Another possible mechanism of monetary policy

Well, we heard of one possible mechanism of monetary policy in the blog, which is to change the mining reward, but as the blog mentions, using such a thing as a monetary instrument is quite risky. I want to suggest another possible monetary instrument: Use proof-of-stake returns as the monetary mechanism.

So you probably know Slasher. In Slasher PoS, if you are picked randomly, you can sign blocks, but your reward is held back for a moment while others make sure you haven't signed a block multiple times; if you didn't cheat, you get the reward after a bit of waiting.For the purposes of this idea, I'll make a slight adjustment: Instead of having to pray to be chosen by RNG, you can participate in staking by buying rights to stake and doing the whole PoS dance. When your block is fully checked, you get your money back plus a small reward.

Now we have something resembling a bond. You put money in it, and after a while, you get your money back plus a bit more. And we can change the money supply by changing the return on these "slasher bonds", which I will refer to them as. If we increase the return of the slasher bonds, more people will sink their money into slasher bonds and less currency will end up circulating around; if we decrease the return, fewer people will want slasher bonds, and the money that might have been in the bonds will be available for other purposes. So we have a simple tool to influence monetary supply with fewer risks and faster effects than if we merely controlled PoW returns.

Comments?

Comments

  • eaglgenes101eaglgenes101 Member Posts: 43
    edited December 2014
    I thought of another mechanism that can allow monetary policy to be run more on autopilot. It's inspired by homotropic allosteric regulation.

    The blockchain offers long-term slasher bonds, maybe for approx. 1 year, and anyone that puts their cash in can buy them.

    At the equilibrium level of bond-buying, the interest rate on the bonds is something fairly low, maybe 2%. If people start to buy more bonds than are maturing, instead of decreasing the returns as an unmanaged market system might do, it'll increase the interest rate up to a certain ceiling, let's say 3.5%, and if people are buying fewer bonds than are maturing, then the interest rate will go down to a certain floor, let's say .5%. What this does is make bond interest rates respond appropriately to economic signals: If people are letting bonds mature and not buying them up, it probably means they need the cash now rather than later, and an expansionary money policy is in order, and vice versa if people are buying up more bonds than are maturing. The bonds should be long enough term so they don't mature while the market is still stuck down.
  • TechnologovTechnologov Member Posts: 102 ✭✭
    interesting ideas.
    the goal is to reduce volatility ?
    Bitcoin in 2013 looked very much like a crazy-coin.
  • eaglgenes101eaglgenes101 Member Posts: 43
    Yes. And I'm convinced that Bitcoin's volatility isn't just because of its crypto properties or its relative novelty; Gold is much more established and its price still manages to fly all over the place.
  • eaglgenes101eaglgenes101 Member Posts: 43
    And we all know that adjusting a cryptoeconomy is the easy part. The hard part is how to monitor it.
    Well, it's going to be hard to get it from the wallets, because god knows who/what is behind each wallet. But smart contracts are much more open, so we can use those.
    Ideas:
    Gross Contractual Expedentures (The rate at which contracts collectively consume ether)
    Contractual Price Index (The price level for common contractual subroutines)
    Contractual Chained Price Index (The price index for common contractual subroutines, adjusted for how the changes in income changes spending habits)
  • eaglgenes101eaglgenes101 Member Posts: 43
    And to find out which subroutines are common, we can have another PoW task: Compress a large pile of randomly selected contracts below a certain threshold. Lossless compression takes advantage of redundancies, so by having people compress the contracts, we can see what they identified as redundancy and use the subroutines commonly identified as redundancies as our comparison point.
  • eaglgenes101eaglgenes101 Member Posts: 43

    And we all know that adjusting a cryptoeconomy is the easy part. The hard part is how to monitor it.
    Well, it's going to be hard to get it from the wallets, because god knows who/what is behind each wallet. But smart contracts are much more open, so we can use those.
    Ideas:
    Gross Contractual Expedentures (The rate at which contracts collectively consume ether)
    Contractual Price Index (The price level for common contractual subroutines)
    Contractual Chained Price Index (The price index for common contractual subroutines, adjusted for how the changes in income changes spending habits)

    Just to clarify: we watch contracts to get economic information. The amount of gas used by contracts is used as a proxy for GDP, and the cost of common subroutines is used as a proxy for price level. This is then fed into the monetary policy algorithm.

  • TechnologovTechnologov Member Posts: 102 ✭✭
    Okay, we'll see what other community members think of it.
  • eaglgenes101eaglgenes101 Member Posts: 43
    More thinking have given this: An increase in the demand for bonds may either reflect reduced confidence in something outside ethereum, or increased confidence in ethereum. To tease the two apart, we should also maintain a "passive" proof-of-stake process that reflects preference for liquidity, like Slasher. If the former happens, then both kinds of proof of stake will get an increase in demand, but if it's the latter, then bond proof-of-stake will increase in demand relative to passive proof-of-stake.
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