Splitting ATOM: Money or Governance?

This post is a draft of research which may or may not be completed in this format. It derives in part from Neta DAO’s living public research seminar Coining Reason current focus on economy and money (see https://academy.netadao.zone and https://x.com/coiningreason for more information) and is essentially an effort to take some thoughts for a walk, responding in part to concerns raised in The Interchain Federalist Papers, Carter Woetzel’s “ATOM Endgame: Moneyness, Security, Liquidity” (here), and other texts, as well as broader conversations about ATOM on Twitter and other social media. My intention in citing these sources is less to give faithful reconstructions of their particular positions than to point to preexisting ideological backgrounds which disorder and disorient our thinking about what ATOM really is and can be. This background disorder and disorientation conspire against our ability to find common ground and build forward. 1. ATOM: Money, Commodity, or Security? There is an active effort currently underway to reorganize the ATOM token as money, beginning with Prop 848 (or even, albeit in rejected form, Prop 82) and entailing several further forthcoming tokenomics…

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Well at least you are trying to learn what money is But at least try to read the original sources of these theories. I mean talking about supply and demand and not quoting John Locke is pretty bizarre. In any case, “money” as it were is not one thing. It can represent different things. For example, commodity money - shekels, weights - represent an accounting of some commodities (in its original form - grain). 1000 shekels means that 1000 bags of grain were created. In societies which are short on important first need commodities such as food and energy - without food you can’t live for a week - and without energy (oil) - you can’t go anywhere, commodity money is paramount means of since the society is trying to acquire needed resources. In societies that have commodity surpluses, like the USA today, money transforms into political money - a way to redistribute the resource among the politically powerful factions in society. That is when you arrive at things like the US dollar and modern fiat money which is a redistribution of resources according to politics (since Congress prints new fiat money via its fiscal deficits). BTW communist theory operates under the notion that there…

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I mean talking about supply and demand and not quoting John Locke is pretty bizarre. I discussed John Locke’s bizarre accounts of money and property in Coining Reason sessions ~2.0-2.2, if you’d like to hear my comments. Among other features of his argument, Locke—a direct investor and beneficiary of the human slave trade—perverts Christian doctrine to argue that debt is sinful, with slavery a fitting punishment for debt (whereas Jesus had preached against the money-changers and implored the political elite to “forgive them their debts,” to avoid the creation of perpetual debt peonage and slavery). In any case, “money” as it were is not one thing. Agreed, I plan to address this in subsequent sections, but have already been saying in Coining Reason that the great benefit of crypto is that it allows us to un-bundle the four functions typically ascribed to money: unit of account, store of value, medium of exchange, means of payment. As the Reagan economist George Gilder argues in The Scandal of Money: Why Wall Street Recovers but the Economy Never Does , the confusion of these four functions in a single medium—the US Dollar—is what fueled the latter-day financialization…

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Lil_D:

Moreover, Bitcoin’s community can change its tokenomics at any time by switching to another algorithm—such as already happened for some in that community with BCH and other forks (ETH and ETH Classic, etc).

Bitcoin’s tokenomics didn’t change and that is why some people in the community created a different fork (Bitcoin Cash) and left. You are mistating what happened. I am not sure you can adequately describe other events given this demagoguery here.

In any case, your critiques don’t offer any sort of alternatives. I am not sure what you are arguing for. You haven’t explained why 20% max inflation makes ATOM more money-like than 10% max inflation or for that matter 30% max inflation. Why is 20% the correct number? Would love to see your white paper on the subject along with the numerical justification.

PS: For my Satoshis, the problematic issue with “communist theory” writ large is less its naive belief in a permanent surplus of all commodities than its tendency to zero-sum logic concerning distribution: many Marxists do not possess an adequate concept of “newness” or “becoming,” and instead believe that any material imbalance or difference between people is necessarily the result of exploitation and deprivation of some by others—someone cannot have more, many Marxists seem to believe, unless (and because) someone else has less. This leads to what I regard as Marxism’s most unfortunate and least appealing aspect: a secular asceticism towards commodities and production. The Italian Autonomist theorists are perhaps the main exception to this trend. In any case, I do agree there’s much to be cautious about with these ideologies.

vixcontango: Bitcoin’s tokenomics didn’t change and that is why some people in the community created a different fork (Bitcoin Cash) and left. You are mistating what happened. I am not sure you can adequately describe other events given this demagoguery here. A subset of the community that was mining under Bitcoin’s original algorithm switched to another algorithm, BCH—in my view, that is effectively a governance change to the tokenonomics under the “fork politics” that Proof of Work imposes, even if it has been relatively unsuccessful. By contrast, the ETH/ETH Classic fork did change the ledger of the main Ethereum network, and perhaps this is the better comparison. Anyway, I do believe the Cosmos governance module diminishes the need for these hard “fork politics” and transforms the means by which such changes are wrought, but I do not believe it is correct to say that Cosmos is “governance money” and BTC is not. All tokens are “governance money” in the sense that they depend on the consensus of those running it, whatever “running it” means under a particular Proof-of regime. I appreciate you taking the time to read and critically engage. If you stick with me, I…

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Cosmos Hub offers its community the opportunity to direct the token’s monetary policy by changing basic parameters (min inflation, max inflation, rate of change, bonding ratio target) and via staking participation (staking or not staking). That effectively makes ATOM stakers a monetary policy governance committee similar to the Federal Reserve Open Market Committee (FOMC) which sets interest rates for the US dollar. In that respect, it is “governance” money but more like money that can be governed. That is an unique proposition in crypto as most other tokens have preset monetary policies. Their monetary policies can only be changed via a forking but unfortunately you can’t fork a community and as such economic activity as we have discovered time and again with ETH/ETH Classic and BTC and BCH. So this flexibility to change monetary policy without impairing existing economic activity in the token is unique. In that sense, ATOM is the closest crypto offering to a fiat government bond. And fiat bonds are important because they provide income - a financial product that is in high demand. Depending on economic conditions that yield can be made higher or lower. ATOM’s ability to…

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In that sense, ATOM is the closest crypto offering to a fiat government bond. The flaw in this analogy—and it seems to me a major flaw—is that government bonds are debt instruments that have value because governments promise to repay. But the ATOM token, like BTC, is no one’s liability, not even ICF, AIB, AADAO, or whoever. When the Federal Reserve “prints money,” they are not usually printing dollars that circulate in the economy but, as you say, issuing Treasury bonds and performing open-market operations. It is commercial banks that “print money” in the sense of money that readily circulates in the economy and causes price inflation, and it is commercial banks (not the State) that crypto principally challenges. Put another way: commercial banks, which are “too big to fail” but also apparently to powerful to regulate, pervert and confuse the public/private or state/society distinction. They perform a public function under cover of private enterprise—hence the appeal of a true “people’s money”! The degree to which crypto challenges “the State” is primarily the degree to which the state has allied itself to the commercial banking industry. This alliance is near the heart…

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You continually make mistakes in your statements and when I confront you about it, you complain about dunking. Monetary systems are not common knowledge and 99.99% of the people I interact with online know less about them than me. My knowledge doesn’t come only from reading but also from experience and the experience part is what people usually don’t have because getting to where I have been is not a common path but a very selective process that tests not only your book reading abilities but also your ingenuity to put that multi-disciplinary knowledge in practice better than others. It’s not easy being no one. You can read all the books in the world, but until you apply the theory in practice you really still don’t know what you are talking about. There might be about 4-5,000 people in the world that know more about these matters than me. Mike Tyson had a saying about this - everybody has a plan until they get punched in the face. The punch is the real world/experience. In any case, most people’s experience with me is they feel dunked on (and rightfully so) and that’s why they don’t like me. As a guy who used to play basketball a couple of decades ago, my strategy is to indeed…

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vixcontango: Under Reagan/Bush, the US government had decided to stay out of monetary policy I like both of you gentleman’s spirited discussion over here. Money is a lot like politics and I don’t think the 4,000 or 5,000 thousand people that know more than you - know more than you, as the amount of positions that people can take on any one position has many correct assumptions depending on the monetary policy you are approaching any discussion with. In fact, Regan (an actor) is the President that unleashed the Kraken in terms of America shifting into a debtor nation from a creditor (hoarder) nation. I find that assertion puzzling. P.S. I wrote the above before asking Bing Chat about the accuracy of my memory, but my memory is pretty good. I wouldn’t deem Regan’s spending/trade deficit as fiscally conservative, but unrolling regulations can have the effect of increasing opportunities and thus growing the economy. Sometimes to our detriment - like when Clinton unrolled the regulations that were in place for the housing market which led to defaults on under collateralized sub-prime mortgage loans and landing the insurers for those loans and derivatives in HOT water…and…

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Money is politics if you have abundance of resources and economics if you have a shortage of resources. Modern Monetary Theory applies to resource rich societies, Austerian (sorry Austrian) economics to resource poor societies as the name suggests. And America has been both in its history - and hasn’t been a resource rich society for very long. And unfortunately it has demonstrated an inability to remain resource rich for a long time. Empires rise and fall. They usually fall when the imperial center becomes too enamored with itself (money becomes way too political) and stops managing the colonies well or its geopolitical adversaries well and then the colonies - along with their resources - splinter away to the adversaries. Everybody wants to live well you know. My comment about Reagan (and Reagan is a big time MMT practitioner, I know) was that Reagan was bit more hands off on monetary policy than other presidents. In fact, neocons were so hands off that Bush Sr. allowed the Fed to trigger a recession in 1992 which lost him the election and the GOP is still pissed off about it to this day. No other political group since has made that mistake. Obama is a Zero Usury guy and he had…

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vixcontango: I think you are confusing fiscal policy - Reagan running big deficits - with monetary policy. The Fed didn’t finance Reagan’s deficits. fis·cal [ˈfisk(ə)l] ADJECTIVE • relating to government revenue, especially taxes: I’m not confused about debt no matter who is acquiring it or how it is created, but I do agree with most everything you’re saying. I’m not a trained economist, so I tend to shy away from asserting things I have no right to assert about the arguments an economist would make about the fiscal decisions. Just because society and civilizations have functioned in a certain way doesn’t mean it will always function in that way. vixcontango: Money is politics if you have abundance of resources and economics if you have a shortage of resources. The world agreed that the dollar would be the world’s reserve currency back during the Brenton Woods Agreement in 1944 to diffuse power struggle’s in the Eastern Hemisphere, but mainly the European block. We were a strong industrial nation whose governance experiment was still maturing with innovation in other markets as well. 80 years now almost. The seat of power doesn’t shift…

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CONTEXT: The post is a draft of research stemming from Neta DAO’s living public research seminar on the current focus on economy and money. It engages with ongoing discussions about the nature of ATOM, exploring whether it should be considered money, commodity, or security. The author references various sources and ideological backgrounds, aiming to navigate the complexities surrounding ATOM’s identity and purpose within the Cosmos ecosystem. ANALYSIS: In order to provide some valuable feedback, we first want to aligns with the initiative to bring more nuances to the debate around the aspect of money in the Cosmos ecosystem. We emphasize the misalignment of current measurements of “moneyness” and recognize the paradigm shift introduced by Web3 in the overall value system design. Our approach to defining a good money primitive for such new infrastructure organization requires a rethinking out of traditional frameworks (taking inspiration from it in its existing forms and improve). To this purpose, we created a simplified system built to explain levels of primitives: Capture d’écran 2023-12-15 122132 1920×649 120 KB It categorize ATOM as a “money multiplier”, the…

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Govmos: At Govmos (the governance initiative of the PRO Delegators’ validator , we also think that both “ATOM as money” and “ATOM as governance” are valid, yet simultaneously flawed. The proposed primitives by the “money group” seem to lack adequate focus on the velocity aspect, overly concentrating on reducing asset issuance, which could potentially hinder velocity if employed excessively. I think both of these working in Tandem creates an ideal conditions for the ecosystem. With the exception that as a monetary unit ideally, you’d want relative stability with the price and as money velocity of the system accelerated or slowed the function of the supply be adjusted accordingly. USDC and USDC loans for ATOM could be one of the better ways to track this. I suppose this was the overall goal with Terra, except Terra was focused on basing the supply on the price fluctuations of the primary token and not the money velocity of the system. Money velocity more equates to how many people receive and spend a unit of money thereby multiplying the amount of goods a unit of money can represent. Money velocity is a suburb metric for a system’s utility and adoption. When the power of…

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The debate of who should price money is eternal - should it be market based (Austrians), committee/expert/policy maker based (Monetarists, Friedman), or empirical/formulaic/algorithmic based (Keynes, Taylor). Currently, all of these forms of money pricing are being used in different parts of the US dollar money markets. On the short end, in the interbank market, the price is set by the FOMC committee which is a collection of expert bank and government officials. In the medium term and long term markets (ie Treasury Notes or Bonds), the price is set by the market when the Fed is not involved in QE or QT. The “market” of Treasury Notes and Bonds, however, is not you and me with our $5 but other governments and their trillions - China, Japan, Saudi Arabia, etc. As such the money market on a global scale is not an efficient little guy utopia democracy but a market of states - all of whom are the most sophisticated economic actors out there you will find (for the most part). So when Austrian people on TV (like every talking head on CNBC) argue for “market” pricing of money, what they really mean is “allow foreign states to price money in America”. That is not necessarily always…

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jasonsprouse: With the exception that as a monetary unit ideally, you’d want relative stability with the price and as money velocity of the system accelerated or slowed the function of the supply be adjusted accordingly We supported this thesis by proposing to add the LST ratio in the inflation adjustment formula instead of moving the min and max parameters. Governance seems to have chosen a different path unfortunately so we’ve accepted this new path and putted our research in standby. jasonsprouse: Money velocity more equates to how many people receive and spend a unit of money thereby multiplying the amount of goods a unit of money can represent. Regarding the velocity of money we clearly think it can’t be measured solely based on the number of transfers. Moreover, in the Cosmos context, each unit of account can be materialized through three forms: liquid, staked and liquid staked. Each offering different trade offs directly impacting the velocity capabilities of the whole ATOM supply. Therefore, supporting our base thesis around the need to review the inflation formula to include three ratios: • staked_% : corresponding to the ratio of all…

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Govmos: we clearly think it can’t be measured solely based on the number of transfers. Historically speaking the rate at which a unit of money exchanges hands defines money velocity. I agree that the base unit measurement and the derivatives of it is different and also prone to be more volatile, and that is why bringing the context of how much is locked for a more stable unit of exchange is raised here. Wikipedia has some formulas for determining what nominal money velocity is. Govmos: velocity_% : corresponding to the ratio of all liquid tokens, including non-staked + liquid staked tokens What velocity is being calculated with these variables? vixcontango: The debate of who should price money is eternal - should it be market based (Austrians), committee/expert/policy maker based (Monetarists, Friedman), or empirical/formulaic/algorithmic based (Keynes, Taylor). Currently, all of these forms of money pricing are being used in different parts of the US dollar money markets. On the short end, in the interbank market, the price is set by the FOMC committee which is a collection of expert bank and government officials. In the medium term and…

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I am not sure efficiency is always the goal of human activity. In many cases resiliency is. It is always a bad idea to fall into single factor thinking such as “efficiency is the only objective”. You can become very efficient and then die quickly. Resiliency and efficiency are orthogonal - they are direct opposites. Your body is made for resiliency, not efficiency. It would be more efficient from energy perspective for you to only have one breathing organ - for example the nose. But then the first time the nose gets plugged up with boogers, you die. For that reason the body introduces resiliency - you can breathe through both your mouth and nose. It is less efficient but more sustainable. And of course those organs have additional functions such as smell for nose or eating food and taste for mouth. So each organ in the body is multi-functional and introduces multi-functional resiliency because resiliency is what allows the organism to live longer (sustainability). One of the core elements of sustainability is having buffers. A cybernetic principle (and cybernetics, science of control systems, is the precursor to what we call “artificial intelligence” today) is the presence of…

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jasonsprouse:

What velocity is being calculated with these variables?

The rationale here is quite straightforward. A fundamental approach to determining velocity involves calculating the proportion of the circulating supply capable of actively participating in economic transactions. Given ATOM’s strong emphasis on security, a velocity of 35% (referred to as liquid percentage if preferred) signifies that 35% of the supply is either in a liquid state or liquid staked, indicating that 65% of the supply is currently immobile.

By evaluating the ratio between tokens available for unrestricted movement and those that are not, we can indirectly gauge the demand for money, which is the primary objective of the velocity of money concept. While a more in-depth analysis could consider the “true” velocity by examining transaction throughput, the ongoing debate pertains to the inflation formula, and we aim to keep it as straightforward as possible. The ratios mentioned earlier are deemed the most elegant form for this purpose.

Govmos: By evaluating the ratio between tokens available for unrestricted movement and those that are not, we can indirectly gauge the demand for money Sounds like that’s just TVL - which in actuality constricts the money supply in favor or incurring interest. The equation in the link for money velocity is roughly GDP/money supply, in that way it can be determined how much economics - good and services, was produced with the money supply. There are many competing crypto monies, what I am hypothecating is the core system that see the most money velocity will win in protocol adoption. vixcontango: So what you consider “wasteful” is really “sustainable”. Surplus = resilience. I get your argument and I’m sure there are conditions where this applies. Again - six sigma is a business function of designing inefficiencies out of systems. We’ll use the example of 50 laborers with shovels and a backhoe tractor to dig a hole. The inefficiencies to examine here are time, man power and capital costs. If your goal is to maximize labor force with no constraint on time or cost, by all means pick you up a shovel and dig the holes - it’s resilient. We’re getting way…

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