Lowering Deposit Requirements on Polkadot and Kusama Asset Hub

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