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Lowering Deposit Requirements on Polkadot and Kusama Asset Hub (#45)
RFC-00xx-assethub, proposes lowering deposit requirements for NFT collection creation on Polkadot and Kusama Asset Hub to make it more accessible for artists. It draws upon the discussion in the [Polkadot Forum](https://forum.polkadot.network/t/polkadot-assethub-high-nft-collection-deposit/4262). While there are concerns about state bloat, the RFC also considers future governance models to dynamically adjust deposit requirements. --------- Co-authored-by: Oliver Tale-Yazdi <oliver.tale-yazdi@parity.io> Co-authored-by: joe petrowski <25483142+joepetrowski@users.noreply.github.com> Co-authored-by: Viki Val <viktorko99@gmail.com> Co-authored-by: joepetrowski <joe@parity.io>
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# RFC-0045: Lowering NFT Deposits on Asset Hub
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| --------------- | ----------------------------------------------------------------------------- |
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| **Start Date** | 2 November 2023 |
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| **Description** | A proposal to reduce the minimum deposit required for collection creation on the Polkadot and Kusama Asset Hubs. |
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| **Authors** | [Aurora Poppyseed](https://github.com/poppyseedDev), [Just_Luuuu](https://github.com/justLuuuu), [Viki Val](https://github.com/vikiival), [Joe Petrowski](https://github.com/joepetrowski) |
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## Summary
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This RFC proposes changing the current deposit requirements on the Polkadot and Kusama Asset Hub for
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creating an NFT collection, minting an individual NFT, and lowering its corresponding metadata and
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attribute deposits. The objective is to lower the barrier to entry for NFT creators, fostering a
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more inclusive and vibrant ecosystem while maintaining network integrity and preventing spam.
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## Motivation
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The current deposit of 10 DOT for collection creation (along with 0.01 DOT for item deposit and 0.2
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DOT for metadata and attribute deposits) on the Polkadot Asset Hub and 0.1 KSM on Kusama Asset Hub
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presents a significant financial barrier for many NFT creators. By lowering the deposit
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requirements, we aim to encourage more NFT creators to participate in the Polkadot NFT ecosystem,
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thereby enriching the diversity and vibrancy of the community and its offerings.
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The initial introduction of a 10 DOT deposit was an arbitrary starting point that does not consider
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the actual storage footprint of an NFT collection. This proposal aims to adjust the deposit first to
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a value based on the `deposit` function, which calculates a deposit based on the number of keys
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introduced to storage and the size of corresponding values stored.
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Further, it suggests a direction for a future of calculating deposits variably based on adoption
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and/or market conditions. There is a discussion on tradeoffs of setting deposits too high or too
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low.
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### Requirements
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- Deposits SHOULD be derived from `deposit` function, adjusted by correspoding pricing mechansim.
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## Stakeholders
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- **NFT Creators**: Primary beneficiaries of the proposed change, particularly those who found the
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current deposit requirements prohibitive.
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- **NFT Platforms**: As the facilitator of artists' relations, NFT marketplaces have a vested
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interest in onboarding new users and making their platforms more accessible.
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- **dApp Developers**: Making the blockspace more accessible will encourage developers to create and
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build unique dApps in the Polkadot ecosystem.
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- **Polkadot Community**: Stands to benefit from an influx of artists, creators, and diverse NFT
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collections, enhancing the overall ecosystem.
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Previous discussions have been held within the [Polkadot
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Forum](https://forum.polkadot.network/t/polkadot-assethub-high-nft-collection-deposit/4262), with
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artists expressing their concerns about the deposit amounts.
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## Explanation
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This RFC proposes a revision of the deposit constants in the configuration of the NFTs pallet on the
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Polkadot Asset Hub. The new deposit amounts would be determined by a standard deposit formula.
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As of v1.1.1, the Collection Deposit is 10 DOT and the Item Deposit is 0.01 DOT (see
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[here](https://github.com/polkadot-fellows/runtimes/blob/v1.1.1/system-parachains/asset-hubs/asset-hub-polkadot/src/lib.rs#L687)).
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Based on the storage footprint of these items, this RFC proposes changing them to:
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```rust
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pub const NftsCollectionDeposit: Balance = system_para_deposit(1, 130);
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pub const NftsItemDeposit: Balance = system_para_deposit(1, 164);
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```
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This results in the following deposits (calculted using [this
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repository](https://github.com/vikiival/rfc-pricing)):
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**Polkadot**
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| **Name** | **Current Rate (DOT)** | **Calculated with Function (DOT)** |
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|---------------------------|:----------------------:|:----------------------------------:|
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| `collectionDeposit` | 10 | 0.20064 |
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| `itemDeposit` | 0.01 | 0.20081 |
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| `metadataDepositBase` | 0.20129 | 0.20076 |
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| `attributeDepositBase` | 0.2 | 0.2 |
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Similarly, the prices for Kusama were calculated as:
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**Kusama:**
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| **Name** | **Current Rate (KSM)** | **Calculated with Function (KSM)** |
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|---------------------------|:----------------------:|:----------------------------------:|
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| `collectionDeposit` | 0.1 | 0.006688 |
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| `itemDeposit` | 0.001 | 0.000167 |
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| `metadataDepositBase` | 0.006709666617 | 0.0006709666617 |
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| `attributeDepositBase` | 0.00666666666 | 0.000666666666 |
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### Enhanced Approach to Further Lower Barriers for Entry
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This RFC proposes further lowering these deposits below the rate normally charged for such a storage
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footprint. This is based on the economic argument that sub-rate deposits are a subsididy for growth
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and adoption of a specific technology. If the NFT functionality on Polkadot gains adoption, it makes
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it more attractive for future entrants, who would be willing to pay the non-subsidized rate because
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of the existing community.
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**Proposed Rate Adjustments**
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```rust
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parameter_types! {
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pub const NftsCollectionDeposit: Balance = system_para_deposit(1, 130);
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pub const NftsItemDeposit: Balance = system_para_deposit(1, 164) / 40;
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pub const NftsMetadataDepositBase: Balance = system_para_deposit(1, 129) / 10;
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pub const NftsAttributeDepositBase: Balance = system_para_deposit(1, 0) / 10;
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pub const NftsDepositPerByte: Balance = system_para_deposit(0, 1);
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}
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```
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This adjustment would result in the following DOT and KSM deposit values:
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| **Name** | **Proposed Rate Polkadot** | **Proposed Rate Kusama** |
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|---------------------------|:--------------------------:|:------------------------:|
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| `collectionDeposit` | 0.20064 DOT | 0.006688 KSM |
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| `itemDeposit` | 0.005 DOT | 0.000167 KSM |
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| `metadataDepositBase` | 0.002 DOT | 0.0006709666617 KSM |
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| `attributeDepositBase` | 0.002 DOT | 0.000666666666 KSM |
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### Short- and Long-Term Plans
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The plan presented above is recommended as an immediate step to make Polkadot a more attractive
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place to launch NFTs, although one would note that a forty fold reduction in the Item Deposit is
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just as arbitrary as the value it was replacing. As explained earlier, this is meant as a subsidy to
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gain more momentum for NFTs on Polkadot.
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In the long term, an implementation should account for what should happen to the deposit rates
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assuming that the subsidy is successful and attracts a lot of deployments. Many options are
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discussed in the [Addendum](#addendum).
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The deposit should be calculated as a function of the number of existing collections with maximum
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DOT and stablecoin values limiting the amount. With asset rates available via the Asset Conversion
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pallet, the system could take the lower value required. A sigmoid curve would make sense for this
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application to avoid sudden rate changes, as in:
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$$ minDeposit + \frac{\mathrm{min(DotDeposit, StableDeposit) - minDeposit} }{\mathrm{1 + e^{a - b * x}} }$$
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where the constant `a` moves the inflection to lower or higher `x` values, the constant `b` adjusts
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the rate of the deposit increase, and the independent variable `x` is the number of collections or
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items, depending on application.
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## Drawbacks
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Modifying deposit requirements necessitates a balanced assessment of the potential drawbacks.
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Highlighted below are cogent points extracted from the discourse on the [Polkadot Forum
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conversation](https://forum.polkadot.network/t/polkadot-assethub-high-nft-collection-deposit/4262),
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which provide critical perspectives on the implications of such changes.
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Adjusting NFT deposit requirements on Polkadot and Kusama Asset Hubs involves key challenges:
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1. **State Growth and Technical Concerns**: Lowering deposit requirements can lead to increased
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blockchain state size, potentially causing state bloat. This growth needs to be managed to
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prevent strain on the network's resources and maintain operational efficiency. As stated earlier,
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the deposit levels proposed here are intentionally low with the thesis that future participants
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would pay the standard rate.
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2. **Network Security and Market Response**: Adapting to the cryptocurrency market's volatility is
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crucial. The mechanism for setting deposit amounts must be responsive yet stable, avoiding undue
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complexity for users.
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3. **Economic Impact on Previous Stakeholders**: The change could have varied economic effects on
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previous (before the change) creators, platform operators, and investors. Balancing these
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interests is essential to ensure the adjustment benefits the ecosystem without negatively
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impacting its value dynamics. However in the particular case of Polkadot and Kusama Asset Hub
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this does not pose a concern since there are very few collections currently and thus previous
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stakeholders wouldn't be much affected. As of date 9th January 2024 there are 42 collections on
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Polkadot Asset Hub and 191 on Kusama Asset Hub with a relatively low volume.
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## Testing, Security, and Privacy
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### Security concerns
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As noted above, state bloat is a security concern. In the case of abuse, governance could adapt by
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increasing deposit rates and/or using `forceDestroy` on collections agreed to be spam.
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## Performance, Ergonomics, and Compatibility
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### Performance
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The primary performance consideration stems from the potential for state bloat due to increased
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activity from lower deposit requirements. It's vital to monitor and manage this to avoid any
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negative impact on the chain's performance. Strategies for mitigating state bloat, including
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efficient data management and periodic reviews of storage requirements, will be essential.
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### Ergonomics
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The proposed change aims to enhance the user experience for artists, traders, and utilizers of
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Kusama and Polkadot Asset Hubs, making Polkadot and Kusama more accessible and user-friendly.
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### Compatibility
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The change does not impact compatibility as a `redeposit` function is already implemented.
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## Unresolved Questions
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If this RFC is accepted, there should not be any unresolved questions regarding how to adapt the
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implementation of deposits for NFT collections.
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## Addendum
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Several innovative proposals have been considered to enhance the network's adaptability and manage
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deposit requirements more effectively. The RFC recommends a mixture of the function-based model and
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the stablecoin model, but some tradeoffs of each are maintained here for those interested.
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### Enhanced Weak Governance Origin Model
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The concept of a weak governance origin, controlled by a consortium like a system collective, has
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been proposed. This model would allow for dynamic adjustments of NFT deposit requirements in
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response to market conditions, adhering to storage deposit norms.
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- **Responsiveness**: To address concerns about delayed responses, the model could incorporate
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automated triggers based on predefined market indicators, ensuring timely adjustments.
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- **Stability vs. Flexibility**: Balancing stability with the need for flexibility is challenging.
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To mitigate the issue of frequent changes in DOT-based deposits, a mechanism for gradual and
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predictable adjustments could be introduced.
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- **Scalability**: The model's scalability is a concern, given the numerous deposits across the
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system. A more centralized approach to deposit management might be needed to avoid constant,
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decentralized adjustments.
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### Function-Based Pricing Model
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Another proposal is to use a mathematical function to regulate deposit prices, initially allowing
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low prices to encourage participation, followed by a gradual increase to prevent network bloat.
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- **Choice of Function**: A logarithmic or sigmoid function is favored over an exponential one, as
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these functions increase prices at a rate that encourages participation while preventing
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prohibitive costs.
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- **Adjustment of Constants**: To finely tune the pricing rise, one of the function's constants
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could correlate with the total number of NFTs on Asset Hub. This would align the deposit
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requirements with the actual usage and growth of the network.
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### Linking Deposit to USD(x) Value
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This approach suggests pegging the deposit value to a stable currency like the USD, introducing
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predictability and stability for network users.
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- **Market Dynamics**: One perspective is that fluctuations in native currency value naturally
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balance user participation and pricing, deterring network spam while encouraging higher-value
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collections. Conversely, there's an argument for allowing broader participation if the DOT/KSM
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value increases.
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- **Complexity and Risks**: Implementing a USD-based pricing system could add complexity and
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potential risks. The implementation needs to be carefully designed to avoid unintended
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consequences, such as excessive reliance on external financial systems or currencies.
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Each of these proposals offers unique advantages and challenges. The optimal approach may involve a
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combination of these ideas, carefully adjusted to address the specific needs and dynamics of the
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Polkadot and Kusama networks.
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