Reputational Risks
The SIP-031 does not adequately address the reputational risks associated with aspects of sustainability, changing the emissions, and the initial mint.
For example, please note the following excerpts from the SIP
Predictable STX Management for Market Stability
This new treasury structure brings greater stability and predictability to the market environment for STX holders.
The Stacks Endowment will publish a forward-looking STX deployment schedule, clearly communicating the timing and amounts of STX allocations. By proactively sharing this information, the Endowment reduces uncertainty and builds confidence - an approach proven effective by other leading projects. Such transparency is especially valuable for those seeking long-term stability and growth within the Stacks ecosystem.
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In the context of a cryptocurrency, a sustainable emission rate refers to the controlled and predictable release of tokens to balance network growth and security. Sustainable emissions also imply the emission rate can be maintained over the long term. By definition, a sustainable emission rate decreases, such as the Bitcoin halvings, therefore an increase in the STX emission rate conflicts with sustainable practices typically found in the industry.
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By increasing the STX emission rate it demonstrates the token emissions can be manipulated. This reduces the predictability in the emission rate and may reduce trust in the network.
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These reputational risks must be addressed as part of the community decision to approve the SIP. The perception of Stacks as a Bitcoin Layer-2 often times may associates Stacks with Bitcoin philosophy (no changes to emissions, no one-time mints). However, for Stacks to compete with other well-funded chains, with large treasuries and “looser” adherence to Bitcoin philosophy, Stacks may, per community approval, make these protocol-level changes to emissions.
Endowment Creation & Specifications
The endowment will be created … the majority of Top 50 crypto ecosystems (which currently have a median of ~10%, further details are below).
To fund the initial working capital, such as that needed for deployment in DeFi, in liquidity operations, grants, and similar,
1. “…”
2. 100M STX will be created via an one-time token mint, immediately upon implementation of the SIP - while immediately unlocked and usable, these tokens will be used for working capital such as grants and DeFi deployments and will not be released to the open market.
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The initial mint can and most likely will be interpreted as “money printing” which is a taboo activity in crypto culture. It should be explicitly stated that the Stacks total supply is not being increased, only the circulating supply. In lieu of “created” a more accurate term could be “emitted” or “distributed.” Regardless, this mint will be criticised and associated with centralized behavior, potentially attracting negative sentiment and media coverage.
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There potentially may be short term price impacts due to dilution of current $STX holders. The SIP does not address nor quantify the impacts to current token holders from dilution. The Nomiks report addresses various risks such as market sensitivity, survivability and feasibility however no mention of price depreciation due to dilution. If the dilution is negligible, then it must be presented as such.
In summary, an avenue to mitigate these reputational risks is to build a more unified community consensus. This is only possible if the community is made aware of the associated reputational risks ahead of the vote. Therefore, at a minimum, these risks should be addressed by the SIP.
Utilizing the Stacks Protocol as a funding source after the ICO and TGE is unprecedented in the industry. Furthermore, following the history of the SIPs, this will be the first Stacks SIP motivated by funding rather than a technical or security upgrade. Notwithstanding, emission changes have been made to the Stacks Protocol via SIPs (see SIP-029) but again, this is the first proposed SIP with motivation to finance an off-chain entity. With any unprecedented activity, there are associated risks and known risks should be disclosed to the community in the SIP.
Presently, Stacks is the leading Bitcoin Layer 2. In one narrative form or another, Stacks may be viewed as the layer designed to enable Bitcoin to compete with other blockchains in the decentralized finance market. However, for Bitcoin to command market share of DeFi, there may be circumstances when protocol-level changes on the layer-2 are justified. This is the beauty of the STX/BTC stack. Bitcoin remains the pristine L1 asset while the L2 asset is flexible for bootstrapping, technical upgrades, and future-proofing. However, these changes do not come without risks, and fully understanding and disclosing all known risks should be part of the process moving Stacks forward.