

Bad money system (Score - 1)

Appreciating money has all of the problems mentioned in the money resources such as reduced economic activity due to hoarding and the artificial ceiling on capital creation due to the impacts of interest. A small staking reward creates another problem for this implementation of money as it further incentivises hoarding and rewards people that hold their coins and lock them up. This approach could result in ongoing economic stagnation and low coin velocity due to the incentives people have to hoard this form of money and also due to the lack of incentives that exist for maintaining and improving the network.

Very low treasury income (Score - 1)

A network that doesn’t generate income from transaction fees or from a wealth tax would have no ongoing income being generated to fund impactful ecosystem initiatives. It would be reliant on any genesis allocation it has from the beginning of the network or from investments from community members. No income prevents the ecosystem from creating a circular economy that improves itself. This could be highly problematic for the ecosystem as it could eventually lead to stagnation in the development and maintenance of the network.

Transaction fee income could also generate more income than is necessary for paying node operators. The ecosystem could either overpay the node operators or it could redistribute it to the community. Paying node operators more when they need to handle congestion can make sense however there is a point where this can become excessive and unnecessary. Redistributing the excess income back to coin holders creates an even worse system of money as this redistribution incentivises people to hoard more money. Neither of these approaches are desirable, ideally excess transaction fee income would be used as treasury income.

Low transaction fees (Score - 4)

Transaction fees should be close to as low as they possibly can be as the network can attempt to dynamically predict how many transactions it's going to receive based on historical trends and then adopt a transaction fee model that ensures that the node operators will be sufficiently compensated. The benefit of this approach is it means fees should be as low as they possibly can be as the network grows over time. The problem is this is a prediction of future transactions which could change quite drastically. This means a buffer would likely be necessary to prevent node operators from being underpaid. This means transaction fees wouldn’t actually be as low as possible as a dynamic fee structure would always be trying to predict how many transactions will get submitted in the future. Transaction fee models generate less predictable income for node operators as the number of transactions that get submitted each day or year can vary quite drastically.

Low incentive alignment (Score - 2)

Without treasury income, applications and new use cases that get developed in the ecosystem would eventually be reliant on external funding from investors. This creates partially aligned incentives as the investors will be commonly looking for a return on investment. Investors are less incentivised to fund open source initiatives that won’t directly generate them a return on investment. Creating tokens is a common approach that projects use to enable investors to generate a return on investment. In certain cases these tokens may not be required for the application or protocol to function and they may not even represent a desirable long term solution. Contributors in these projects also only have partly aligned incentives due to this arrangement. If they start working on other projects that benefit the ecosystem this could come at the cost of the growth of their own project that might already have its own token. These other initiatives may be more beneficial for the ecosystem but if they don’t align with the interests of the investors there is an increased chance of conflict.

Low network security (Score - 2)

Networks that don’t adopt demurrage and that don’t generate any treasury income would incentivise and reward hoarding as the attractiveness of holding network money would be higher than holding many other assets that commonly depreciate over time. This reduces the network security as it creates a long term risk that power consolidates into the hands of a few people that have managed to accumulate a large amount of the network coin. The inevitability of wealth concentration is increased only further by the presence of any risk free staking rewards.

Low investment opportunity (Score - 2)

Investors would be more incentivised to invest into projects that build on the ecosystem rather than investing into the network itself. Projects that create tokens might be able to generate them a better return on investment. This leads to the incentive problems mentioned already above. The network coin could still be an appealing investment if there are enough protocols and applications being built that introduce new use cases. However the incentives to fund these initiatives are more complex and less fully aligned than if the networks created circular economies. There is no guarantee that ongoing investment will occur in a network that relies on external investment, it is less reliable than a wealth tax or transaction fee model. Many protocols and applications can benefit from being open source and many of these projects may not require a token. A lack of ecosystem funding could make it difficult to attract the required investment to maintain and develop every part of the network. Another problem with a no treasury income approach is it can lead to more capital fragmentation where people invest in project tokens instead of the networks coin even when these tokens may not even be necessary.

Total score = 12 / 30