Hello. I am wondering if anyone could help me please understand the economics of the token and ecosystem a bit better? It seems there could be a misalignment between users of the network and holders of the token (I’m hoping I am wrong!). If there IS a misalignment, I wonder if the proposal below could remedy it?
The way I understand it, today,
- Transactions cost a small amount of Algo.
- It is unclear how/if/when this Algo is returned to the ecosystem, or removed from it.
- There is no predictable future relationship between a transaction cost and the fiat currency price of a transaction. This could make it difficult for a business to adopt the platform, not knowing the transaction costs.
- There seems to be a fundamental misalignment between Algo holders, who would like to see the price appreciate, and Algo users, who would like a lower price so the transactions cost less fiat currency.
A possible solution:
- Re-aligning users of the network with token holders: One way to do this would be to fix a fiat-currency price per transaction, and at least part of that fee would ‘burn’ the token. An example of this is with the Helium network, where transactions cost a fixed amount of USD which then burns the equivalent amount of HNT.
- If this were done with the Algo network (fixed small fiat-currency price per transaction, burning the token), then network users would not care about the Algo price and would have a predictable cost schedule.
- Right now, I believe the fees go into an account and it is yet to be determined what will happen with those fees. Perhaps some percentage (maybe 50%?) could be dedicated to be burned? (assuming the transaction cost were fixed in a fiat currency)
- Am I misunderstanding something? My sincere apologies if so! I am really trying to understand the economics of this network. I’m a believer in Algorand, the efficiency of the algorithm, net-negative carbon and the overall mission, so I am really hoping that what I see as a fundamental misalignment in the economics is my ignorance or a misunderstanding, or something that could be adjusted. If there is alignment between token holders and network users, such that vast adoption benefits both parties, the network will grow faster and be more valuable.
- I certainly recognize that the creators of Algo have world-leading experience in these networks and the economics of them (and I have great respect for them and gratitude for creating all of this!) so I imagine I am misunderstanding how it all works; I look forward to learning more! I also realize it is difficult to price the transactions at an amount that will work for all; but maybe the network can commit to a fiat price not-to-exceed some amount or targets, without modification and agreement by the community, so that businesses have some predictability. If any pricing changes have some known runway (e.g 1-2 years) then there is more predictability for business costs. It seems the current system would require operators to purchase algo at today’s price, estimating their future needs; but if they are wrong and need to buy more Algo later, they would be punished later if the token appreciates (which is the misalignment between Algo holders and users). Or perhaps the current method is the way the network is intended to operate; businesses try to estimate their future transaction needs and buy Algo in advance, to support those transactions?
- My apologies as well if I have miscategorized this, I did not see an ‘economics’ section so I placed it in General
- Thank you!!