Changing Fuse Network Inflation Rate
This post is an opening to a discussion for the community about changing the Fuse Network Inflation Rate. Please add your thoughts and ideas.
Current Inflation Mechanism
At genesis in August 2019, Fuse Network inflation was set at 5% per annum:
- 15,000,000 tokens were minted in Year 1
- 15,750,000 tokens will be minted in Year 2 - roughly 43,500 tokens per day.
Inflation is used to reward validators and those staking fuse tokens with validators.
There is a general consensus that the inflation rate is too high, causing devaluing price pressure on the token.
Additionally, validators and stakers are disproportionately rewarded over other holders and investors of Fuse token.
It is now the time to think about the ongoing inflation mechanism for Fuse, and to have this confirmed within the next few months, ready for implementation before the end of year 2 (July 2021).
Inflation Mechanism Requirements
There are various inflation/deflation models in blockchain, some more complex than others.
The main requirements of a Fuse Network inflation model are:
- To have a knowable and predictable inflation rate. As a financial ecosystem, it’s sensible to have an easily understandable inflation structure. Unknown variance creates uncertainty for participants in that ecosystem. That needs to be avoided. A simple and functional mechanism is the best solution.
- To be technically achievable and secure – not open to exploitation or abuse.
- To be adaptable should/when circumstances change without requiring hard forks or major technical work.
- To create value for the token via scarcity.
- To continue to support validators and stakers whilst ensuring they are not disproportionately rewarded, creating a more equitable investment ecosystem for other DApps.
The Proposed Inflation Model
I have discussed a wide range of potential inflation models and mechanisms with stakeholders and other network participants. This is the result, and my proposed inflation model.
As shown in the following table, the proposed inflation model moves from a % inflation rate to a fixed number of tokens minted per year.
- Years 1 and 2: 5% inflation
- Year 3: 2% inflation
- Year 4: fixed 972337 to bring the total tokens to : 330,000,000
- Year 5 onwards: fixed 300,000 tokens minted per annum. (equivalent % inflation in [ ])
For validators and stakers, the reduction in inflation tokens will be supported by the increasing token price, and number and value of transactions, such that it will always be beneficial to run a validator and stake tokens, yet allow other Fuse token investment mechanisms to be competitive.
Please add your thoughts and ideas below.