The SAFE network can be seen as a decentralized autonomous non-profit organization. It has internal capital, in the sense that it can recycle and issue new SafeCoins (to a limited extent). It has income in SafeCoin from clients PUTting data. It also has expenditures in SafeCoin by sometimes rewarding vaults who successfully serve data GETs. Another (relatively minor) group of expenditures is app popularity rewards (which for simplicity I’ll further ignore).
So in a way SAFE can be seen as a regular economic actor. It is even theoretically possible for SAFE to go “bankrupt”. Bankruptcy would occur if the SAFE network would not be able to compensate vaults sufficiently to keep them providing their resources to the network. Data loss would occur and SAFE would fail in it’s goals. This thread is not about such doom scenarios though, I merely mention this to try to set a frame of reference. So let’s move on to the actual topic.
Lowest PUT price discovery
To be successful in achieving it’s goals, the SAFE network has to manage it’s resources wisely. One of the goals of SAFE is offering storage space at the lowest possible price. Since SAFE is a non-profit entity, that means offering storage space at a price at which it won’t go bankrupt, while minimizing expenditures at the same time. I’ll explain the way of minimizing of expenditures first.
The algorithm to minimize expenditures will do so by adapting the ‘farming difficulty’ according to the network’s needs. The ‘farming difficulty’ is a factor that influences the chance of vaults earning SafeCoin on serving GETs. The network will aim to have 20% free space available relative to it’s total capacity. So if the network is filling up above that level the farming difficulty is lowered to encourage more farming. The inverse is also true, to minimize expenditures.
Let’s go back to not going bankrupt. The goal here is to eventually break even with a minimal amount of capital left. This is because another goal of the network is, as the network grows over time, to issue to it’s participants (nearly) all of the 4.295 billion SafeCoins that may be in existence. So initially, the network is expected to lose capital, and those losses will taper off over time until (nearly) all SafeCoins are issued and then the network will break even.
Now we come to the part where I got stuck when thinking about this. The network has PUT income, GET expenditures, and an X amount of capital it is supposed to lose over time. The capital it loses over time is the result of the difference between PUT income and GET expenditures, of which all factors are dynamic. My question is: How can the network calculate the lowest price possible at a given point in time without knowing how much losses it ought to have made up to that given point in time? Or in other words: How can the network calculate the lowest price possible at a given point in time if the network doesn’t know how much SafeCoins ought to be in circulation at that point in time?
Maybe it does know this, I’ve near read anything about it though. I think it is important, because else I think the PUT price isn’t the ultimate dependent variable of this part of the equation, and probably won’t find the lowest value, or if the price is too low, the issuance of new SafeCoins might be too fast leading to significant inflation.
Don’t get me wrong, I don’t advocate issuance like in Bitcoin, where the only factor is the passing of time. MaidSafe’s goal is SafeCoin issuance following the growth of the network to aim for a proper, beneficial distribution of SafeCoin to avoid excessive wealth concentration among early adopters, and I think that’s a great goal.
Maybe it’s an idea to let issuance be dependent on the used capacity of the network? We could pick a goal, for example a network capacity of X exabytes, at which the network would have issued about all SafeCoins. When network growth would be stagnant, the SafeCoin supply wouldn’t grow significantly. When there is suddenly a huge popularity boost the SafeCoin supply would expand accordingly. This would be quite resistant to manipulation as well, as spending SafeCoin to PUT data just to increase the rate of issuance could never be profitable.