Thanks for your idea. I think you explain the pros and cons quite well.
Here’s opinion on the matter:
Participators should be rewarded, not holders
With the current method, Anchor’s success gets passed on to those actively participating in Anchor (i.e., Liquidity Providers and Governance Stakers). Whereas adding a deflationary aspect to $ANC will draw in non-participating speculators, not only making it harder to participate in general, but also rewarding holders at the cost of rewards that would otherwise go to those participating.
In addition, keeping all the rewards to participators decreases the advantage that early investors get from vested tokens. It is more fair to new users that they have a chance to get in early to participate, while early investors have to wait for their tokens to be vested.
Also, the current low APY from Governance staking disincentivizes users from voting in proposals, which is problematic. Decreasing that APY would make the problem even worse.
Trading increases volatility, but ANC should be kept more stable.
People are drawn to Anchor for its stability, and it seems fitting that those participating by providing liquidity and staking should receive relatively stable rewards. With the $ANC token becoming deflationary due to burn, the price of ANC will also become more volatile due to increased trading volume.
In addition, a more volatile $ANC price opens more potential to exploit Anchor’s buyback by being strategic with the timing of manipulative price spikes/dips. Anchor would be safer with a more stable $ANC price.
It is better to keep separation of utility and speculation.
In the stock market world, investors and traders can speculate on a company’s stock value and growth based on fundamentals and technicals, but a fluctuating demand in stock doesn’t lead to a proportional change in the cost of goods and services provided by the company. E.g., Tesla’s stock price doubling doesn’t double the consumer’s price of a Model S.
In contrast, in the crpyto space, it is often that a utility token is the only (or at least easiest) way for investers/traders to speculate on the success of a token. This can lead to a great monetary barrier for users. There are many examples of a utility token’s rise in price greatly impacting the project’s service or integrity. Some examples:
-Compute fees: Ethereum Mainnet has been called virtually unusable due to high gas fees, directly impacted by $ETH price rise (as well as congestion);
-Validator stake requirement: users are often unable to become validators due to minimum stake requirements and the rise in price of its staking token (often in the $100,000s);
-Use of other service: $DENT over 1 cent makes its Mobile data way too expensive. $SC over 50 cents makes Siacoin’s storage way too expensive. And many other examples of this exist.
(Side note: I’m working on a massive proposal that would add tons more utility to Anchor’s token, and it would be much harder to execute with a costly and volatile $ANC token–this might make me a bit biased)
For these reasons, I believe it is in Anchor’s best interest to not make this change. I hope others will contribute to this conversation.