Background: I was following the progress of Jackal Labs since they were building on Secret Network, because I believe in the necessity of privacy and my right to determine who has access to my data. Therefore I would like to start contributing to this thread. Although I studied economics, I do not work as a researcher nor do I currently work on economic models, so please take my comments with a grain of salt.
Problem: At this point the community doesn’t have sufficient information to make informed decisions nor to meaningfully contribute to a discussion regarding a sustainabel economic model. I read through the tokenomics paper and unfortunately it remains a complete mystery how $JKL becomes valuable and how this network can become succesful. As impressive as the technology behind jackal is, this paper is disappointing. It doesn’t seem like anyone has put any serious thought into it. It’s not meant as an offense and somewhat understable. You guys want to focus on your tech and build cool applications. Initially you wanted to launch on SN, so starting your own chain has added complexity and during a bull market few people pay attention to tokenomics, so tokenomics felt like a duty that just had to be done.
The only part where the tokenomics paper gets concrete is the inflation schedule, the initial supply and the airdrop mechanism. Airdrop and initial supply can’t be changed anymore, so let’s take a look at the inflation schedule. It remains unclear, how the writer came up with this schedule and with the split between storage provider (60% of inflation) and stakers (40% of inflation), but in the end the original reasoning does not matter, because the design is not good in the first place. Jackal , like every other company in the world, needs to be able to adjust the available data storage. This is not going to happen with fixed payments. Imagine a market place where the price of an apple is fixed at 1$. If the market price of an apple is 2$, no one is going to be there to sell his apples. If the current market price is 0.1$, you will be swamped with apples. This is the current model to provide incentives for storage providers in a nutshell.
Storage providers are paid with 60% of the inflation, so you can right now calculate the cash flow (in $JKL), which goes to the storage providers over the next 10 years. At a given exchange rate $/$JKL, storage providers can look at their own costs and determine their supply of data storage, they want to offer. If we assume that you magically set the incentives at a level, where the demand of people who want to store data matches the supply of data storage, you can be happy. But in the short term the supply is fixed and the demand can be very volatile. If the demand drops, you have plenty of unused data storage (you are wasting money) and if the demand rises, you would need to provide data storage yourself or you need to put a warning “sorry, we are unable to story your data”. As the $JKL token is very volatile it can be assumed, that during a bull market we end up paying for unused resources and during a bear we are going to struggle with getting a sufficient supply of storage. Right now we overpay for storage not because we are in a bull market, instead because the demand is low and we set the supply too high by using excessive incentives.
Therefore, we need an economic model, where the supply of data storage is dynamic and adapts to the demand. Right now, the model which is described in the paper, leads to a supply which is fixed and varies with the $JKL price - not with the demand.
There is a variety of possibilities to set up a new model for Jackal, but as I pointed out in the beginning, the information we do have is quite limited. I would propose that the jackal team provides an update with relevant data, so we can afterwards try to create a working model. A sustainable economic model should include more than fixing the relationship between users, jackal network and storage providers. We need to talk about the dApps you are building, the relationship with our validators, inflation in general, the revenue model, liquidity on DEX’s etc. Everything together creates a working model, not playing with one part of it.
We should see this as a chance to create a sustainable model for Jackal. Right now, this discussion is going in the direction of reducing emissions and adding a burning mechanism. This would change nothing. I cannot stress how stupid this move would be. I know this is crypto, but for the sake of the argument, think about a startup with a broken business model. Using the little revenue they have to buy back some stocks will only lead to insolvency sooner than later.
