I love crypto but against popular sentiments, I try to see it through trad lenses.

Here is why-

1. Crypto is tech heavy and therefore falls outside my natural comfort zone.

Moreover, I consider to be able to demystify complicated stuff a skill.

2. That’s the only way according to me to do reality-checks. Crypto can get high on ideology and can get delusional.

3. To break &/or replace with something better, it’s imperative to know the incumbent.

Such as before breaking or replacing central banks with non-sovereign currencies, knowledge of basic monetary policy, macroeconomics and history are required.

Or before designing tokenomics of your favourite coin that will change the world, knowing basics of classical economics doesn’t hurt.

4. Novelty need not change fundamental laws of nature/physics, basic human psyche & similarly fundamental rules of business.

Such as income statement, cash flow & balance sheet are core essentials in any business- off or on chain. And prolonged asset/liability & income/expense mismatches can be existential.

Such as Profit= (Revenue - Cost) ; and each one of them should be very clearly defined.

Let me bring Pocket Network into the picture and do some mapping with the trad world.

-The protocol could be the firm.

-Decentralised RPC service the product.

-DAO, PNF & the ecosystem participants: the management body and the teams.

-$POKT token is the domestic currency that is tradable in the public market.

-Revenue for the protocol in Pocket’s case could be a commission back to the DAO from RPC sellers/gateways &/or some kind of $POKT burn. At this moment, the protocol doesn’t earn any revenue but that will change in the future.

-Protocol cost in this industry is the token emissions or the inflation.

While I have not seen any financial statements for the protocol yet- internal or external, my presumption is that’s how cost will feature, inline with the industry standard.

I am not convinced though with this approach in this industry to simply equate emissions with the cost and not go any further.

Imagine doing this in a firm- “here is the money, go spend it” without knowing what the costs should be to sustain & grow the business or at least knowing what the costs are down to the origin. In trad businesses tracking both of those are non-negotiable.

So how should it be done?

In Pocket Network, 3 category of network participants suck up the cost or the emissions- servicer nodes, DAO & the validators.

DAO costs are tracked & reported; what is needed is a DAO budget before the financial year starts, as I have suggested to the foundation a few times. The initial versions of the budget should consists of costs alone without considering DAO allocations from the emissions- what the costs should be to sustain & grow the protocol. The latter & the final versions should be in conjunction with the expected DAO earnings (allocation), so that income & expenses match.

The big boys in the DAO space have all started formal budgeting and tracking actuals against budgeted.

But DAO is not the most complicated piece of the puzzle in Pocket, primarily because its one entity.

The node runners being independent for-profit actors, distributed across continents & more than 20k in numbers are.

A common budget is not applicable in their case but what about tracking the cost of doing business?

I see not having the protocol level actual node running costs at finger tips, which is by far the largest cost component to the protocol as a problem.

Imagine that happening in a top notch firm- the biggest cost component not being tracked at any given point of time. How acceptable will that be?

Reminder that I equate firm and protocol for the sake of the argument.

Lack of such data from sources backed by consensus creates confusion & debates without verifiable numbers that individuals throw around, subjectivity where objectivity is needed, and at times causes stalemate with regards to changes to the protocol.

Such as- there is a paradox happening in the Pocket’s node runner community around further inflation reduction wherein a few smaller node runners support a cut whereas the midsize ones are resisting.

Also, I get to hear statements such as- “The small node runners are going to run out of business if XYZ changes.” And, “the large ones can survive because they have economies of scale.”

All of the above are ‘cost related topics’.

Wouldn’t it be better if such debates are backed by data from sources backed by consensus? Maybe few of those debates wouldn’t even take place when the costs are readily accessible, and there will be speedier consensus and better decisions taken if the debates do take place.

Being independent and for-profit entities, the node runners are not expected to expose their financials publicly. Even if they do, it will be impossible to do veracity checks for each of them.

In such scenarios, a statistically relevant sampling can be used.

Those can come from foundation running their nodes and therefore using their data as representative sample. Btw, I have heard of the possibility of the foundation running nodes, so this is not a made-up idea.

Or the sample can also be the foundation having access to financials of a group of node runners who act as volunteers for this purpose.

There are other ways to do sampling.

There can be multiple tiers to represent the broader sizes of the node runners.

My assumption would be that the range of cost differentials for node runners in POS chains is probably not as wide in miners in POW chains. Miners in POW chains can have very big differences in costs primarily because of very different electricity prices around the world.

Claiming “we know it” is not enough. The data representing the protocol has to be readily accessible at any point by anyone just as other statistics are. I understand on-chain ones are easier to pull realtime.

The honeymoon era of selling hopes & dreams only is going to be over.

Financial performance of protocols are going to be discussed more and going to matter more.

A powerful saying is- “what gets measured also gets done.”

Once the protocol and the DAO starts budgeting costs and tracking all costs by line items, maybe that will give a better insight to whether emissions could be/should be reduced by reducing costs at origin, and ultimately improve financials of the protocol.

At least that’s how a well managed trad firm will do in its business.