How To Save Node Protocols
Nodes are clearly struggling, here are 3 mechanisms that I think need to be implemented in order for them to stay afloat. They are controversial but I honestly think it’s the best approach.
More taxes for early withdraw
Protocols need to implement taxes that reward not selling the token. For example, if you sell within a week, you have a 30% tax, another week, 20% tax, and so forth. COMB has this system and it’s great.
Generally speaking, this doesn’t help as much as people think. The overall net sell pressure is the same, you’re just delaying it. However, delaying it is precisely what we need because we need to give protocols room to breathe so that their utility plans can come to fruition.
Plus some people will be impatient and cash out anyhow, helping the protocol because they are giving less money than they would otherwise. However, this delay system helps only to a minor degree. What truly helps is the other 2 factors.
Rewards need to be lowered
People are going to call me nuts and it will be a massive controversy, but this is the first place to start. Rewards are just too high, period.
We need to get realistic and we need to realize that this space made a mistake and was overly hyped. I’d shift everything to around 0.5% per day. Yes, that will make the ROI way longer.
But do you know what also makes your ROI way longer? Having the price getting lower and lower by the day. Do you really want to keep higher rewards that badly, and then have $STRONG at $50, for example?
Reward taper
Unfortunately, I don’t think the above will suffice. A huge problem that many protocols have made is they created whales that are taking huge amounts from the protocol by getting in very early and getting tons of nodes.
This is especially true for protocols that had high rewards. People who have compounded now receive a huge amount of tokens daily, which they are likely selling every single day. The best way to prevent this is to have overall lower rewards.
But as I’ve mentioned many times the rewards need to taper overtime in some fashion as well. The problem with just lowering rewards now is that it doesn’t change the past. People who went from 1 node to 10 nodes are still going to have 10 nodes.
Once again this is hugely contentious, but this needs to be kept in check. I think a retroactive reward taper could work. Meaning that based on how much you’ve taken out of the protocol (luckily this should be easily known because everything is public on the blockchain), your rewards will taper accordingly.
Many people talk about not punishing whales because they also contributed to the protocol and they created the initial price action and funded the whole thing. That’s true. But in my opinion, that still doesn’t justify compromising the protocol just so that they make even more money.
The taper should ideally be based on some kind of ROI scaling. For example, IMO it’s a lot more unfair cutting rewards to someone that just got into the protocol and they are not even close to ROI. E.g. someone got a STRONG node at 7k and then the price immediately crashed and they might have gotten maybe $700 out of it in the meantime (10% ROI).
Compare that to someone that has had STRONG for 1 year straight and they bought a node for $2000 and they’ve cashed out $10k from it, having a 500% ROI (These numbers are made up, just making a point). It makes way more sense to tax the latter person more. Of course, whales don’t like to hear this, but 1) it’s true anyway, and 2) whales are probably going to be better off in the long-term anyhow.
Even with a taper, they are still going to make plenty of money. And they are going to do it for many months or years. No matter how many nodes you have, if the protocol dies then your return is going to be 0. While I already think this is going unnecessarily far, if protocols really don’t want to punish early investors by doing these measures, then you can simply reward those early investors after. For example you can give airdrops once the protocol is healthier again, compensating the reduction to some degree.
All the numbers discussed here are only examples, this would have to be studied and adjusted as needed. The point is the overall principles. If we want this to work, we have to pivot as needed and not just watch protocols going downhill and doing nothing.
Yes, many are working on utility, but it’s a very dangerous game to simply rely on that and hope that works out in the end. We need to make protocols more sustainable now. Even if the utility does help a lot, the protocol may die before we get there. Not very helpful.
We are determining our own future. I fully expect if any protocol is going to try implementing this, there is going to be a heavy pushback. It’s up to you on which side you want to be on.
The side that is willing to let off the short-term rewards for the greater good in the long-term, or if you’re going to cling to current high rewards that may eventually be worth nothing.
If you want this change, then be active. Don’t just hope that it will come. Share these ideas with the protocols you’re invested with. Discuss it on Twitter, Discord, etc.
I believe that if we are smart about this, we can pull it off. But greed is our biggest obstacle.
