What happens after 21M DCR have been mined?

What happens after 20.999.999,99800912 Decred will have been found by miners? As I’ve been pondering about it for some time now and haven’t found explicit answers, I’ve decided to dig it up and share it with you.

  1. Decred’s adaptability: A hedge against future uncertainty.
  2. No more block rewards: Effects on Miners, Treasury, Stakers and Hodlers.

Miners

Some people think that Bitcoin miners will get used to earn solely transaction fees for their Proof-of-Work and that the end of block rewards won’t compromise the network’s security, because blockspace demand will result in higher transaction fees. Others think Bitcoin risks instability in miner behaviour as soon as the block reward subsidies dwindle. In the first case, Decred miners profitability would depend on the demand for blockspace too, as small to medium transactions will run over second layers like the Lightning Network. If Bitcoin were to become the dominant 1st monetary layer, Decred will need to have a moat justifying the use of it. Decred has several distinct features that cause blockspace demand right now:

  • Inelastic demand: Security, privacy, sovereignty, proper DAO&governance
  • Elastic demand: Speculation, narratives

However, there’s no guarantee that the Bitcoin network will remain appealing after all Bitcoin have been mined.

Satoshi Nakamoto believed in Proof-of-Work as a means of fair distribution. Once all 21M coins have been distributed, we need to prepare for the day that miners incentives may change.

Decred’s PoW+PoS system builds on Satoshi’s vision with adaptability and governance.

We may not have all the game theoretical answers today, but Decred provides an option for adaptability, should the need arise.

- Ammar

It is important to note that the concept of a fully fixed supply with persistent power demands is experimental in the first place and Bitcoin will walk that ground first. Thus Decred can adapt and learn from those lessons. One option for Decred would be to have a tail emission like Monero, but keep in mind that tampering with monetary policy is the last alternative, as it attacks the principles and image of a superior store of value. Another option for Decred would be to change to a pure Proof-of-Stake consensus mechanism if Proof-of-Work runs into game theoretical challenges. In this case, miner profitability wouldn’t represent an issue anymore. Instead, staking incentives would have to be revisited. But more on that later.

Treasury

The Decred DAO Treasury relies on 10% of the block reward and was implemented with the intention of funding itself long into the future. This funding goes directly to contractors like our beloved developers who provide additional value to the network. Without block subsidy the Treasury Fund will need to have other sources of cashflow to guarantee its long term survival, assuming the value locked will slowly get depleted. Here is a close estimate of the TVL(Total value locked) in the Treasury IF nothing were to be spent from today onwards.

not too bad huh

As of right now, the Decred Treasury Fund only earns DCR with block-subsidies and donations, so in the future this could become subject to Politeia proposals. There are already multiple ideas on how users of the network could add back to the Treasury, new contributions are more than welcome:

Maybe the Treasury has served its purpose until then.

We might make use of sub-DAOs to fund as a public good.

The Treasury code could potentially become the backbone of sub-treasuries(like corporates or even governments).

If large blockspace demand exists, perhaps transaction fees get the same 60/30/10 distribution as block rewards.

- Checkmate

Diversifying the Treasury holdings is viewed with a critical eye by the community, because it would put these funds out of the stakeholders’ control.

Stakers

Stakers receive 30% of the block reward when their voting ticket is chosen. They yield~5%APY in DCR for time-locking coins and can thereby counteract the inflation process until September 2120. Proponents call Decred’s hybrid model ‘fairer’ than pure Proof-of-Stake, because stakers are getting diluted by the distribution of the block reward. As a result all voting participants who want to maintain the same voting power need to acquire new DCR.

Inevitably stakers cease to get diluted after the 21M limit. Also they cease to earn interest on their stake. They could therefore for instance be incentivised through governance rights instead of yield.

Should Decred be successful, there would be many layers to what benefits stakers may have.

Perhaps the governance system is in itself incentive enough. Perhaps there is a political layer to it all.

Split tickets may allow various factions of people to have their collective voice. It represents hard signalling which could find many uses, even beyond money.

- Checkmate

Hodlers

Finally, in a system like Decred (or Bitcoin) where the supply is finite, inflation will stop, resulting in hodlers using the system for free. They benefit from the continued security provided by miners and stakers without getting taxed anything for it. This will reinforce saving instead of spending and skews the fairness of the system in favor of hodlers. When your currency appreciates you think twice before spending it, which is not necessarily a bad thing. Contrary to conventional belief I think that a reduction of our compulsive spending would be the biggest improvement related to our social behaviour, carbon footprint and economic well-being in years. Having a currency with a fixed supply schedule is for sure a leap in the right direction.

Credits

Thanks to the help of Ammar, Checkmate and the rest of the Decred Community this publication turned out beyond my wildest expectations. It is a pleasure to share ideas with such insightful individuals.

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