**Author**: Eray Sabancilar

**Last updated**: 02.05.2020

# Modeling Polkadot Economy: Future Directions

A short term research agenda that aims to expand the current understanding of the Polkadot economy may include the following directions:

1. NPoS Economics
- Introduce nomination of a random selection of validators from a fixed pool of validator set which is bigger than the active set of validators to be selected. Note that in the current version, all validators are selected, and the Phragmen algorithm allocates the stakes backing the validators.
- Introduce a validator performance measure and a dynamic validator nomination mechanism based on the past validator performance.
- Model the correlation matrix of validator operators and the constituent validator correlations, e.g., validators of the same operator with high positive correlations, and operators with zero or very small correlations among themselves.
- Introduce a dynamic model of operator nomination based on minimizing variance and maximizing return, e.g., choose a validator set for nomination whose performance is maximized whereas the operator covariance is minimized to mitigate operator related slashing risks. See, e.g., Markowitz portfolio optimization as an analogous model.
2. Polkadot Treasury Model
- Model Polkadot treasury by including income from transaction fees, parachain deposits and slashing.
- Simulate the NPoS economic model with a treasury introducing some fiscal spending.
- Analyze DOT exhange rate, treasury assets (crypto and fiat currencies), monetary and fiscal policies.
- Introduce exchange rate shock analysis to address possible systemic risks, e.g., introduce a boom and crash of bitcoin price by x% in a given period.
3. Parachain Economics
- Add parachain slot auction simulation and use the resulting deposit values as an input for the token model evolution.
- Activate the currently passive accounts, e.g., ecosystem funds, and design their issuance schedule. Rerun the simulation.
- Add different sources of income and client types.
- Make a different version of the model with an inflationary native token.
4. Data Management and Monitoring
- Identify the essential observables for Polkadot to be monitored, e.g., staking rate, validator performance, validator slashing correlations, operator correlations, etc.
- Design a data analysis/tracking tool that allows for realtime and/or offline monitoring of these observables.