TL;DR: 5.5% APR for 30 days lockup
Short explanation: 5.5% is in-between the risk-free rate and inflation. 30 days is short enough for us to adapt to changing conditions in our early days and in volatile market conditions.
More extensive explanation, including my assumptions:
Ultimate goal: create a token that people want to spend and hold. Such a token is likely to be stable in price and/or purchasing power.
Ideal objective for policy decisions: support achievement of ultimate goals through a mix of price stabilization, adaptation to market forces and reacting to competitive pressures. Subsequent policy decisions and implementations will allow us to assess effectiveness over time.
Reality: Eco tokens are extremely thinly held now (947 wallets at time of writing, which likely represent even fewer holders). Whatever policy decision we make now will not be indicative of how a more broadly held token will behave, so we should be skeptical of the data we get from a “just try something” approach, which I see in some approaches. In addition, however we try to stabilize, we will be subject to the whims of speculative trades magnified by low trading activity, which may mislead us into thinking a policy worked/didn’t work (a sentiment on keeping it simple for now that @annika shares).
However, that doesn’t mean we shouldn’t do anything now, which risks catalyzing a loss of interest and/or faith in our early days of building out the Eco-nomy.
==> Therefore, my proposal is to match alternative “risk-free” instruments (4.37%), with a minor bump up to closer match the high rates of inflation today (6.5%), ending up at 5.5%, paired with a 30-day lockup.
- I have my contentions about the term “risk-free”, but by convention it means US Treasury Bills, which is a 4.37% now (for the 1-month T-bill). Providing a form of return that is comparable to holding US dollars in the money market should have the impact of making people feel like their Eco is working for them, compelling them to keep holding their Eco
- Providing a bump to approach inflation should reduce the psychological burden than they are losing purchasing power. There is no need to exactly match CPI because they are holding an asset whose value is likely to fluctuate more than CPI
- I propose a lock up of 30 days for this rate. Any longer (60-90 days) will tie our hands to respond to volatile market conditions
In my future policy proposals I am intending not to be overly reactive to the price or trading conditions. I believe it is too early to make regular changes in policy when the market is so small. My concern is that when future adopters refer to our early days, they might characterize us has implementing short-lived, unstable policy measures.
Sources and notes:
- Source for T-bill rate: 4 Week Treasury Bill Rate
- Source for inflation rate: United States Consumer Price Index (CPI) - December 2022 Data - 1950-2021 Historical
- Note 1: we are being very US-centric out of convenience for now. When we have better data on global ownership and usage, we should include more markets in our consideration
- Note 2: This line of reasoning finds me at a very similar conclusion as @Asfi, who proposed 5% APR for 30 days