Many thanks for all discussions and valuable feedback. This is great to see the community so engaged. All the efforts are highly appreciated. Let’s sum up the discussions in a couple of points so we can take the next steps and launch the required on-chain proposals for voting.
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High Inflation negatively affects the overall economic health of the ecosystem (excessive token supply and devaluation). While it encourages long term project supporters to hold and stake, it disencourages liquidity provision which is much needed for a healthy ecosystem. The current proposal aims to ensure long term health and sustainability of Persistence by slowly making further trade-offs between economic security and liquidity. Trading economic security for liquidity is facilitated by having stkXPRT (economic security & liquidity together) and Babylon BTC security (alternative source of security).
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The proposal is for minimum inflation parameter change from 12,5% to 6,25%. Changing the parameters does not immediately change the inflation. The inflation adjustment process will take months depend on staking ratio. It is even possible we never reach the minimum inflation at all.This is a standard Cosmos mechanism, and the goal of that mechanism is to weigh security vs liquidity gradually and let the market set the optimal inflation.
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Currently monthly XPRT emission on Dexter pools is only around 150K for incentives to build liquidity and 2,1mln coming from inflation to pay for security. If we maintain the inflation rate at 12,5%, over 25 mln XPRT will enter the market annually which can significantly affect XPRT token performance and trading.
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Note that the minimum inflation parameter change will happen in ~a year, even if this proposal will not pass. Inflation halving was built in from genesis, and this proposal aims to bring the next halving forward. Considering latest developments and staking ratio/security/liquidity situation it is deemed to be beneficial to the ecosystem and holders to speed it up.
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Persistence is planning to integrate with Babylon for BTC security, so the need for high inflation to pay for security is reduced. The split of staking rewards between XPRT and BTC stakers will balance the security needs without relying heavily on inflation. This will of course need further research, discussions, and proposals.
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stkXPRT Impact: With the introduction of stkXPRT, the dynamics of liquidity and staking rewards have changed. Liquid staking provides additional flexibility and can support lower inflation rates while maintaining good network security. StkXPRT and other XPRT pools is another good reason to reduce inflation, so liquidity can flow to these incentivised pools. Long term holders can LP in the stkXPRT/XPRT pool on Dexter to keep single asset exposure to XPRT and with rewards higher than regularly staking.
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Jeroen from Persistence labs has proposed for Dexter to rebrand to Persistence DEX and share its revenue with the Community Pool. Dexter is already closely integrated in the Persistence community as XPRT is the governance token for Dexter, so this will strengthen the value proposition for Persistence, and make user acquisition more straightforward. The goal for the Persistence community can now be to attract a lot of trading activity on its chain, thereby boosting fees. With a bigger focus on the BTC ecosystem (WBTC-XPRT pair as a starter), there are very interesting opportunities ahead.
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Reducing inflation may impact the economic model for validators, however validators can offset this in various ways: Participate in the Babylon staking economy, increasing the global minimum commission or even reduce the amount of validators to make it more competitive, robust and efficient. Most of these things would also need new proposals, which is completely up to validators.