Firstly, thank you for sharing your insights on inflation. It’s clear that inflation is a pressing concern for many in the Community. We believe it’s important to remind everyone that the Hub’s inflation isn’t akin to a tax. Rather, it represents a mechanism where liquid shares of ATOMs are effectively redistributed to stakers, serving as an inherent economic incentive to favor staking over holding liquid tokens and engaging in volatile trading activities. This dynamic is fundamental for maintaining stability within the protocol.
Throughout 2023, various attempts to reduce inflation underwent voting processes, but none garnered a strong consensus. Some proposals even faced staunch rejection, as evidenced by this example: Statistical Analysis of Prop 868 Rejection - Set Min Inflation to 0.
To foster meaningful discourse on inflation, we’ve consistently emphasized the importance of considering inflation parameters as a cohesive whole, rather than viewing them in isolation, given their interdependence. In pursuit of this goal, we’ve developed a comprehensive model to illustrate this concept, allowing users to manipulate parameters and observe their respective impacts:
We strongly encourage you to have a look at this model first before proposing adjustments to the inflation mechanism.
To conclude, regarding the proposed adjustment to lower the bonded rate to 60-62% we think this isn’t the right move to make. The motivation seems to be driven by the envy to lower the inflation rate, probably based on this repeated feeling that inflation is “too high” and depreciate prices. We need to remind everyone that inflation may depreciate the price if growth isn’t moving faster, but it is not diluting the value. By this we mean that the ATOM’s marketcap isn’t moving at all… you just receive new tokens to compensate the new inflation. You also receive more than these emissions as you also benefit from the dilution of those who don’t stake.
Most of the time this lack of understanding create confusion in the community, looking at ATOMUSD pairs may make you feel like the token it not “pumping enough” compared to others, but in reality you’ll see a totally different picture if you look at the ATOM’s marketcap chart.
We hope this post will help you better understand the inflation mechanism itself and its economical impact.
Govmos
