Proposal Summary
particlThis proposal, authored by community member and Particl advisor Dr. Kap, proposes a hard fork for the Particl Blockchain with the expressed aims of:
- Removing the decentralised treasury model which currently directs 50% of the block reward to a community managed fund that has been used to support development of the Particl project since 2019.
- Immediately lower the current per annum inflation rate of the Particl blockchain from 7% to 3.5% until June 2026.
- Further lower the per per annum inflation rate by 0.5% per year over the following 5 year period until the per annum inflation rate is 1.0% (June 2031).
- To initiate a further community discussion and protocol vote around the time per annum inflation is 1.0% to decide if this should be further lowered to 0% and if so how.
Background and Timeline
The Particl project launched the Particl blockchain ($PART) in 2017 following a 1:1 coinswap for a precursor project (Shadowcash. $SDC) plus community donations of Bitcoin.
The community raised at the time what was an equivalent of $1 million in Bitcoin which due to subsequent appreciation in BTC price became a $2-3 million runway to fund development of a decentralised P2P, privacy focused marketplace platform that would utilise the PART token as its base currency.
The Particl project was successful and delivered the initial functional beta of this marketplace in 2019.
However the ongoing development of the product required continued funding and the initial runway was being depleted.
At this point the Particl blockchain was a proof of stake blockchain and there was no intrinsic method of funding for the project. The hope and aim was to successfully spur sufficient adoption of the Particl Marketplace to provide the Particl token with sufficient organic, speculative and non-speculative liquidity and value thus that donations and staking rewards from the PART heldby developers and the community would be sufficient to fund further development and marketing of the project.
It is fair to say that the project was not successful in that regard. There are various reasons for this but I would say the primary ones were the lack of accessibility for the native PART token resulting in a persistent state of poor liquidity and the intrinsic limited accessibility of the Particl Marketplace at the time, being a desktop only application.
Unfortunately further attempts to secure external funding for the project did not yield any offers that we felt would be satisfactory or in suitable alignment with the core values of the project or community.
However the intrinsic value of the project remained understood by our community and there remained a strong desire to see the project succeed.
Following internal and subsequent community discussion it was decided to propose introduction of a decentralised treasury model that would be funded by a percentage of the block reward on the Particl Blockchain.
The proposal voted on and passed by the community agreed to raise per annum supply inflation from 2% to 8% (which would eventually fall to 6 and for 50% of this to be automatically diverted to the treasury. The community would be responsible for how these funds raised were spent and this would be settled by on-chain voting by those who were actively staking on the Particl blockchain.
The action by the community to support this proposal enabled ongoing development of the Particl Project. This resulted in the creation of BasicSwapDex, innovations in the atomic swap and DEX technology, specifically:
- The first implementation of (semi)scriptless scripts via adaptor signatures to permit atomic swaps with XMR and other coins that lacked programmable outputs.
- The first successful implementation of unidirectional XMR atomic swaps.
- Further development via our SMSG network to support the first successful
implementation of bidirectional atomic swaps. - The world’s first fully decentralised distributed order book DEX.
It also allowed us to further research and develop the worlds first implementation of AI LLM flagging of listings on a decentralised marketplace (Particl Marketplace) to aid community moderation of content listed on it.
However there were more general problems. The Particl Project token $PART which was the primary currency of the Particl network suffered through ongoing decline in liquidity with falling daily trading volumes, falling spot prices and increased slippage.
This effectively led to a functional decline in the utility of the decentralised treasury as Particl developers needed to periodically liquidate their earned $PART in order to cover costs of living (unfortunately tax authorities do not accept direct payment in $PART) which in turn contributed to sell pressure and among many other causes created a death spiral in liquidity from 2019 to the present.
The minimum value of $PART needed to remain equivalent at $0.80 to sustain essential development but for much of 2019 to the present it has traded at $0.50 or significantly below this.
At the same time my own views and insights on privacy and economies were evolving. I increasingly came to see the death spiral in the liquidity of $PART as a problem structurally inherent to most proof of stake systems that do not have sufficient distribution and base liquidity; there is a tendency towards gradual centralisation of supply to fewer and fewer individuals.
Specifically this is because as price falls, sentiment decreases, the pool of those willing to buy decreases, people then sell to a shrinking pool of buyers who stake the supply to accumulate further. These stakers are less inclined to put their holdings up for sale since they believe in the future value of the project which ironically kills liquidity further and reinforces the supply centralisation tendency and liquidity doom loop.
Furthermore, this doom loop accelerates when the limited pool of buyers decides they have accumulated enough and simply choose to continue staking. This leads to a death in buy pressure on the token which leads to a continued and accelerating fall in price (as those earning $PART from the decentralized treasury are forced to sell larger amounts into the market to generate equivalent fiat revenue to cover their core living expenses).
Such structural tendencies are also unappealing to a demographic of cryptocurrency enthusiasts who recognise these tendencies. In particular in my experience the majority of cryptocurrency users who are privacy conscious are strongly opposed to any systems of economics or governance that may conceivably lead to centralisation of power and control.
In more recent years, I have fallen much more strongly into this camp. This does not mean that I am inherently opposed to all proof of stake systems. Indeed my support for the Particl Project at its core lies in my realisation that the network if properly utilised as a marketplace for the KYC free, privacy first exchange of goods and services (via the Particl Marketplace) and as the digital privacy forex of choice for privacy focused cryptocurrencies (via BasicSwapDex) then the Particl network can easily generate liquidity through non-speculative network transactions fees in a manner not dependent on supply inflation to provide an adequate security budget i.e. it could potentially function someday as a proof of stake network with 0% supply inflation with extremely high liquidity and intrinsic value.
Indeed I think this type of network would turn $PART into a hard currency i.e. one which I define as a currency with 0% supply inflation or structurally deflationary. This hard currency characteristic operating on a network with legitimate and attractive non-speculative usage options (the guarantee of privacy and protection from third party snooping of financial history) increasing liquidity attracting liquidity from other value storage/transfer networks (fiat and cryptocurrency) to generate transaction fees and frequency of sufficient value to justify staking with a reward that is not subsidized by currency inflation via the printing of new coin supply (a soft money characteristic).
Reasons for the Proposed Change
a) I propose we scrap the decentralised treasury model (subsidized/funded by 50% of block reward issuance) in its entirety.
The treasury did sustain development of the Particl Project from 2019 to 2022 at which point the market liquidity and value of the $PART token had fallen to and remained at a point where the revenue generated was no longer sufficient to meet the basic needs of the Particl development team. This led to a situation where developers were requesting community donations in other cryptocurrencies and I felt there were periods of noticeable delay in product development.
Indeed, during this period until 2023 the team was operating on goodwill continuing to develop the project out of a shared understanding with the community of the privacy first, cypherpunk ideology they were helping to bring to the world and the incalculable intrinsic value of that.
For the reasons I have already outlined in the background and timeline, I feel that whilst it initially worked and served its intended purpose (supporting development of the project), the treasury model employed eventually served only to accelerate the decline in liquidity of the Particl blockchain as a whole.
Furthermore, explaining to people discovering the project that 50% of the block reward is centralised to a single fund (even if spending from the fund is determined by community vote) can leave the project open to accusations of structural centralisation.
Whilst I think more severe forms of this accusation can be disputed, I do think there is some fundamental validity to this idea (trust assumptions are built into such a funding method) and I believe it would steer the project further towards true decentralisation by scrapping this type of funding method entirely.
To those who ask where our funding should come from? I would argue that we should replace the current treasury model with a purely voluntary multi-currency, multisig donation pool governed by the existing CCS proposal and voting system. We have clear evidence that communities other than our own are willing to contribute to and donate funds in the currency of their choice to support ongoing development of work by the Particl Project as demonstrated by the recent successful Monero CCS proposal.
I believe that this can be replicated and that the Particl Project can and should be funded via a multi-currency voluntary donation model as this preserves decentralisation, focuses the onus of consent on users, actively supports the cryptoagnostic ideology of the project, provides choice and helps safeguard against liquidity shocks for any single given currency whilst removing any claim that the Particl Blockchain is in anyway a corporate run blockchain rather than a community one.
b) I am proposing that the per annum inflation rate of the Particl Blockchain immediately fall from the current level of 7% to 3.5% and remain at this level until June 2026 at which point it will fall by 0.5% every year until June 2031 where it would be expected to reach 1.0% at which level it will remain until further discussion and vote to change otherwise.
If we look at traditional central banking orthodoxy, they follow the principle of targeting inflation rate of 2% annually. Whilst this is in reference to the estimated average percentage rise in the cost of goods and services, in practice it acts as a compounding devaluator of any person who simply stores the respective issued currencies of any central bank in a medium that generates annual yield below this targeted inflation rate (e.g. cash under the mattress or savings accounts paying below the annual inflation rate).
Unfortunately such a system serves to typically hit those who most actively contribute to an economy i.e. the working and professional middle classes; this pool of participants in an economy are more likely to be reliant and/or have a larger proportion of their asset wealth locked up as cash in savings.
At the same time the wealthiest in society often have the most available currency on hand and are more able to invest in stocks, bonds, property markets and other forms of asset accumulation beyond cash as savings that generate passive yield at rates above annual inflation. Because the wealthiest are more likely to hold more assets of value they have an easier time raising further capital via provision of these assets as collateral and are thus able to outcompete working and middle class individuals on a 1:1 level simply because they are performing at scales inaccessible to the majority of active participants in an economy; this guarantees centralisation of liquidity (growing wealth inequality) over time.
As the period from 2008 to 2022 demonstrated, for many working and professional middle classes the interest rate on their savings and the percentage annual pay rises consistently fell below their national annual rate of inflation leading to the equivalent of year on year real terms pay cuts and real terms devaluation of spending power of savings reducing their overall financialsecurity which in turn adversely impacted their social mobility, health, mental state and thus (I argue) their creativity and productivity via the equivalent of a liquidity restriction on active participants in an economy in all of the infrastructure they are involved in building and maintaining.
In contrast, despite the total size of the economy growing, a greater proportion of all wealth generated globally is flowing into an ever decreasing number of hands. Liquidity is not being distributed, it is effectively being locked and restricted which has created growing social instability and societal decay via real terms shrinking expenditure on services and core infrastructure.
In addition to this the printing of money is controlled by central banks. Poor management of issuance by them can lead to sudden, sharp currency devaluations.
With no fixed hard cap on total currency supply, all current central bank issued fiat currencies represent to me what I term, “soft money” i.e. money which due to continued issuance in perpetuity is guaranteed to lose its intrinsic value per unit over time and thus gradually penalise and destabilise the most active participants and contributors in its economy.
Bitcoin was created in 2009 as a direct response to the 2007/8 financial crisis and its original creators clearly saw the structural problems with our inflationary, fiat banking soft money system and understood the consequences that were to come. They created Bitcoin intended as “hard money” i.e. a currency with a fixed hard cap in supply.
Whilst Bitcoin is undoubtedly expected to become hard money around 2140 (when all 21 million Bitcoin in the current protocol will have been mined) this assumes that there will be no protocol changes to Bitcoin that break this limit e.g. tail emission or change in total fixed supply.
Furthermore at the present time, Bitcoin continues to be reliant on the issuance of new Bitcoin via mining in order to guarantee its security budget. Thus at this present time it is dependent on supply inflation and so it presently behaves as soft money (even though it is expected to become hard money in the future).
Almost all known Proof of stake systems are reliant on issuance of new coins to incentivize staking with the minting of new coins used to pay for their security budgets.
Thus all cryptocurrencies in current existence that have any form of ongoing supply issuance and inflation by my definition represent soft money and are inherently vulnerable to the problems I have outlined with other forms of soft money.
If we were to scrap our decentralized treasury model today, the PA inflation rate of the Particl Blockchain would remain at 7% per annum in perpetuity. This is 3.5 times the targeted inflation rate of central banks. This would make $PART a soft currency in perpetuity with an inflation equivalent annual devaluation in intrinsic value worse than the currencies of most central banks.
We should not be a central bank, we certainly should not be performing 3.5x worse than them.
Particl should not remain a soft currency in perpetuity. We should be actively targeting transformation into hard money.
At present, Particl is a proof of stake blockchain with the security budget generated by:
- Network transaction fees
- New token issuance (determined by per annum supply inflation).
Staking $PART tokens on the Particl blockchain locks them out of active circulation on the Particl network. In return stakers are rewarded with new tokens generated by a combination of network transaction fees plus new tokens minted into circulation as a result of programmed network token supply increases - rewards and network security is thus currently subsidized by
new token issuance (supply inflation).
In many ways the current proof of stake implementation resembles the mechanism of asset hoarding and yield accumulation for speculative investment purposes that we see with fiat currencies issued by central banks. Stakers buy the token for yield with the expectation that the value of the underlying tokens staked will either remain stable or appreciate over time as liquidity in the network grows.
Staking coins are however not actively changing hands, thus they are not actively exchanging economic value thus they are not generating liquidity. Staking may serve to restrict circulating supply and inflate the intrinsic value of circulating coins as the value transacted on the network increases however paradoxically the reward for doing this is distributed to coin balances that are essentially static i.e. not participating in or driving the network activity that brings intrinsic value
to the network.
So if Particl as proof of stake currency mechanisms is currently predisposed towards soft money characteristics and outcomes, how do we successfully transform a Particl as a Proof of Stake currency into hard money?
Simple: we focus on increasing network transaction fee revenue by increasing the frequency and amount of value transacted on the Particl network whilst actively reducing new token issuance.
Fortunately, this is already possible Particl ecosystem already has two key applications that could achieve this with some suggested mechanisms:
BasicSwapDex (BSX)
- Generation of network fees by using $PART as an intermediary token to facilitate otherwise impossible atomic swaps (between two coins that both lack programmable outputs e.g. XMR:LTC MWEB)
- Implementation of a PART fee for swap transactions done via select third party
integrations of BSX. This fee should ideally be an automatic buy (on swap) with send to burn address to generate automated buy side liquidity for the PART token, counteracting the impact of any supply side inflation as well as generating a network transaction fee that can be redistributed to stakers.
Particl Marketplace
- Network transaction fees generated via use of the MAD escrow to secure funds utilised in purchasing goods and services.
- Network transaction fees for any other service or smart contract operating on the Particl Marketplace to facilitate economic activity of any kind.
In any event passing this proposal would put the onus on both the development team and Particl community to actively accelerate adoption of the Particl network otherwise their staking rewards will diminish over time. They are effectively racing against declining issuance rewards over time as the annual supply inflation reward decreases.
I note that this proposal suggests gradually bringing the per annum inflation rate to 1.0%. This means that unless token burn mechanisms are in place that result in an annual burn rate greater than 1.0% then Particl will remain a soft currency.
It is my hope that we will use this time (approximately next 6 years) to focus on increasing network activity, network adoption and scalability to create an L1 system whose network fees sufficient to justify enough network staking to adequately and appropriately secure the network. Even if we are not successful in that regard, leaving the inflation rate at 1.0% per annum provides us with additional time to focus on these areas whilst remaining harder money
than traditional central bank issued currencies and indeed most other cryptocurrencies currently traded today.
Regardless it is my hope that if this proposal is passed, that if our community is active and focuses appropriately then by 2031 we will be in a position to further propose reducing our per annum inflation rate from 1.0% in perpetuity to 0% in perpetuity which would allow us to become a proof of stake cryptocurrency funded entirely by network transaction fees and have a native currency that satisfies my definition of “hard money”.
Timeline
- Voting opens: Est. July, 2025
- Implementation: Upon successful vote (75% approval rate with minimum quorum of 20% of the total supply over 10,080 blocks) and subsequent hard fork.
Impact
If approved, this change will:
- Significantly reduce PART's inflation rate from 7% to 3.5%;
- Reduce PART’s inflation rate by 0.5% every year until it reaches 1.0%;
- Remove the network treasury;
- Initiate a hard fork of the Particl blockchain.
We believe this proposal represents a positive step toward optimizing the Particl network's economic model while ensuring sustainable project development and incentivising our community to actively promote and grow the network.Important: For the proposal to show up on Partyman, make sure you are running its latest version. To do so, run git pull from inside your partyman folder, and then type the ./partyman update command from that same partyman folder.
Next Steps
- Review the proposal details
- Leave a comment if needed
- Wait for further instructions on how to vote and on when the voting period will begin
- Inform yourself on Particl's distributed governance (more info here)
We appreciate your continued support and participation in the Particl Project's governance. For any questions or concerns, please reach out to our community channels.
Best regards,
Dr Kapil Amarasinghe (Advisory)