For those who have been following Tau they know that at some point Ohad made the case to implementation of risk free interest. This post I'm making here is based on my studying the game theory and comparing the economic efficiency of Risk Free Interest vs Token appreciation.
Interest vs Token Appreciation
Risk Free Interest is very similar to staking rewards. From Risk Free Interest the account holder may lock up their token or do some other process and then from this receive a regular income. A lot of people get excited about this and the game theory around staking is well known. In staking those who stake the most for the longest generally get the best income.
The longest biggest stakers generally win commonly due to compounding, where earlier stakers can end up with a greater percentage of the overall profit pie. So what exactly is this profit pie which everyone in staking competitions compete over? Generally it is the percentage of the supply each staking participant owns which determines how much income they can get.
Staking is not perfect and has it's flaws but assuming that the Agoras Risk Free Interest works something like this it will give some indication on what the game theory could look like. Imagine a tournament where every player in the tournament wants the biggest percentage of the token supply so as to get the biggest profit, then imagine all the possible strategies each player could try.
Token Appreciation may be superior to Risk Free Interest. The reasoning? Instead of participants being in competition to see who can get the most income (which gets taxed as regular income) instead the participants would compete to burn the most token supply. This burning of the token supply creates deflationary pressure over time which results in token appreciation assuming the demand stays the same or increases over time. The participants who play the token appreciation game actually keep more of their money because capital gains taxes generally are lower than ordinary income taxes. This would indicate from the game theory that for the network there is more benefit to all players if token appreciation is favored over interest due to tax efficiency alone.
But what other effects can there be? When there is token appreciation there is also a lot more press than there would be from higher interest rates. When is the last time a Proof of Stake blockchain made the news because the yield or interest is high? Do we even know the current interest of Ethereum or Tezos or any of the currently popular staking platforms? Yet there is a lot of attention given to the deflationary mechanics, memes like ultra sound money catch on faster than memes about compound interest.
My suggestion
I suggest going with a hyper deflationary game theory as the primary initial game theory for Agoras. I think this can be combined with Risk Free Interest for those who choose to participate in that. The benefit of supply reduction at either fixed or variable rates, is that all holders benefit without any need to do anything, or stake anything, or learn anything. The gamification of this process can simply be to have Agoras rely on leaderboards which rank the best performing (highest burn rate) applications/processes on Agoras. For example if transaction fees are burned or if some percent of transaction fees get burned, then allowing the community to see and rank the processes responsible for this by the burn rate would be an example of a gamification mechanic which could encourage even more similar designed apps.