The rhetoric for which I have been hearing is that Grin’s monetary policy was designed as such that it discourages saving in grin, and encourages spending (rapidly in its infant years). This results in a fairer distribution of coin. I’d like to investigate this claim.
Due to early high-inflation and no expected tapering of such linear emissions, purchasing the coin early-on is a fools game, unless the price reflects a projected future price that is within speculative reason for it’s future market cap. Here is some napkin math which shows a 5 year projection at which the market cap of 1 Billion USD (Roughly the same market cap of Monero after 5 years of it’s existence):
supply = 60 * 60 * 24 * 365 * 5 = 157,680,000 unit price = 1,000,000,000 USD / supply = 6.341958396752918 = 6.34 USD (rounded)
If it’s considered reasonable speculation that Grin will ever reach such a $1B market cap 5 years out, then we see that the return would have to be significant enough for a 5 year investment. At current prices of $1, this puts it at a 500% ROI. There are better investments to be made than this.
Take Monero’s investment performance as an example. At 276 days after Monero’s launch (it’s been 276 days since Grin’s launch), Monero’s price was roughly 0.24 USD. Less then five years later (today) price stands at roughly 57 USD. That’s a 23,650% ROI; 47x greater than Grin’s projected performance using Monero’s track record. If there is a metric unaccounted for in the projection, the factor would be 47; pretty large.
All this is to say that current unit prices for grin are high considering, and it shows an extremely optimistic market for future prices of Grin. But then again, the monetary policy was designed to discourage early purchases if I’m not mistaken.
So then, how will the coin be distributed if not through the means of purchase? I can only think of two scenarios: 1) a faucet. 2) Mining. Does the first option exist? If so I’d like to see how well the faucet it doing at distribution. I’m going to shelve the first option, and consider the second option, Mining.
Mining has always been a theoretically good means by which coin distribution can happen. Ideally, we would want early adopters to mine coins at a relatively low cost rather than purchase them. These early minted units would then be priced cheaply and used by early participants. However, this would require that mining is more accessible both technically and economically. Mining is inherently technical, and therefore difficult to be made accessible to all eager early adopters. The technical knowledge requirements do not lend themselves to “fair” distribution in the sense of the word. It is also economically hard for early adopters when computational resources are monopolized by an existing industry. The economical aspect hinders fairness when market prices satisfy an existing established industry. Unless price was to drop to levels that disincentivizes mining for profit, mining remains a non-equalizing endeavor.
Let me take a moment to hypothesize a lower unit price (say $0.01). Given a lower unit price, both mining and purchases become feasible means for which the coin can be distributed fairly. Mining would be accessible to the technical hobbyist who wish to be early adopters as they would not need to compete in on a business level. Miners would need to be in it for a long-term play and they’d need to be willing to sell their emissions at a wash. Also, purchasing would be an accessible form of distribution as well, as there wouldn’t be much downward selling pressure from mining as miners would not be in it for short-term profit. In other words, purchasing would have less risks. This ideal scenario of a fair distribution only lends itself to be possible given cheaper unit prices.
What is not hypothetical and what we indeed observe is a peak unit price continually falling. I believe this is the market correcting from hype to a unit price which reflects current inflation rates. However, this means that distribution of coins have not been fair in either means (purchase or mining). Miners have been profiting from investors, and investors have been losing on their investments. The only purchasers able to take a negative ROI in the short-term for a much longer-term ROI are investors with significant capital which is can be locked up for a good amount of time. This doesn’t appear to be ideal for fair distribution.
Side note, not outside of the realm of conspiracy: miners would be incentivized to purchase their own emissions in a wash in order to prop prices and discourage equal distribution. This will mean that it could be that miners are the ones accumulating the majority of the coin in its early days of distribution at a relatively low cost to them.
For the sake of “fair distribution”, one would hope price falls more quickly in order to give an opportunity for fair distribution. (opinion)
In conclusion, the I argument that a monetary policy that discourages early purchases through high inflation as a means of manifesting fair distribution is overlooking a scenario where existing market monopolies (miners and wealthy investors) could still manipulate such a monetary policy to their advantage. It seems as though the free market price is the determining factor of fair distribution.