[Ext]: Grant Program Forum Post Part 2 - Macroeconomics and Tokenomics

The Moonbeam Foundation recently engaged Gauntlet to conduct a macroeconomics and tokenomics study to address the need for a sustainable business model for critical ecosystem functions. The goal was to identify levers and propose adjustments to increase the sustainability and development of the Moonbeam ecosystem. Due to the similarities in mechanism design and applications and pending future analysis, these approaches and insights could also be used for the Moonriver ecosystem.

Levers Considered

Gauntlet analyzed four key macroeconomic and tokenomic levers:

  1. Parachain Bond Reserve (PBR) Take Percentage: This represents the 1.5% proportion, of the aggregate 5% inflation, allocated to the PBR that could be used to pay for existing network infrastructure costs—either by the Foundation directly, or by way of the Moonbeam community controlled on-chain treasury. Increasing this percentage would allow a portion of the growing PBR inflation to be redirected toward supporting ecosystem operational costs.
  2. Stake Increase Percentage: This represents the proportion by which the Moonbeam Foundation increases its contribution to the total stake constituted by the active set of collators. For example, with roughly 384 million GLMR in the active set, a stake increase percentage of 10% would mean that the Foundation would add 38.4 million more GLMR to the active set, resulting in an updated active set size of 422.4 million GLMR.
  3. Transaction Fee Take Percentage: This represents the proportion of transaction fees that the Moonbeam protocol redirects to the on-chain treasury, with the remaining fees burned. The current value is 0.2.
  4. Transaction Fees Multiplier: This represents the potential impact of conducting programs that aim to meaningfully increase transaction volume on the Moonbeam network, which would implicitly lead to higher transaction fees, assuming the Transaction Fee Take Percentage remains constant at its current value of 0.2.

Gauntlet assessed each lever’s potential revenue opportunity and practicality of implementation. The study provided valuable insights into each lever’s relative feasibility and effectiveness.

Joint Impact Analysis

Given the complex nature of the system that represents Moonbeam’s macroeconomics and tokenomics, analyzing the joint impact of these four levers is crucial. To this end, Gauntlet employed a two-step modeling approach.

First, Gauntlet built a simulation of Moonbeam’s operations, considering varying configurations of the levers and future price scenarios for GLMR. This simulation was designed to ensure that the proposed changes would not negatively impact the continued operations of Moonbeam’s network and ecosystem. Next, Gauntlet built a second set of models that distill the data generated from the simulation into a notion of marginal impact. The marginal impact represents the positive revenue opportunity per unit change of each lever individually while accounting for the effects of the other variables in the system. By increasing revenue, the Moonbeam ecosystem can improve its sustainability.

In addition to marginal impact, Gauntlet assigned each lever a practicality score. This score represents the practical difficulty of implementing a change to a given lever. Factors considered include technical complexity, potential higher-order effects that are more difficult to model, community appeal, etc. This score was assigned manually to each lever.

Finally, to determine an overall prioritization, Gauntlet computed a hybrid desirability score for each lever. This score combines the practicality and marginal impact scores, providing a single metric with which to rank the levers.

The combination of these modeling approaches and the hybrid desirability score enables the Moonbeam Foundation to make informed decisions about which levers to prioritize for the ecosystem’s sustainability and growth to present to the community. Gauntlet used the insights gained and the outputs of this research to inform our proposed adjustments below.

Agile CoreTime Funding Analysis

In addition to the four levers, Gauntlet conducted an in-depth analysis of the funding scenario for Agile CoreTime computational resources once Polkadot transitions to this model. The key findings are as follows:

  1. The Moonbeam Foundation currently has 165,000 DOT bonded for a 24-month parachain slot lease and 126,000 DOT being staked, earning a ~9.27% annual return.
  2. Estimates for CoreTime pricing were derived from Polkadot community forum discussions (Initial Coretime Pricing - Governance - Polkadot Forum), suggesting a range of $1,000 to $2,500 per core per month.
  3. Assuming a (highly) conservative estimate of 10 cores needed for Moonbeam each month, the annual CoreTime costs could range from $120,000 (at $1,000 per core per month) to $300,000 (at $2,500 per core per month).

By unbonding the 165,000 DOT used for the parachain slot lease and combining it with the 126,000 DOT being staked, the Foundation would have a total of 291,000 DOT to invest in a vehicle to pay for CoreTime resources.

Given the current DOT staking rate of ~16.7%, staking the Foundation’s 291,000 DOT for a year would generate a return of ~26,975 DOT. This return is sufficient to cover the estimated CoreTime costs under most pricing scenarios, with the Foundation potentially needing to supplement the initial stake with a small amount in the highest-cost scenario.

The analysis demonstrates that the Moonbeam Foundation can largely sustain CoreTime payments using its existing DOT holdings and staking rewards alone, providing confidence in the Foundation’s ability to transition to the new model of paying for computational resources on an ongoing basis.

Proposal: Increasing PBR Take Percentage to 80% and Enhancing Community Participation

Gauntlet proposed several scenarios to the Foundation, and we’re now presenting the selected scenario here. This proposal aims to leverage the findings of our study to optimize resource allocation and increase community participation in decision-making. The key components of this proposal are as follows:

  1. Self-Sustaining CoreTime Costs: As demonstrated by the Agile CoreTime funding analysis, Gauntlet has reason to believe that the network’s CoreTime costs can be paid for in a self-sustaining manner using its existing DOT holdings and staking rewards.
  2. Repurposing PBR Revenue: Given the ability to fund CoreTime costs through DOT staking, the Foundation proposes to increase the Parachain Bond Reserve (PBR) Take Percentage to 80%. The funds from this increased take will be used to further subsidize key ecosystem infrastructure costs which, in line with the broadly intended use of PBR funds, will help to further secure the network (see GLMR Transparency Commitment).
  3. Treasury Allocation: The revenue from the increased PBR Take Percentage could eventually be redirected to the on-chain Treasury. This allows for a governance process and proposal system to assess and deliberate on certain spending choices.
  4. Encouraging Community Proposals: If PBR revenue is redirected to the treasury, the Moonbeam Foundation will encourage the community to submit proposals for covering a subset of the costs currently borne by the Foundation. This approach fosters discussions on alternative providers and the necessity of certain expenses, potentially improving the return on investment for ecosystem costs.
  5. Exploring a 10% Stake Increase in the Future: While not part of the immediate proposal, Gauntlet’s analysis suggests that this change represents yet another safe and meaningful opportunity for the Foundation to further fund infrastructure costs, grants, expansion, etc. We encourage the community’s feedback on this point.

It is important to note that the additional funds from the increased PBR Take Percentage are not intended for unrelated or speculative purposes. Instead, the Foundation aims to stay true to the original goal of these funds, which is to continue supporting core ecosystem infrastructure costs and ensuring Moonbeam’s long-term sustainability as a parachain on the Polkadot network.

Next Steps

The above analysis provides insights into potential strategies for ensuring the long-term sustainability and growth of the Moonbeam ecosystem. As a next step, we invite the community to provide feedback on the proposed changes and their implications, to suggest additional strategies that could be considered, and to move forward with determining the implementation plan for Moonbeam and Moonriver. We look forward to fruitful community discussions—and hopefully future collaborations—to help shape the future of Moonbeam and Moonriver.

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As a follow up to this post, here is the Moonbeam Foundation’s take:

TLDR;

  • The Moonbeam Foundation fully supports Gauntlet’s proposal and is looking forward to questions and comments from the community
  • This proposal would mean the Moonbeam Foundation would have greater capacity to fund community programs, grants and innovative improvements to the core protocol
  • Gauntlet’s analysis suggests that Agile Core Time for the networks can be paid for via DOT/KSM staking rewards rather than relying on the Parachain Bond Reserve
  • Network Infrastructure such as block explorers, RPC infrastructure, Oracles and developer tooling can be paid for by redirecting 80% of the inflation going to the Parachain Bond Reserve to the Treasury

The Moonbeam Foundation would like to thank @jakeaujus and the Gauntlet team for their detailed analysis, modeling and for the resulting recommendation that was arrived at in consultation with members of the Foundation.

The fact that the staking rewards from the DOT and KSM reserves accumulated thus far by the Moonbeam Foundation should support agile core time costs in a sustainable manner means that the portion of inflation directed to the Parachain Bond Reserve might be put to other uses.

As stated in the report, the original purpose of this allocation was to ensure the long term sustainability of the Moonbeam/Moonriver networks as parachains on the Polkadot/Kusama networks. At the same time, the utility of the chains themselves are vastly diminished without the presence of key infrastructure components such as RPC services, block explorers, oracles, developer tooling, etc.

This infrastructure is critical to the long term success of the ecosystem and the majority of these costs are currently being borne by the Moonbeam Foundation. By using 80% of the Parachain Bond Reserve inflation, we have a sustainable way to pay for these key infrastructure costs and is in keeping with the spirit of the original purpose of the PBR allocation.

This in turn increases the Moonbeam Foundation’s capacity to fund:

  • Community, education and outreach programs
  • Grants and the Innovation Fund designed to attract new teams to the ecosystem
  • Invest in innovative capabilities for the core protocol
  • Partnerships that expand the utility and audience of the networks

Moonbeam and Moonriver are still relatively new. The Moonbeam Foundation’s focus remains building out innovative capabilities, attracting builders and fostering a committed and decentralized community.

While focusing on adoption and building traction, it’s important to keep fees low and to continue to invest in the core technology. Therefore, at this point in the ecosystem’s development, the recommendation is to fund these infrastructure costs through inflation rather than attempt to do so through fees. Longer term, as adoption reaches critical mass, the community can look to inverting to a model where these costs are covered by protocol generated fees.

As described in the proposal, the PBR take percentage could be directed to the on-chain treasury. This could be beneficial to the overall ecosystem in several ways:

  • Allows for greater transparency into network costs and the infrastructure providers selected to provide the services
  • Allows for greater participation and consultation with the community
  • Could increase competition to provide certain services and reduce costs

However, this comes with some challenges as well:

  • Some service providers may be reluctant to adopt the treasury process due to the volatility of the GLMR/MOVR tokens, the lack of a formal legal agreement with a counterparty and/or having the terms/costs of the service made public.
  • With the increased size of the treasury budget and expansion of the mandate, arguably the current treasury council size and structure may need to be matured in order to have the appropriate level of accountability and expertise.

Despite the challenges, the Moonbeam Foundation would propose that the core protocol be modified in an upcoming release to redirect 80% of the PBR inflation to the on-chain treasury and work to grow/mature the Treasury Council structure and scope over time to address these challenges.

It will take some time for a sizable amount of tokens to accumulate and during this time, the Moonbeam Foundation in consultation with the community would commit to researching and implementing a more robust body to oversee the management of on-chain treasury funds that fosters transparency and accountability while simultaneously is effective at ensuring funds are used appropriately and in the best interest of the community and ecosystem.

Lastly, many may be asking the question why only 80% of the parachain bond reserve inflation? Having the remaining 20% continue to be directed to the PBR helps to mitigate the risk of agile core time costs being larger than anticipated. For example, it may be necessary for the Moonbeam Foundation to accumulate additional DOT to stake to support agile core time needs.

The Moonbeam Foundation encourages community members to engage in this discussion and ask any questions they may have. If desired by the community, we may schedule a Spaces event on X to address questions and concerns raised here.

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hey @jakeaujus, thanks to you and the entire Gauntlet team for your effort in writing these recommendations!

@aaron.mbf, thanks for sharing the Foundation’s perspective. assuming these recommendations will be accepted by the community, I have some questions for the Foundation gathered from community discussions :point_down:

  1. Considering the increased size and complexity of the treasury budget, what are the plans to expand and diversify the Treasury Council to ensure it has the necessary expertise and capacity to manage these funds effectively?

  2. How will the Treasury Council assess and measure the impact of projects funded by the treasury? Will there be specific metrics or KPIs that recipients need to report on?

  3. Can tokens allocated in the tokenomics be burned if the community decides so? For example, could a specific amount of tokens be burned while still ensuring sufficient funding for infrastructure and other projects? How will the decision to burn treasury funds be made, and what criteria will determine the amount and frequency of burns?

  4. Will there be guidelines to manage the selling of tokens received by projects from the treasury? Could there be a phased selling mechanism or vesting schedule based on the specifics of the proposal to alleviate potential selling pressure and protect the token’s value?

  5. Are there plans to set a maximum limit on the amount of funds that can be requested per proposal? How will this limit be balanced to ensure that both small and large-scale projects can be adequately funded without overburdening the treasury?

  6. Will the treasury funds be utilized for the Grants program, or will this program be financed separately through the Moonbeam Foundation’s budget? What will be the specific differences between Grants and Treasury funding?

  7. Are there any plans to implement limits on the number of proposals that can be approved within a specific timeframe (e.g., weekly/monthly) to prevent a surge of proposals that could lead to significant token releases and potential selling pressure? How will these limits be determined and enforced?

  8. Will there be a cap on the amount of funds a specific team can request from the treasury within a given timeframe, such as per month or per year? How will these caps be determined and monitored to ensure fair distribution of resources?

  9. Will there be specific limits on the number of development, marketing, community, and infrastructure proposals that can be approved within a given period to ensure a balanced allocation of resources?

  10. Are there specific types of projects or activities that the treasury will not support, such as gambling projects, meme coins, or other high-risk ventures?


I did some rough calculations based on the PBR balance increase. by my estimates, the GLMR treasury will grow annually by around 13M GLMR and the MOVR treasury by approximately 120k MOVR. these are rough, napkin calculations, but it looks like a significant increase that can support the ecosystem and benefit the entire Moonbeam and Moonriver communities

@jakeaujus could you please clarify if these calculations are correct? or perhaps you have more accurate numbers?

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Hey @turrizt !
Thanks for the excellent points and thoughtful questions!
The @TreasuryCouncil definitely has these considerations in mind, and it’s great to know that the community is thinking about these questions as well.

We’re actively brainstorming on these points, and together with the elected Treasury Council members we will share more details in the coming months. This includes guidelines, processes, responsibilities, scope of work, etc. All of them will be shared here on the Forum for community review and input as they’re developed.

In the meantime, if you don’t mind me answering your questions instead of Aaron (who is busy at the EthCC at the moment :slight_smile: ) let’s address each question here to give the community a general idea of our direction. While these aren’t exhaustive answers, they should provide some insight.

To manage the potential increase in the treasury budget’s size and complexity, we will need to consider expanding and diversifying the Treasury Council. Here are some initial considerations: Members will be elected based on their expertise in areas such as business development, technology, DeFi, marketing, etc. As the Treasury grows, we will proportionally increase the number of council members to ensure effective oversight and strategic decision-making. This approach ensures the council has the necessary expertise and capacity to manage the funds efficiently.

That’s something for the Treasury Council to develop and propose to the community.

Based on the Gauntlet’s findings, while the community has the ability to propose token burns, such proposals need to be exceptionally well-considered due to the potential detrimental effects on the entire ecosystem. Any such proposals must be detailed and demonstrate a clear understanding of the implications.

It is a good point and the Treasury Council should consider this.

It is something for the Treasury Council to consider and propose to the community as part of this next phase of its evolution.

For the time being, the Grants Program is a separate initiative. However, there might come a time when it can be absorbed by the Treasury, depending on how the community would like it to evolve

This will be considered by the Treasury Council and proposed here on the Forum.

Guidelines and administrative procedures will be developed and proposed here for the community to review and comment.

If there is a need for that, limits on the types of proposal can be introduced.

The Treasury must prioritize projects that demonstrably benefit the Moonbeam ecosystem. While there isn’t an official blacklist, certain project types might not be a good fit. As described above, the focus will be on core ecosystem infrastructure and tooling that are deemed to be essential to the ongoing support and operation of the parachain.

If there are suggestions, more points we should consider, advice - I’d ask everyone to share them here and contribute.

And I’ll tag my colleagues from the Treasury Council to chime in here as well @dev0_sik @_yrn @micheleicebergnodes .

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First of all let me say Thank you @turrizt for this post, you well know how much I deem key the community focus and all these points are coming from daily discussions inside tg groups so really, you outlined the key items on which we will work in the incoming months, like @lina.k.m already explained here above.

From my side just few comments with reference to some items out of your list:

I personally think that here you touched one of the biggest point in terms of how much our Community is concerned when it comes to funding initiatives. They always ask “what if they dump on us?” and tbh is a reasonable question. We nees to find a good balance between strategic funding for the growth of the project and the preservation of token’s value. Vesting could be an idea, but also other mechanism could be considered. For sure this will be a Priority.

Here I totally agree with @lina_k_m, at the moment the two entities (Grant Committee and Treasury Council) will be kept separated. For sure considering the increased budget about Treasury, scope of action for Treasury Council will be significantly enlarged but this do not necessarily imply an overlap with Grant Committee scope. Indeed I think that this tokenomics change will trigger the opportunity to better specify the two different scopes allowing an higher degree of specialization for both.

Also on this key question I think that @lina.k.m answer is the correct one: to cope with an increased budget / amount of responsibilities we need to develop a new Council structure capable to manage the additional complexity, leveraging on all the skills we can retrieve among our amazing Community members. Know How, Committment & Teamwork will be the key assets, and MB Eco owns all of these.

Here you touched another key point dear @turrizt, indeed. Personally I am not in favor of “blacklisting” as a general approach but yes, when it comes to manage Community resources the Risk/Benefit ratio is the key parameter, for sure we cannot afford “wild adventures” with the money of the Community. So yes, case by case we will consider the content of each proposal looking at all the possible implications for the Project and the Community, applying the mid/long term perspective that a serious/high value project like Moonbeam deserves.

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This makes total sense. All for it :raised_hands: