FRC05: Zero Inflation. Enforcing the 400M Cap and Funding Validator Rewards Through the Transition

Governance
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Why Now

FRC04 laid out the direction: move FUSE staking from inflation to rewards backed by treasury and real product revenue. What has changed since is the pace. Solid has shown real momentum: thousands of active users and strong growth in monthly net revenue. FUSE buybacks funded by Solid revenue are already running, the network has shipped its latest upgrades, and the feedback from users, validators and stakers has been consistent: they want predictable economics tied to usage, not hardcoded issuance.

That is why we are accelerating. Rather than running the 0.5% phase and a five-year transition, we propose going straight to zero inflation at a funded activation date and compressing the transition into three years.

Simple Summary

Enforce the 400M FUSE maximum supply on-chain, stop issuance entirely at a defined activation date, and allocate 30M existing treasury FUSE to fund validator rewards over a three-year transition, distributed on a linear declining schedule. Product revenue takes a growing share of validator rewards over that period. Rates will vary with participation and funding; this proposal commits to a budget, not a fixed APR. The 100k validator threshold stays during the transition.

This proposal covers validator rewards only. Staking rewards for other programs are a separate topic and will be addressed in their own proposal.

Where Supply Stands

FRC02 set a 400M maximum but never enforced it in the contract. Inflation stepped down to 0.5% in August 2026.

On 20 October 2026 the live supply API reported 393,391,876 FUSE at block 44,691,823, about 6.61M under the cap. No larger cap is needed, zero issuance keeps supply under 400M, and engineering will enforce the cap on every issuance path while keeping bridging and wrapping intact.

What We’re Proposing

One package, approved and deployed together.

1. Enforce the cap and stop issuance.

Zero inflation from a defined activation date, with the 400M maximum enforced on-chain. The governance proposal covers zero issuance, the cap definition, replacement reward funding, distribution rules and which upgrade or mint powers remain.

2. 30M treasury FUSE for validator rewards.

Paid to validators and their delegators over three years, with the 15% validator commission taken from this pool. No new tokens are created; this redistributes FUSE that already exists.

3. A linear declining distribution. The reward contract releases the 30M at a rate that

decreases linearly from activation to the end of year three, so each year’s budget is smaller than the last and revenue-funded rewards grow to replace it. In yearly totals:

Period after activation Validator rewards Share of total
Year 1 12 40%
Year 2 10 33%
Year 3 8 27%
Total 30 100%

Rewards accrue per block, so the decline is continuous rather than a step at each anniversary.

4. A budget, not a fixed APR.

The rate each year depends on how much FUSE is staked and how much revenue comes in. This proposal does not guarantee 10%.

5. Validator threshold stays at 100k.
Operator bonds, withdrawal rules and liquid-versus-locked staking are specified and reviewed on their own track.

The Numbers

Assumptions: 128.3M FUSE currently staked with validators (the consensus contract balance in the September holdings dashboard; actual reward-eligible stake may be lower), growth includes restaking.

Holding a 10% validator APR for three years would cost:

Three-year assumption Three-year assumption
No growth in staked FUSE 38.5M FUSE
15% annual growth 44.6M FUSE
25% annual growth 48.9M FUSE

What the 30M gives on its own, before any revenue is added:

  • Year one: 12M FUSE in rewards against about 128M staked today. That works out to roughly 9.4% APR before the validator commission, or about 8% for delegators after validators take their 15%.

  • Year two: 10M FUSE. If staking grows 15%, that is about 6.8% APR.

  • Year three: 8M FUSE. Same growth assumption, about 4.7% APR.

In other words, the treasury budget alone starts near today’s 10% and declines each year. The gap is meant to be filled by revenue-funded rewards (20% of net product revenue buying FUSE on the market), which grow as Solid grows. That is the whole point of the schedule: treasury carries the first year, revenue carries more of each year after.

Timeline

  • Now to early-November 2026: comment period on this proposal. We want to hear from validators, delegators and FUSE holders on the allocation, the schedule and the implementation.

  • Mid-novembermber 2026: The reward contract is funded and activation goes live. Inflation stops the same day replacement rewards start, with at least the first year’s rewards secured before cutover.

The target is to have zero inflation live by the end of 2026. This builds on years of community discussion about making Fuse’s economics predictable and tying rewards to real network usage.

Sources

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Hi Luka, thanks for the info.

As I understand it:

  1. Turn off issuance/inflation at a total supply of ~393m depending on when it happens.
  2. Full details and how/if it can be turned on again will be in the governance proposal.
  3. 30m in a pool to give as staking rewards over 3 years.

I agree with stopping inflation, setting a contract level token hard cap and moving to contract staking issuance.

Questions:

  1. When do yr 1 staking rewards from the contract start - at the inflation stop date?

  2. 12m Y1 rewards equates to a ~12% at current 80m active staking (12% after validator fee removed, 15% before). This seems a lot for passive very low risk staking and a big increase over current APR, possibly leading to sell pressure. Do we want to incentivise this over Solid staking?

  3. Will there be any boost / benefit for staking in Solid?

Generally I think a better balance would be 6-8% from node staking and 10-12% in Solid staking.

8% requires a 9.5% apr before validator fees. This equates to 7.5m Fuse distributed on 80m active stakers. If the full 125m stakers become active, that it still a 6% apr (5.1% after fee).

A lower apr hardens token value.

One consideration is if nodes need to upgrade to support 2sec blocks. Hardware requirements need to be understood and rewards sufficient to make running a node economically viable.

Another is that the whole ecosystem needs to work together, no part can be viewed in isolation, so staking has to be seen in context of Solid staking and other uses for Fuse. As it’s price grows it can be used for collateral and LP, both of which need to have high aprs to make them attractive, but won’t get tvl is node staking apr is too high.

The risk has to match the reward → higher risk = higher reward. Node staking is v low risk so shouldn’t have a high apr. It should be the lowest in the ecosystem. However, if a high apr is required to make nodes economically viable to run then increasing the fee % is an option to cover that.

Move that to 25% and running a node becomes economically viable and staking apr is kept low.

Example on the suggested figures and 100m active Fuse (mid point between current active and all staked)

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Thanks Luka, and @RB_1010 for working through the numbers. I support zero inflation and an enforced cap. A few points, mainly from an operator’s perspective.

he 9.4% year-one figure uses 128.3M, the consensus contract balance. RB’s ~80M active figure gives about 15% gross / 12.75% net instead. Can you publish the actual reward-eligible stake before the comment period closes? The whole APR case depends on that number.

Near today’s 10%. At 0.5% inflation, issuance is about 2M FUSE a year, or roughly 2.5% on 80M. If rewards are being topped up some other way, it would help to show that. If not, 12M in year one is a big step up in effective emissions.

Target an APR band, not a fixed per-block budget. Keep the 30M but pay out against a target range (say 8–10% gross) and roll any underspend forward. At around 7.5M a year the pool lasts closer to four years than three. That gives Solid revenue more time to ramp and lowers the risk of the transition.

Validator economics. I agree with RB that node staking APR shouldn’t be the highest in the ecosystem. But raising commission to 25% mostly benefits the largest validators, and small operators stay unviable. A better approach is a fixed per-validator operating floor from the pool plus proportional rewards on top, or letting validators set commission within a band.

re 2s blocks. I am working on porting nm 2.0 to fuse which claims as much as 1.5x higher throughput for the same usage. In theory 2second blocks should increase requirements too much at current volumes it may become an issue down the line when the blocks full up as you are increasing throughput by 2.5x but if the blocks get filled that shows strong growth of the chain so additional hardware cost is outweighed then.

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@Luka I agree with the majority of the proposal but items shouldn’t be in the voting proposal without being discussed here first. Specifically Item 5 Validator Economics

  1. A proposed variable validator fee between 10-25% - this is worse than a fixed 25% fee across all nodes, as the nodes that have the largest stake can afford to drop their fees whilst smaller ones have to raise theirs to break even on costs. It works to go against decentralisation. We’ve had this discussion before and no node wanted a variable fee - a fixed fee works much better. There’s literally no need or benefit to having fee competition on the network. All that will happen is everyone ends up at 10% and the smaller nodes will shut down.

  2. The proposed Operating Allowance for nodes needs clarification as well, what this is -Fuse, USDC, how much and how often, does it cover node costs or is it a small amount?

If the majority of node costs are covered by the Allowance (not withstanding future hardware upgrade costs) then sticking to a fixed 15% Node fee is fine, even 10% could be possible depending on the economics. Whatever it is, it should be fixed for all nodes.

It’s right that nodes gain rewards proportional to their staking amounts, but it shouldn’t be excessive, and it should be based on brand, uptime, community support etc, not determined by fee competition.

I would ask that the variable fee is removed, we stick with a fixed 15% and get a clarification on the Operating Allowance.

Validator fee and Operating allowance probably shouldn’t be in the vote anyway as it covers too much ground.

I would not be able to vote for the change if it includes a variable node fee as I think it’s detrimental to the community and network.

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I agree with @RB_1010 on validator economics: a fixed commission is better than a variable one. A variable 10–25% band pushes smaller operators to raise fees just to break even while large stakers undercut everyone, which works against decentralisation. A fixed fee (15% works depending on the operating allowance) is simpler and fairer for all nodes.

And moving from inflation to usage-based rewards is the right path, which I think will help the network provided that, first, Solid keeps growing (which I can see is actually happening) and, second, usage of the network itself keeps growing.

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Thanks @RB_1010 and @papahaba , fair points, and agreed: these shouldn’t go to a vote before being discussed here.

We’ve updated the Snapshot text before the vote opens:

  • Variable fee removed. Commission stays fixed at 15% for all validators, as today.
  • Operating allowance taken out of FIP14. We’ll open a separate thread to define it properly (token, amount, frequency, and how much of node costs it covers) and bring it back as its own proposal once it’s been discussed here.

FIP14 now only covers zero inflation, the enforced 400M cap and the funded reward pool.

And agreed on the bigger picture: usage-based rewards only work if Solid and network usage keep growing. That’s what the 20% revenue share is built around, and revenue rewards will be reported monthly so everyone can track it.

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Thanks Luka - agree with your comment and I’m now able to vote in the snapshot for the 400m cap. Looking forward to the Operating Allowance info.

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Thanks Luka — agree with the update, and I’m supportive of the direction.

One thought for the longer term: if FIP14 passes and the move from inflation to usage-based rewards is confirmed, it could be worth exploring a voluntary ecosystem-wide initiative beyond Solid. Projects building on Fuse could choose to contribute a share of their revenue to FUSE buybacks — not as a protocol obligation, but as a signal of unity and shared growth. Solid already sets the example with the 20% revenue share; others could follow.

This would strengthen the ecosystem in two ways: it reinforces deflationary pressure without new issuance, and it shows the whole network growing together rather than relying on a single product. It would need a clear incentive for participating projects (public recognition, ecosystem visibility, joint campaigns), and it should stay explicitly voluntary and separate from FIP14.

Just a direction worth discussing once the vote is through.