Making the Reward Fund Distribution Sensitive to the Vested Blurt Economy

This is the one single macroeconomic issue I would like to see added to Blurt. An Issue has already been raised: https://gitlab.com/blurt/blurt/-/issues/84 . This post is to keep the community informed, especially those who may not regularly read the Gitlab repository and issues.

The Issues

The reward-pool currently reacts to the rate of change of recent-claims, so is sensitive to activity. However, it does not know anything about the size of the "active economy" from which votes come from, meaning the powered-up BLURT compared to the total BLURT supply.

I often use the analogy that the reward pool behaves like a carburettor; it reacts to changes in the accelerator pedal but it doesn't really know whether the car is moving or not!

This has become important on Steem and Hive as they have accumulate a very large mountain of liquid, unvested coins, largely within exchange accounts. This would not in itself be a problem except that the coin-minting rate - usually called the inflation rate - is algorithmic and fixed, decreasing very slowly over time. This has had the consequence of pouring more coins into a saturated market, thereby increasing further the percentage of unstaked coins.

This also has a negative psychological effect and game-theoretic consequences for those users still vested and active: it becomes obvious that any increase in vested coins by any other users will reduce the share of rewards to existing users. This has, indeed, always been a widespread perception that every vote takes away rewards from all other voters. This is not a good economy that encourages on-boarding.

Sadly, Blurt has inherited some of the same features as its predecessor, but we can do something about changing this negative feedback loop. I propose to make the reward-pool responsive to both activity and the size of the active economy.

The Formulas

The current basic formula for post-rewards at the time of payout is as follows:

post-rewards(blurt) = reward-fund * post-claims / recent-claims

where post-claims are the claims generated by a particular post at the time it pays out.

I wish to insert an extra ratio into this of (staked-supply)/(current-supply).

We can see these numbers on https://blocks.blurtwallet.com/#/ and I'm using the words as on that site.

So the new rewards payout formula will be:

post-rewards(blurt) = reward-fund * (post-claims / recent-claims) * (staked-supply)/(current-supply)

or

post-rewards(blurt) = reward-fund * post-claims * staked-supply / (recent-claims * current-supply)

whichever is easier to code and bearing in mind whether integer or decimal maths.

One small point here, the supply numbers could be turned into integers by truncating the decimal parts without any loss of accuracy; this may make faster calculations.

The Consequences

What will be the consequences of doing this?

The current ratio of vested/total-supply is about 0.5, so initially rewards will fall. However, the reward-pool will thus increase fairly quickly and, as it does so, users will experience their rewards increasing again. There will come a new stable level at which users experience will be almost the same as now: rewards as a percentage will have dropped but at the same time the pool has also grown much larger.

This will take maybe 2 to 4 weeks to resolve itself, but although it may feel like we're back to where we started, there is a crucial difference in the way the Blurt economy will henceforth respond.

The reward pool will then act more like a medium-term treasury rather than a short-term faucet.

The most important thing is the new positive feedback between vesting and rewards. An increase in powered-up vested BLURT will also then increase how much of the reward pool is being paid out. No longer will we have people concerned that new users are somehow taking away some expected rewards because such new users will slightly increase the proportion of the reward pool that is being paid out.

This change will encourage both powering-up and on-boarding.

Looking at the very long term, even when inflation has dropped to 1%, the Blurt economy will continue to respond to both activity and how many BLURT are actually vested. As this happens very slowly, the reward pool may well have grown so large that users are still getting meaningful rewards. That will all depend on how many vested BLURT are in the economy then, but whatever that amount is, whether much higher or lower, the distribution of coins will remain commensurate to the size of Blurt's active economy. We also trust that the market value of BLURT will be much higher in the future.