Qena Protocol Proposal: A Response to Quebec’s Adaptive Issuance Change

Qena for Tezos

Introduction to Qena

The Qena protocol proposal offers a robust alternative to the Quebec proposal, emphasizing stability and technical progress without disruptive economic changes. By maintaining the current adaptive issuance mechanism and avoiding frequent economic adjustments, Qena ensures a more predictable and stable environment for the Tezos ecosystem. The proposal highlights the importance of allowing adaptive issuance to mature, supported by thorough research, and presents practical alternatives for managing issuance without introducing unnecessary complexity. Overall, Qena prioritizes long-term growth, market stability, and thoughtful innovation, making it a more responsible path forward for the Tezos community.

Read more about Quebec A/B here: https://research-development.nomadic-labs.com/quebec-announcement.html

Key Details

1. Qena brings all the technical features of Quebec without economic changes, ensuring progress without disrupting current economic dynamics.
2. Adaptive issuance hasn’t matured yet. We are nearing maximum issuance, driven by economic incentives to delay staking.
3. Frequent economic protocol changes create instability and unpredictability, which can have long-term negative impacts.
4. The current adaptive issuance model is backed by research, unlike the proposed curve-limiting mechanism in Quebec.
5. Limiting adaptive issuance restricts its ability to adapt to market conditions.
6. Changing economic protocols to address demand hasn’t proven effective elsewhere.
7. Quebec A/B would have a clear negative impact on rewards post-activation, which may affect market stability and reduce the likelihood of reaching the staking target.
8. There are simpler, more effective alternatives to manage issuance, like modifying delegation rules or adjusting staking targets.
9. We propose separating technical and economic protocol votes to ensure smoother progress without destabilizing the market.

Natural Market Forces and the Risk of Over-regulation

The market, much like a natural force, operates on principles that cannot be easily manipulated without risking unintended consequences. Adaptive issuance, an innovative mechanism designed to stabilize Tezos, is a prime example of a model that works with market forces. Recent conversations around the Quebec protocol proposal show that some stakeholders assumed the system would behave differently, even though its behavior was modeled from the start.

Why Qena is the Better Choice Over Quebec

The Qena protocol offers all the technical advancements proposed in Quebec without introducing economic changes that could destabilize the market. Below are the key reasons why we believe Qena is the more responsible path forward for the Tezos community:

1. Allowing Adaptive Issuance to Mature
   Adaptive issuance is still in its early stages and needs time to fully demonstrate its potential. The current system adjusts issuance based on the staked ratio, and while we are nearing maximum issuance, this reflects the market’s natural response to the economic incentives in place. Rushing to implement new limits risks undermining a system that hasn’t yet fully matured.
2. Stability Through Consistent Economic Policies
   Frequent changes to economic policies can cause significant instability. The more we adjust the protocol, the less predictable the system becomes for both bakers and investors. Qena ensures technical progress while maintaining the existing economic structure, providing the market with the stability it needs to grow confidently.
3. Research Supports the Current Adaptive Issuance Model
   The adaptive issuance mechanism has been thoroughly researched and is modeled after successful implementations on other blockchains. The bounding curve proposed in Quebec, however, lacks similar backing. Qena maintains the adaptive issuance model as it is, trusting in the research that supports it, without introducing additional complexities that haven’t been validated.
4. Keeping the System Flexible and Adaptive
   One of the strengths of adaptive issuance is its ability to respond to market conditions. Limiting issuance through a bounding curve, as proposed in Quebec, could hinder this responsiveness. Qena retains the system’s flexibility, allowing it to adapt to market fluctuations as intended.
5. Preventing Market Disruptions
   The changes introduced by Quebec A/B would have a clear negative impact on rewards. At the current rate of total stake, rewards could drop by as much as one-third, and if the stake grows before activation, the impact could be even greater. This reduction in rewards would likely discourage staking, further destabilizing the market and making it significantly harder to reach the target staking ratio. Qena avoids these disruptions by maintaining current reward structures, focusing on stability and long-term growth.
6. Simpler, More Effective Solutions to Issuance Management
   There are more effective alternatives for managing issuance that don’t limit the adaptive mechanism. Some potential solutions include: (1) Adjusting the staking target to 40% or potentially implementing a dynamic staking target that adjusts based on fund outflows to Layer 2 solutions, helping to maintain balance as liquidity shifts. (2) Incorporating delegations into the total staked amount with reduced power, similar to how rewards are calculated. (3) Directly targeting inflation by setting a fixed inflation cap, providing a clear limit without complicating the system.
   Qena allows these practical solutions to be explored in the future, offering flexibility without adding unnecessary complexity to the current protocol.
7. Concerns About Issuance at Maximum
   There are concerns that issuance may remain at the maximum rate because the staking target might not be reached. However, this is an expected behavior of adaptive issuance — it is designed to incentivize more staking when the target is not met. Moreover, the alternative solutions we’ve outlined, can help address this concern.
   At the end of the day, this is not an issue that we should overly stress about. There are many successful projects with higher inflation rates, and they continue to thrive. Rather than focusing solely on fighting market mechanics, we should concentrate on demand and value creation. Building value for Tezos will ultimately have a much greater impact on the platform’s success than making frequent adjustments to the issuance rate.

Proposal for Separating Technical and Economic Protocols

While not yet part of the Qena protocol, one promising idea that emerged during its development is the potential separation of technical and economic protocol votes. This would allow for smoother technical progress without being delayed by complex economic debates. By voting on these elements separately, Tezos could continue evolving on the technical front while providing ample time for the community to carefully consider and amend the economic protocol as needed.

This separation could help maintain market stability while ensuring continued innovation, and ideally, it would enable slower and more stable changes to the economic protocol, positioning Tezos as a platform known for its economic stability.

Conclusion

In conclusion, the Qena protocol provides a thoughtful and balanced approach to ensuring technical progress without introducing the economic changes that could disrupt the stability of Tezos. By allowing adaptive issuance to mature and considering simpler alternatives for managing issuance, Qena offers a clear path forward that prioritizes both innovation and market stability. Additionally, ideas such as the potential separation of technical and economic protocols further reflect the desire for long-term, thoughtful growth.

Appendix

We believe that it is important for the Tezos community to make decisions that align with their vision of the platform’s future. Whether you choose to support Qena or another proposal, your voice is critical to shaping the future of Tezos. We appreciate your time in reviewing this response and encourage everyone to vote for what they believe is best for the network’s continued success.

Thank you for reading and being an active part of this community’s evolution.

With love,
Your TzC

Helpful Links

Qena Source Code > https://github.com/tez-capital/tezos/tree/Qena
Tez Capital Website > https://tez.capital
Tez Capital Discord > https://dsc.gg/tzc
Tez Capital Telegram > https://t.me/tezcapital
Tez Capital Documentation > https://docs.tez.capital (find out more about our tools here)