On Fair Distribution

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.

I can not think of any.
With the benefit of hindsight one can easily identify such investments in the past, but even a guaranteed 20% ROI over the 5 coming years would be considered an excellent investment.

Given that the 500% ROI is far from guaranteed, it comes down to subjective estimates of futures price development.
Is Bitcoin more likely to get 500% ROI in 5 years? Or Monero? Nobody knows.

Combined with Monero’s very steep emission, this means that the vast majority of Monero was acquired at vastly lower prices; not exactly contributing to fairness.

It will be distributed mostly through purchase.

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Sure 500% is great! However, all of this is purely a speculative exercise, and the point was about comparing the ROIs given the same timeframe. It could be possible that Grin will achieve the market cap comparison in a shorter timeframe, which lessen the effect of inflation.

Yeah, I agree with this statement. I tried to downplay it by calling it some “napkin math”. The point of the excercise was to compare current prices and current inflation rates of Grin againsts future price performance expectations. Right now it doesn’t seem to add up. It would seem as though the price should be a lot less, but I could be missing something.

This is really what my post is about. It’s about how emission rates don’t seem to prevent an unfair distribution if price can be manipulated as I explained in the end of my post. It may be that price is not a result of manipulation but rather a result of market hype. I attempt to deconstruct the price based on previous network performances which could be off base. The point being made here is that fair/unfair distribution is not determined by emission rates, but rather on keeping price low. It could be the case that price is low right now, but I find that unlikely from my comparison. It may be worthwhile to do a little analysis to determine if we are indeed in overbought conditions. If not, then my argument doesn’t hold much water, and the monetary policy with it’s emission rate is doing it’s job in keeping price suppressed against the actual market demand.

For starters: in Grin’s "infant years’ it’s supply inflation is no different to Bitcoin’s.

You have cherry-picked one particular reason for Grin’s monetary policy. The fairer distribution also means that someone who starts mining grin in year 5 gets the same reward as someone who started mining in year 1. So miners are more incentivized to support the chain in the future( They won’t rely as heavily on a fee market) and a large portion of the supply isn’t skewed towards the early adopters- So there’s more opportunity/ incentive for those who don’t find out about Grin until years/ decades down the track. The same applies to those buying on the market.

Grin’s ‘fair distribution’ is also aimed at mitigating bubbles and downplaying price speculation( which is the focus of most Cryptocurrencies participants). It’s already apparent this is working, to an extent. If you spend some time in Grin’s community groups ( eg Telegram), you’ll notice there’s barely any “moon boys” or people with crazy price expectations, relative to most projects. The Grin community as a whole is far more conservative in their price expectations and more focused on the development/ adoption/ ideological aspects of Grin.

We could get into all sorts of other reasons for Grin’s Monetary policy, however, I feel like these have all been discussed over the past few years.

If you want to play along with this narrative, then you have to consider that in 2015 Bitcoins market cap was as low as 3 billion- When Monero was peaking at 5 Billion, Bitcoin was peaking at over 300 Billion( circa 10,000%) These kinds of outlier returns will most likely NEVER been seen again in the whole cryptocurrency space/ or in any asset class- It was a once in a lifetime opportunity. Because of these kinds of returns, many in the Crypto space have unrealistic expectations( these people are commonly referred to as the “moon boys” who only care about “price” or “when Binance”). As Tromp alluded to, even 20% per annum is an exceptional return, relative to the historical performance of all other asset classes( Circa 6-10%). It sounds like you have unrealistic expectations when it comes to returns.

However, If you want to play the hypothetical/ speculation game, then let’s pretend Bitcoin will increase by another 10,000% over the next 5 years, would a Grin market cap of 1 Billion still seem like a lot then? Even if we assume Bitcoin does circa 1000% and reaches $100k USD( Like so many predict), That’s a market cap of more than 1.7 Trillion. So if Grin was a top privacy coin, a 1 Billion market cap would still be ridiculously low!

How do you think coins are distributed for any fair launch PoW? It’s no different for Grin.

For starters: there are no ‘investors’ who bought into Grin( There’s no pre-mine/ ICO/ private sale). People who bought Grin on market are “speculators”, there’s no promised or even expected returns here, so I’m not sure what you’re talking about. The “investors” are those who bought/ rented infrastructure to support the network, i.e Miners. Grin’s investors = miners. Anyone can buy Grin on market right now, if the price keeps coming down then more Grin will be sold at lower prices, so average Joe will have more chance to accumulate a position. You’re only looking at one side of the coin.

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Do you see a better approach to distribution than the current POW emission? If so, could you describe how it would work in practice?

Your logic is terrible. Investors who buy coins in the market support miners and infrastructure. Who will cover the costs of miners if there are no buyers of coins? Or do you think miners will continue to mine coins they can’t sell?

I don’t claim to know of any better approaches, but I am willing to investigate and compare approaches.

One idea in mind is a fixed yearly inflation rate. This would mean emissions would need to increase over time. I imagine the benefit of this would be that miner reward would remain constant in proportion to supply. Also, early investors and late investors would have the same expected inflation.

Another idea is to have emissions approach zero at a specific date in the future without reward halving involves. Fixed supply currency idea. Making the timeframe short say 2 years, would be interesting as we can test a this model for a currency early on.

Quite literally Grin’s investors were miners: https://www.coindesk.com/grin-launch-crypto-interest-from-deep-pocketed-investors

Since there was no pre-mine/dev fee/ private sale, VCs couldn’t get an early slice, so they rented/ built out mining infrastructure.

If you’re buying Grin on market today, you’re not an investor, you’re a speculator. Grin doesn’t earn you anything and you can’t really spend it anywhere( yet), you’re just hoping the next guy is willing to pay more for it. Having the ability to spend changes this narrative and creates organic demand as people start buying a currency because they can use it in the future in exchange for whatever they want.

If you do not understand the meaning of the word investor, then you should spend more time on your education https://en.wikipedia.org/wiki/Investor