so validators will just arbitrarily inflate $ATOM by printing it through governance?
There are 3 posters here that donât quite understand how the blockchain inflation works. The compensation validators get for practically any chain is a combination of inflation (new tokens being issued) and fees (tokens used to pay for transactions). When a chain is young and doesnât have usage, compensation comes primarily from inflation. When a chain has a lot of usage, the validators get revenues from the fees. Bitcoinâs inflation is reduced through a process of halving over time with the idea being that as the chain gets older and more established more of the compensation will come from fees and less from inflation subsidies. This supply issuance design is obviously a bet that a chain will be popular in the future which may or may not happen. If a chain never becomes popular, the fee revenue may not compensate the validators appropriately and they will then stop validating the chain.
Proof-of-stake chains are different than proof-of-work chains in that the validators give most of the earned tokens back to their delegators. For example, if validator has commission of 10%, the validators keeps 10% of earnings (inflation + fees) and gives 90% to the delegator.
So if inflation goes to 0%, income can still be earned through fees. Fee revenue in Cosmos is about $500K per month right now. Obviously right now fee revenue pales in comparison to inflation rewards. This is the reason why setting the Min Inflation parameter to 0% is unlikely to actually reduce the inflation to zero. Most people staking to earn income will unstake if their rewards go down a lot. That will push the bonding ratio below 67% and then inflation will start increasing towards the max inflation parameter of 10%.
Weâll see what the market says - some people in the market might bond their tokens in order to get infaltion to 0% because they think 0% inflation token is more valuable. Others in the market who are in it for the yield will unstake because the yield is falling below their objective. There will be a clash between these two groups and weâll see what the market decides.
As it stands right now, bonding ratio is 64% which is below target and as such the change of the min inflation parameter wonât make any difference at present since directionally inflation should be increasing and is already at the max setting.
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support this prop, natural next step after capping the inflation
itâs expected validators would receive real revenue as staking rewards when this day comes
Why 0 as a min and not something like 1%, 2%? 0.5%?
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I think as inflation falls, it would focus the minds of validators on alternative revenue models for validators and stakers.
This would include revenue from protocol owned liquidity, AADAO investment returns and ICS revenue.
I think this focusing function would be very valuable.
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I partially agree with what Zaki said
Regardless of the context, validators have a duty to research alternative revenue models for the creation of additional value in the hub. Validators hold the sovereignty of the chain and should bear some heavy responsibilities in this regard, in my opinion.
However, I have a slightly different perspective when it comes to inflation.
Connecting issues related to network security with other sources of income in any situation seems like a risky idea. If we were to link external incentives to staking, for example, temporarily generating income for the hub and successfully growing external chains or businesses, it could align in the short term. However, in the long run, if the vision does not align or if there are no longer reasons to rely on the hubâs security, there is also the possibility of detaching from AEZ. Increasing variables that pose a threat to the networkâs security should be avoided, even if it temporarily has a positive impact on the price of Atom.
Alternatively, if the hub is generating substantial added value during the process of reaching a fully bonded state, dynamically adjusting the tax rate to absorb liquidity and address the oversupply issue in the Atom trading market can also be a good solution. This way, the oversupply problem in the trading market can be resolved, and increased taxation can potentially facilitate active investment and acceleration.
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I think a great example of who will operate is prop 712 on OSMO right now (I know its not Cosmos hub, but its a great example)
Halving of inflation parameters would be better setting from 20/7 to 10/3.5 makes more sense imo, at current revenue this prop would cause people to start unbonding rapidly if inflation actually started to drop too much de incentivicing stakers. The 0% lower bound should be revisited in the future if/when the hub starts to make sustainable revenue.
P/s I personally donât believe in fluctuating inflation and think that it should be static at around 4 to 7%, which we can revisit in future to lower further dependent on revenue streams. Static inflation will help people know exactly how many atoms to expect staking. And lower confusion around this topic
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We appreciate and fully support the vision of transforming ATOM into Interchain money and security hub. However, we believe that these changes cannot be rushed, as doing so may potentially harm the Cosmos Hub rather than strengthen its position.
We have the following concerns:
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A recent proposal to change the inflation rate has been successfully implemented, altering the long-established dynamics of the hub. The Cosmos Hub has not yet fully adapted to this recent change.
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Validator income for most of the active set is already minimal and, in some cases, even negative, especially when validating consumer chains and relayers on top of the Hub. The income from the proposed inflation model may fall short of covering operational costs.
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Although the concept of AEZ shows promise, the current revenue generated from it is not substantial enough to justify a yet another dramatic shift in ATOMâs inflation dynamics.
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Should the proposal pass, in this current state of affairs, the only incentive for individuals to buy and stake ATOM tokens appears to be airdrops, which is neither guaranteed nor may meet the expectations of potential investors.
In conclusion, while a minimum 0% inflation rate could be a beneficial parameter in the long run for all parties involved, we believe that we have not reached the appropriate conditions for such a change at this time.
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I think variable inflation is absolutely fantastic. No other chain has it and inflation can be adjusted based on market conditions and preferences of stakers (do they want number up or income - it can change from year to year and based on cohort turnover). The only question is the range.
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It is an innovative idea and has proven to work well at maintaining staking ratio at roughly 66%, my concerns around it are unpredictable supply and rewards when looking out a year+ ahead. Also that if lower bound inflation is too low like 0% that is being proposed would cause the staking ratio to stagnate right below 66% incentivicing larger stake holders to unbond if it goes over. With static inflation supply and rewards would be predictable and if staking ratio hit 70+% it could stay there indefinitely with no reason to unbond. I would reduce the static inflation based on revenue streams over time. Which can be revisited yearly.
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I think the inflation rate should be based on linear control rather than PID control. Maintaining a setpoint may not be realistic in the future, and the inflation rate will just drift to the min/max values. I would set the max inflation rate to 20% at 50% bonded and min inflation rate at 0% at 80% bonded. That would set an inflation rate of 10% at 65% bonded and fluctuate between 0%-20% for 80%-50% bonded. I am unsure how easy or if possible or if it already is in place, but I would also limit staking to up to 80% bonded to ensure there is always at least 20% liquidity.
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ohh like these ideas, like maybe the protocol treasury periodically airdrops to validator operators
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I would be in favor of having the inflation hit 0 at 100% staked
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Curious to see what happens this time.
Some quick questions. If it were to pass, would that position the Atom token as more bullish for the current run ?
Im worried about the long term repercussions this would bring such as centralization, as well as the loss of staking reward revenue, and maybe other issues Im not aware may be possible (Token collapse?).
The picture you painted about the Atom governance being like the FOMC but with less knowledge experience and training is a scary though!
Lower inflation means higher coin price, right? But does that come with a cost to its decentralization?
I want to see cosmos succeed and last in the space! Thank you for your time.
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Well, yes, lower inflation (ie lower token supply) means higher price if you assume network activity levels are the same. Most of the coins out there have programmed inflation schedules (they get reduced in a certain way) - Bitcoin, Ethereum, you name it. On net they should be far more centralized. Only ATOM allows the inflation to change based on market conditions, ie the preferences of the stake holders. If the market wants, ATOM can provide yield (more inflation). If the market wants, ATOM can provide principal growth (less inflation). People stake and unstake and that determines the inflation levels. Thatâs what makes ATOM really unique in the crypto industry.
The yield part is really important - most market participants (ie Joe Schmo with 401(k)) - want yield. They are income investors. Thatâs the largest cohort (ie group of people in the market). ATOMâs yield is an attractive offering for them if they can figure out how to access it. Things like Bitcoin appeal to a much smaller cohort who are more interested in counteracting sovereign currency devaluation. Bitcoin hodlers are like that samurai that killed everybody to accumulate a pot of gold and then bury it into the ground. Vast majority of people want money to live today - you know do stuff with it. Buy themselves stuff and some may have enough brains to formulate goals and thus tell others what to do (become employers).
So ultimately, if you want decentralization of the user base, ATOMâs approach that allows the yield (ie the Fed interest rate) to be set based on economic conditions is the right way to do it .
Cosmos Hub is in a middle of a number of initiatives right now which will give large amounts of fee revenue yield to stakers. Right now yield comes from inflation, but it doesnât have to be this way. If the chain is used in the real world, it can generate yield from fees and these initiatives I am talking about will bring that about in a very material way very soon. So at that point subsidizing the chain with inflation will not be necessary.
I donât think 0% inflation is appropriate now but I think it could very appropriate by 2026 once the Hub starts generating massive amounts of fee revenue. I donât think ATOM inflation will hit 0% in the near to mid-term (next 12 months) even if the proposal passes.
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Friends, I really glad that we have Proposal #868 in Cosmos hub
Because of this proposal, I understand how inflation works in Cosmos SDK:
https://docs.cosmos.network/v0.46/modules/mint/03_begin_block.html
Thank you StakeLab 
I will try to explain with easy words:
At first, very important to understand, that this proposal is about decreasing âMinimal Inflation parametrâ to 0%
âMinimal Inflationâ is not Inflation
Also, exist âMaximum Inflationâ
For now, âMinimal Inflationâ is 7%
And "Maximum Inflation: is 10%
And for now, real Inflation that we have in Cosmos Hub is already 10%
So, what do we need to get bigger Inflation?
We canâ1 get more than 10%, because âMaximum Inflationâ is 10%, and we already got it
How to get less Inflation? When and why real Inflation will go down?
Inflation will go down, after we will have more than 67% of $ATOM in stake (bonded)
If we have less than 67% $ATOM in stake - real Inflation go up
If we have more than 67% $ATOM in stake - real inflation go down
Now, 64.5% of $ATOM in stake
And Inflation try to grow up, but it canât be more than 10%
So, until we have less than 67% of $ATOM in stake, Inflation always will be 10%
And if we will have 68% $ATOM in stake?
Inflation will go down, but very slow
What means âslowâ?
The âSpeed of changing of Inflationâ = 1-(a/b)
a - is % of $ATOM in stake right now
b- is âbrilliant %â of $ATOM in stake = 67%
So, for now, âSpeed of changing of Inflationâ = 1-(64.5/67) = (1-0.963) = 0.037 â> 3,7% in a year â> it means, that if nothing will change, and all parametrs will be the same, and nobody will stake or unstake any ATOMs, in one year, real inflation will be 3,7% more than today, butâŚ
But âMaximum Inflation parametrâ is 10%, so Real Inflation canât be more than Maximum Inflation parameter, and we already have it, so Real Inflation will not grow up, it will be 10%
If we will have more than 67% of $ATOM in stake, for example 70%,
then âSpeed of changing of Inflationâ will be = 1-(70/67) = (1-1.045) = -0.045 or -4,5% in a year â> it means, that if we keep everything the same, no new ATOMs, not in stake, not unstake, in 1 year, our inflation will be less on 4.5%
So, if we will have 70% of $ATOM in stake, real Inflation will slowly go down, until it became equal to 7%
For now, real Inflation canât be less than 7%, because âMinimal Inflationâ is 7% for now
And what if we will have directly 67% of $ATOM in stake?
Inflation will stop to change!
Spead of changing of Inflation will be =1-(67/67) = 1-1 = 0%
It means, that if we will reach 67% of staked $ATOM with Real Inflation = 8.137% - the system will tell:
âDonât change nothing! This is a brilliant! We donât need to change Inflation! With this inflation we have 67% of $ATOM in stake, so this is what we wanted!â
And every time, when we have less or more than 67% of $ATOM in stakee, the system is trying to get 67%, and start to increase or decrease real inflation
But system canât get more than 10% of inflation, and canât get less than 7% of inflation
Proposal #868 is to change âMinimal Inflationâ from 7% to 0% , not to make Real inflation = 0%
It means, that if we have more than 67% of $ATOM in stake, real Inflation can go down even less than 7%, until it become 0%
And If we have less than 67% of $ATOM in stake - real Inflation will grow up until 10%
For now, real inflation canât be less than 7%, and this is not really good, because not depends of market conditions or usability of the network, we always will have 7% of inflation - this is not healthy for tokenomics in many cases
To have âMinimal Inflation 0%â - is much better, because in this case, real inflation can be as 7%, as 3%, as 1,43%, or even 0,78%
But donât be afraid!
Even if we will have âMinimal Inflation parameter = 0%â - it doesnât mean that we will get real Inflation = 0%
Now, we have âMinimal Inflation parameter = 7%â, but real Inflation is 10%
Moreover!
If we ever will have real inflation = 0%, it means that all $ATOM holders are fucking rich!
To get such real inflation with âMinimal Inflation parameter 0%â, we need that nobody want to trade $ATOM, and everybody want to stake $ATOM
How it can be?
Only in case, if $ATOM have so cool functionality, that you want to stake it, even if you donât get reward in $ATOM
What does it means?
It means, that for staking of $ATOM, you will get reward not in $ATOM, but in some other tokens, for example $STRD and $NTRN, and it will be so much, that you even will not care that you have 0% reward in $ATOM, because you get enough in other tokens!
Wait! Is it possible? How will you get so much other tokens for staking of $ATOM, but not $ATOM, that you even want to stake $ATOM with 0% of interests in $ATOM ?
If itâs not possible, you will never see real inflation = 0%, even if we have Minimal Inflation parameter = 0%
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P/S/
After I understand how it works, personally, I will vote YES on Proposal #868
How POSTHUMAN votes will be decided by the community, not by me
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Going to leave the same comment i left in the other thread here:
I wonder what is the correlation between a the desire of an actor to sell, i.e. asset ownerâs needs and the amount of an asset issued per day to a given market. My guess it roughly = 0
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