Monetary policy "32x6".

monetary_policy_32x6.md

Monetary policy "32x6".

Monetary policy intends to manage liquidity to create economic growth. Liquidity is how much there is in the money supply. The primary objective of monetary policy is to control inflation.(1)

Current situation.

Start Block	End Block	Estimate End Date	Block Reward Reduction, %	Block Reward	Total CLO	Mining CLO per month
1	5 000 000	15.04.2020	0	600	3 100 000 000	124 416 000
5 000 001	10 000 000	08.04.2022	32	408	5 140 000 000	84 602 880
10 000 001	15 000 000	01.04.2024	32	277	6 527 200 000	57 529 958

Table 1. Actual Callisto Network monetary policy.(2)

Actual monetary policy is not designed for the long term, and the total supply of coins in 6.5B will be reached in 2024. After that, the mining of new coins will be stopped, and the miners will get only transaction fees, Cold Staking will stop working, and there will be no deductions to the Developer Treasury.(3)

In addition, the inflation rate is so high that it requires constant large investments only to maintain the current price, and if there is not enough investment, the price will decrease.

Just simple calculation. With current emission rate, we mint about 120M CLO monthly. About 100M from that amount sells on an exchange. With price 120 sat per CLO it's about 120 BTC. It means that we need 120 BTC monthly investment in Callisto to keep a price on the same level.

Taking into account all the above, we should change monetary policy as soon as possible.

My proposal.

The idea is that with less money in the current circulation, each unit is more valuable. So by decreasing the money supply, can prop up the value of its coins and stop inflation.(4)

I propose to decrease block rewards by 32% each 500 000 blocks starting from a block 2 500 001. And do it six times until mining reward per block reaches 59 CLO. Moreover, to avoid reaching total supply in 6.5B shortly, block reward will be reduced by 1% each 500 000 blocks starting from the block number 29 000 001. These measures will help to retain current supply of coins below 2.5B in the next 4 years and help to rise the CLO price even with small amount of investments.

Start Block	End Block	Estimate End Date	Block Reward Reduction, %	Block Reward	Total CLO	Mining CLO per month
1	2 500 000	19.04.2019	0	600	1 600 000 000	124 416 000
2 500 001	3 000 000	30.06.2019	32	408	1 804 000 000	84 602 880
3 000 001	3 500 000	11.09.2019	32	277	1 942 720 000	57 529 958
3 500 001	4 000 000	22.11.2019	32	188	1 942 720 000	39 120 371
4 000 001	4 500 000	02.02.2020	32	128	2 101 193 728	26 601 852
4 500 001	5 000 000	15.04.2020	32	87	2 144 811 735	18 089 259
5 000 001	5 500 000	26.06.2020	32	59	2 174 471 980	12 300 696
5 500 001	6 000 000	06.09.2020	0	59	2 204 132 225	12 300 696
...	...	...	...	...	...	...
29 000 001	29 500 000	28.12.2029	1	58	3 597 867 127	12 177 690
...	...	...	...	...	...	...
347 000 001	347 500 000	15.12.2155	1	0.1	6 499 998 841	20 396

Table 2. "32x6" monetary policy.(5)

Pros and cons.

• Pros:
  • it has long term, the Total Supply in 6.5B will be reached around 2155 year;
  • lower emission rate will help keep CLO price on the bearish market and raise the price on the flat or bullish market;
  • within 18 months will reduce inflation to 7% per year which will make CLO more interesting for investors.
• Cons:
  • will reduce Cold Staking annual rate;
  • will reduce supply to Developer Treasury (in CLO) but it may be more valuable due to a higher price.

References

1. What is Monetary Policy?
2. Callisto Network monetary policy spreadsheet.
3. The cold staking contract receives 20%, and Developer Treasury gets 10% of all mining rewards per block.
4. Economy - What is Monetary Policy?
5. "32x6" monetary policy spreadsheet.