Let get this straight ahead, inflation wouldn’t dilute our earnings if distributed evenly to ALL token holders, but this is not the case, certain individuals will get those tokens and will effectively dilute earning in the form of price or in the form of ETH dividends, we can’t escape from the reality of the fact that there will be dilution after this controversial update .
I’m TOTALLY OKEY to use ETH fees to fund development instead OR to buy KNC to pay LP’s to “integrate them” into the ecosystem.
Plus, I don’t think we can just assume everyone will want to dump their KNC
No, we can safely assume that if they are not dumping they will be staking ETH rewards, few will be doing nothing.
Burning does not create value
ETH is literally used to buy KNC in the market and burn it to make it scarce, is basically a transfer of value from ETH to KNC. Is the same kind of value that it would give if ETH was used to buy KNC in the market and instead of burning, distributed staked based to all token holders, just not as much as gas efficient ,or if it was static model it would be also FINE, burning is just literally taking KNC out of circulation. Economically speaking, paying in ETH instead of burning is more desirable, because ETH is liquid and KNC remains ILIQUID after burning it. This economic benefit of ETH being liquid is HARD to ignore.
In fact, i’m against burning it for the fact that i explained above, that it is just much better to pay 100% liquid ETH to KNC holders to increase the underlying asset value. If KNC was a static model, it would still be scarce, there would only be a limited amount of KNC in the world and they all be paying full liquid ETH rewards.
ETH is THE ONLY THING that will ACTUALLY CREATE value to KNC token holders long term. An asset that pays dividends in a higher liquidity asset, like CASH, it would directly create value to the underlying asset, this is an interconnected effect.
As for the liquidity providers being paid with KNC from inflation to “integrate them” into the ecosystem because is “beneficial”, just use the ETH of the fees instead, to buy KNC to pay them 50% in ETH and 50% in KNC, boom they are integrated into the ecosystem!
The inflation based system will be abused, developer in order to earn money will be injecting proposals and proposals all the time, people will always vote yes to everything. Token holders will take the hit of the dilution.