There have been great discussions in the @terra_money community about the emissions schedule of protocols.
High emissions schedules are essential for fair decentralization initially but might lead to selling pressure.
I got curious and checked the data.
🧵👇 /n
High emissions schedules are essential for fair decentralization initially but might lead to selling pressure.
I got curious and checked the data.
🧵👇 /n
1/ Before we check the data:
Until a protocol has reached its fully diluted market cap (all tokens), there is always a pressure of new tokens arriving on the market.
While this might lead to selling pressure, it is essential to decentralize the protocol. The sooner, the better.
Until a protocol has reached its fully diluted market cap (all tokens), there is always a pressure of new tokens arriving on the market.
While this might lead to selling pressure, it is essential to decentralize the protocol. The sooner, the better.
2/ So I checked the data for two different protocols with very different price narratives; one within @terra_money and a project outside.
For @terra_money, we will check @NexusProtocol. Outside @terra_money, we will have a look at @osmosiszone
For @terra_money, we will check @NexusProtocol. Outside @terra_money, we will have a look at @osmosiszone
3/ The hypothesis is the following: Do high token emissions correlate with a downward price movement?
To check, we will compare the token price to the cumulative emission schedule on a daily basis.
To check, we will compare the token price to the cumulative emission schedule on a daily basis.
4/ For @NexusProtocol, there seems to be no correlation between the emission schedule and the price.
While the emission increases over time, the price doesn't follow the emission schedule.
It instead looks like an initial supply shock with a high demand leading to higher prices
While the emission increases over time, the price doesn't follow the emission schedule.
It instead looks like an initial supply shock with a high demand leading to higher prices
5/ Afterwards, the token went into a price discovery and seems to have found now a reasonable market price.
Even with the still high emissions, there is no downward trend.
An extreme supply increase with the second unlock in December had no negative effect on the price.
Even with the still high emissions, there is no downward trend.
An extreme supply increase with the second unlock in December had no negative effect on the price.
6/ As for @osmosiszone, a similar pattern can be identified.
Besides the extremely high emission schedule in the first year, the price of $OSMO is close to its all-time high today.
Besides the extremely high emission schedule in the first year, the price of $OSMO is close to its all-time high today.
7/ What to take from this?
First, I think there is a need for high emissions at the beginning as they are a key instrument to decentralize protocols with the governance power of the token.
See the token distribution of @NexusProtocol below.
First, I think there is a need for high emissions at the beginning as they are a key instrument to decentralize protocols with the governance power of the token.
See the token distribution of @NexusProtocol below.
8/ Second, there seems to be not a direct connection between a high emission schedule and a selling pressure for the token.
The data seems to indicate, that the free market is searching for a reasonable price point based on the diluted market cap.
The data seems to indicate, that the free market is searching for a reasonable price point based on the diluted market cap.
9/ Third, utility and market sentiment seem to be stronger than the current emission schedule.
That is indicated by the initial price movements of Nexus & Osmosis (indication to FOMO) and the later price upwards trend of Osmosis as leading Cosmos DEX.
That is indicated by the initial price movements of Nexus & Osmosis (indication to FOMO) and the later price upwards trend of Osmosis as leading Cosmos DEX.
10/ This would indicate, that the hypothesis is refuted.
However, it makes sense to discuss how to find ways to distribute the tokens. LP rewards might not be the best distribution mechanics.
But, the free market will redistribute accordingly and find a true market price.
However, it makes sense to discuss how to find ways to distribute the tokens. LP rewards might not be the best distribution mechanics.
But, the free market will redistribute accordingly and find a true market price.
12/ Special thanks to @flipsidecrypto and the amazing people in "The Catina".
@pinehearst_ & @jackguy were the magicians to support with the data points 🧙♂️ Thank you so much! :)
Let me know what you think and take out of this data points below 👇🙂
@pinehearst_ & @jackguy were the magicians to support with the data points 🧙♂️ Thank you so much! :)
Let me know what you think and take out of this data points below 👇🙂
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