We would like to remind you and everyone else about the actual functioning of the x/mint module which is in charge or the inflation mechanism for the chain.
TLDR; here is a list of the adjustable parameters as they are currently operating in Gaia:
| Key | Type | Example |
|---|---|---|
| MintDenom | string | “uatom” |
| InflationRateChange | string (dec) | “1.000000000000000000” |
| InflationMax | string (dec) | “0.100000000000000000” |
| InflationMin | string (dec) | “0.070000000000000000” |
| GoalBonded | string (dec) | “0.670000000000000000” |
| BlocksPerYear | string (uint64) | “6311520” |
ANALYSIS:
Focusing excessively on the inflationMax parameter is ill-advised. It’s crucial to remember that ATOM inflation is not detrimental, as it is distributed proportionally among stakers, thereby not diluting their holdings. Instead, it serves as an incentive for users to stake, which is a fundamental requirement for a security-based network.
The inflationMax parameter solely functions as a safety measure, preventing excessive inflation that could have adverse effects. The preoccupation with ATOM’s price depreciation due to inflation is understandable, nevertheless it remains a false flag. It is important to note that the value held by each staker remains unchanged, as does the ATOM market cap. Liquid holders are the ones diluted, which is the intended purpose of the inflation mechanism, encouraging them to stake.
If reducing inflation is the community’s primary objective, efforts should be directed towards increasing the amount of staked ATOMs. Once the staked ATOMs surpass 67% (the GoalBonded parameter), the effective inflation rate will start to decrease. The higher the percentage above this threshold, the faster the inflation will reduce towards the minimum boundary, which is a topic that warrants future discussion.
The primary challenge for ATOM lies in the suboptimal adoption of liquid staking, which was designed to boost the amount of staked ATOMs while providing liquidity for deployment within the ecosystem. Regrettably, the adoption of existing liquid staking protocols has been less than stellar. Lido’s Drop is imminent, which could potentially serve as the catalyst we’ve been anticipating.
CONCLUSION:
It would be beneficial to shift the focus of our discussions away from inflation parameters and towards enhancing the staking ratio. Liquid staking should play a pivotal role in this strategy. Furthermore, we should consider revising the inflation formula to account for the ratio of liquid staking and make the inflation more responsive, a proposal we intend to present in the forum soon.
Thanks for reading,
Govmos.
