This forum posts suggest to kickstart Phase 1 of the proposed token economics improvement.
The objective of phase 1 is to reduce the inflation, and thereby the maximum supply.
The suggested method of doing so is to bring the Inflation halving event forward with a change in the inflation parameters to fasten the inflation reduction process, thereby reducing the Max Supply.
Context & current parameters
- XPRT inflation was designed to be between 25% to 45% with a target bonding ratio of 67% (lower inflation at a higher bonding/staking ratio and vice versa)
- XPRT inflation is now at the 25% mark due to a high bonding ratio (~80.1%)
- XPRT bonding ratio has consistently been higher than 67%, thus reducing the effective inflation rate
- The staking APR is currently ~28.38% (after validator commission)
- The inflationary issuance is distributed to the community pool (10%) and XPRT stakers (90%)
- Inflation halving is expected every two years (dependent on block times). The halving time (2 years) calculation is based on block times, not seconds. However, block times were expected to be 5s at launch. Still, due to various reasons (such as a more decentralized validator set, chain upgrades, apps on the chain, etc.), block times have skewed towards the 6s mark, thus resulting in delays to the inflation halving. The inflation halving is expected to start around August 2023.
- Once the halving event happens, the inflation will take about eight months to reduce to 12.5% (if the bonding ratio remains the same). This is because the halving event only halves the minInflation and maxInflation parameters to 12.5% and 22.5% (currently 25% and 45%), then continues to let the inflation rate change mechanism do the work to gradually reduce inflation until the target bonding ratio is reached, or until the minInflation is reached.
- Based on genesis parameters for inflation, XPRT max supply is ~403M
Suggested change in inflation parameters
Inflation Min = 12.5%
Inflation Max = 22.5%
Inflation Rate Change = 2.5
Blocks per year = Update based on current average block time (~6 seconds)
This is effectively bringing forward the inflation halving. The core 1 team will then have to recalibrate the halving module to ensure the next halving is scheduled 2 years after the effective change of the above parameters.
Impact of change
The expected output halves inflation in the next ~3 months to 12.5% from the current 25% if the bonding ratio stays above 67%.
For inflation to reach 12.5% or within the new range at the current inflation rate change of 1, it will take about ~7.5 months at the current bonding ratio of ~80%. As the bonding ratio decreases, the time required to reach 12.5% IR increases. Changing this parameter to 2.5 will reduce inflation to 12.5% faster (in less than three months).
With future inflation halving every two years, the issuance of XPRT would keep reducing with more dapp activity on the chain, thus creating a soft max supply of XPRT, which would be variable but substantially less than 403M.
Currently, ~117.5k new XPRTs are issued daily. With this new inflation rate of 12.5%, new XPRT issuance will reduce by 50%
Changing inflation will also impact validator economics. To counteract the reduction in validator earnings, MEV capture and sharing should be introduced (Phase 2). More details on the validator economics can be found in this document: [v1] XPRT Tokenomics improvements - Google Docs
After the upcoming chain upgrade, validators will also have the option to suggest an overall commission minimum via governance to ensure validator operations remain viable. Initially this minimum will be set at 5%, as decided in proposal 18.
We strongly suggest validators to engage in this discussion to come up with viable long-term solutions for both the chain and the validators.
- Review the linked posts and documents and ask any questions in case things are not clear
- Share your feedback on this specific phase by replying to this forum post
- Engage in the discussions around the other phases of token economics improvement