This topic has been created for the Eco Trustees to discuss the monetary policy that will be enacted on Friday January 19th 2024. As always, the policy will be in effect for two weeks — this is for Generation 1033, which runs from January 19th 2024 - February 2nd 2024.
Trustees are encouraged to post via replies under this topic to:
- Discuss what policy they have proposed and/or are voting for, and why
- Engage in public dialogue/debate with other Trustees
Community discussion will occur in the #trustee-community channel on Discord
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We talked yesterday about the idea of pushing APR even higher, and I think I will keep my choices aligned with this vision. It looks like this is the only lever that can produce any measurable results while we wait until L2 tools are available.
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In the last cycle, we experimented with each of the monetary policy levers, and determined that they have near-zero impact on influencing and/or manipulating adoption or value.
Until the currency adoption increases, and our actions have an obvious impact on Eco’s stability/growth, I will continue to vote for the default proposal.
Subspace
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A key question for Trustees in the context of monetary policy decisions: What is ECO? A high-yield, debt financing instrument; a dividend yielding stock; money for transactions; a crypto asset, an equity, or some combination of each?
This is fundamental as holders have a range of assets, their uses, and expectations for holding ECO. For trustees, setting rates and supply requires comparing alternative assets and consistency with the purpose of ECO. Furthermore, ECO is likely to evolve through stages for end use of the currency and adoption along with the overall environment for digital finance. Appropriate comparators will evolve over time as well.
An argument can be made that at this stage— when end use of the currency is limited—that holding ECO should be encouraged and compensated through high-yield. However, the elasticity of adoption is likely to be low requiring very high interest rates, raising concerns that such yields are unsustainable or worse reminiscent of failed crypto projects. Furthermore, it could be argued that locking up ECO works against secondary market price discovery and its use for other transactions.
More fundamentally, trustee should consider monetary policy setting in keeping with the vision of ECO becoming a basis for supporting merchandise and peer-to-peer transactions. This vison has made a huge step forward with the development of Beam. Perhaps then holding ECO at this stage is an investment in this vision. The payoff therefore is more akin to holding equity in a small cap company in its early development. If so, that would argue for a zero return for ECO (my proposal supports the default)
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Given our lack of knowledge regarding the monetary policy transmission mechanisms in ECO and the dynamic properties of the ECO currency, Pure Macro will continue to apply lessons from the Knightian uncertainty/robust control literature* when we deliberate about policy. In particular, we will frame our policy proposals within a minimax framework which considers policies that attempt to minimize maximum potential loss. We choose the robust control approach since it is optimal in situations like ours where policymakers face uncertainty about the entire distribution of potential outcomes. One manifestation of this approach from the past year has been our proposals for lockups with relatively higher interests and short durations to lean into persistent ECO depreciations. Since we were unsure whether this ongoing downward pressure was the result of ECO moving towards its equilibrium value or a case of extrapolative expectations, we proposed policies that would help reduce the likelihood of extrapolative expectations and a run on the currency.
We will also be mindful of two other factors in our policy deliberations. First, one of the more established results from the tokenomics literature is the presence of an intertemporal feedback mechanism linking user adoption to token price. Pure Macro will judicially look for opportunities to propose policies that tend support a token’s price which can, in principle, boost adoption and attenuate user-base volatility. Our November proposal, for example, which reduced the monetary base by 5% corresponded with an almost 7% appreciation of ECO (with seemingly persistent tailwinds). Second, Eco does not exist on an island but in an ecosystem with other competing protocols. We (with a lot of help from Saulo) conducted an informal survey of lockup APRs from other protocols and found them to be a lot more aggressive than ECO’s lockups. Indeed, even more mature protocols were offering APRs spanning 25% to 84% in an attempt to attractive and retain new users. Moreover, stable coins like USDC, USDT and DAI offered APRs of 12% or more. Coinbase paid a non-staking 5% APR just for maintaining USDCs on their exchange.
*For those interested in Knightian uncertainty in the monetary policy context, please see Knightian Uncertainty and Expected Utility Theory | RDP 2000-10: Monetary Policy-Making in the Presence of Knightian Uncertainty | RBA. Notes on robust control in an economics environment can be found at: https://larseosvensson.se/files/papers/svensson-robust-control-made-simple.pdf