Reconsidering Astar's Inflation Rate

Economics
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The Astar team is working with a 3rd party to review and make a new token economics model. Given even the US government, FED has targeted 2% annual inflation and I think the current inflation rate of Astar Network is high. I personally think it is better to make it lower for the coming months, and we are on the right way to make it smaller.

To do so, we have multiple ways.

  • Decide the fixed total supply and make the inflation rate smaller and smaller (Bitcoin model)
  • (Automatically) decide the inflation rate based on the network usage (Ethereum model)
  • Mixed model
  • and more

We will carefully consider all potential choices.

The problem is how much we should make the rate smaller. This has to be decided by analyzing the network and the potential impacts we will see. After receiving the analysis report, we will publicly debate this topic and act quickly to fix it. Ideally we can change this within a month and we are working hard to do so.

One idea is that this inflation rate can also be decided every quarter or every six months and updated based on multiple factors, like the US inflation rate. Decentralizing one of the roles of the FED can be a challenge but also an interesting trial.

We should discuss numbers mathematically. I will delete low-value posts to make this thread easy to track.

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Thank you Sota and the Astar team for considering the inflation rate of Astar, it clearly shows that Astar cares about the community and the long-term success of the project!

I would like to share my opinion, may not be the best but I am open to any ideas.

First of all, linking the Astar inflation rate to the Federal Reserve rate may not be the most relevant or effective approach. The factors affecting a decentralized network are quite different from those influencing traditional fiat currency systems. The growth and usage of the Astar network should be the primary factors in determining the inflation rate, as they directly reflect the health and activity of the network.

The Ethereum model, where the inflation rate adjusts based on network usage, seems to align more closely with the unique characteristics of the Astar network. The “build to earn” model indeed provides more incentive for developers to deploy dApps on the Astar network, which could drive up demand and thus naturally regulate the inflation rate (maybe we should also consider additional mechanisms to burn Astar tokens)

In addition, it might also be beneficial to take into account how the inflation rate affects the development of new projects and overall innovation on the Astar network. An optimal inflation rate would not only encourage developers and projects to join the network, but also provide enough incentives for long-term sustainability and development.

As for the frequency of updating the inflation rate, a shorter period, such as quarterly, could indeed allow more responsiveness to any changes in the network’s growth and usage. However, this approach should be balanced with the potential risks of excessive volatility, which could deter developers and users from adopting Astar.

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Appreciated that the Astar team is always thiriving to make the ecosystem a better place. I believe it’s always good to revise and improvise on tokenomics, especially currently the inflation is too high, and at the same time the burn rate is so low that it can almost be ignored. I’ve heard that there are discussions around the lowering of inflation rate to 5%. Based on Astar’s current burn rate and on chain activities, I think this number is still too high. Especially for us token stakers and holders, the APR is over-estimated if the inflation rate cannot match the burn rate.

Because Astar focuses more on applications and onchain activities, so I guess ETH model fits better here. The burn rate and the metwork usae are some good referral to set up for a better inflation rate.

Please consider for some more options to lower the inflation, and I believe Astar users will happy to discuss about it.

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I this vein I would like to remind everyone of several previous proposals in relation to this issue:

  1. There was a decent proposal made back in October 2022 (Proposal - burn mechanism on transaction fees similar to Shiden Network, and quarterly burn events to reduce inflation on the ASTR token) to adopt a burn mechanism similar to that of Shiden Network, which was mostly ignored. It would be interesting to hear why this was the case?
  2. There was a successfully passed proposal in December 2022 (Halve collator rewards on Astar to improve decentralization) that halved collator rewards (from 10% to 5% of block reward) in order to:
    a) improve decentralization (haven’t changed the composition of collator set significantly);
    b) lower the total annual inflation by 5% [as per info from recent posts on this issue - inflation remains steadily at 10% :(]
    It would be interesting to hear what were the exact outcomes/results of this proposal in terms of decentralization and inflation?
    To follow up on this - if inflation (and centralization) was not significantly lowered by this measure, and (as it sems) will be tackled by another measure in the near future, should this ineffective (?) measure be revoked?

As some members mentioned in the threads from October and December above inflation can be successfully tackled by initiating burns of the treasury funds (generated from rewards) that are unused in a specific time frame (use it or loose it model). This has proven results from many other chains, including Kusama and Polkadot. Exploring this path thoroughly would be a worthy endeavor :vulcan_salute:

As the last remark, and also mentioned before from my side, I find it awkward that important issues like this one are decided exclusively by votes here (only community members with a trust_level_2 minimum on this forum are allowed to vote) instead of using democracy on chain as is done on Kusama and Polkadot, any many other chains not so closely related to Astar.
I understand the current circumstances but this ‘closed circle’ voting, limited mostly only to ambassadors and few other community members, will likely give schrewed results and I doubt this is something anyone here wants…

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Hello everyone,

I agree with what’s been said about the difference between Astar and the U.S. Dollar. Comparing the inflation of a decentralized cryptocurrency network like Astar with traditional fiat inflation, such as the U.S. Dollar, is not entirely suitable. The inflation rates of fiat currencies are influenced by various macroeconomic factors, including governmental and central banking policies, and complex economic dynamics while Astar’s inflation rate is pre-determined.

Reducing our inflation rate could lead to token concentration among large holders, potentially decreasing network decentralization. Additionally, a competitive inflation rate is essential for Astar to remain competitive with similar networks. Substantial reductions could lower staking rewards and potentially initiate selling pressure and moving to other networks.

Inflation in Astar encourages token distribution, ecosystem development, and rewards active participants. Any significant reduction could limit our ecosystem’s growth.

Any adjustments to the inflation rate should be approached cautiously. Large changes can lead to unpredictability and instability.

Could anyone guide me to where I can find the current distribution of the inflation rate among all network participants? This would allow us to discuss specific numbers when considering where inflation might be reduced or maintained.

Also healthy Astar network requires not just adjusting the inflation rate, but a comprehensive set of balanced solutions.

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Sota-san (and respective Astar Core Team Members):

Thank you for bringing this issue to the community for an open and honest dialogue. I am nothing but a small investor in the Astar Network, but it is easily one of my favorite projects/protocols in the entire Polkadot ecosystem. Regardless of whatever you, the team, and the entire community decides, I will still continue to support Astar.

Having said that, I completely concur with both @DrCAO and @fouad that comparing the inflation of Astar and its tokenomics to the FED’s benchmark rate is missing the mark; while they both appear to be “high” in a nominal sense, there is no real correlation to these benchmarks. I specifically wanted to hone in on this as part of my commentary because of what you stated toward the end of your initial statement: that we may see Astar’s inflation rate adjusted up or down with some frequency.

While I have no qualms with what the community decides for how to solve this thorny, complex issue over the long-term, I do not think inflation should be a moving target that gets adjusted regularly. This will likely cause confusion and consternation among current (and future potential) investors, which is why I believe this part in particular should not be considered.

Personally, as a Bitcoiner, I like the first model you mentioned where perhaps there are halving cycles during the life of the network that slowly reduce the amount of new tokens being issued into the system. Perhaps that, combined with a similar EIP-1559 burn mechanic, we could reduce the circulating supply over time to the point that Astar becomes even deflationary.

While there is still much to discuss around this topic, I wanted to at least offer my perspective. I also believe that, ultimately, a decision of this magnitude should be voted on-chain so that all token holders can have a say in the governance of the network. I, too, have found it unsatisfying that certain proposals are decided off-chain, and even then by only certain individuals who have the requisite credentials to do so. If we truly believe in decentralization as we espouse we do, then all token holders should have a say in a fair and transparent on-chain vote.

Thank you in advance for your time and consideration of my commentary. I wish you and everyone else working on the Astar team or building in this community the very best :man_bowing:

Gratefully,

Ryan / Phunky

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Hello Astra Community,

It is exciting to see a crypto currency community interested in “Reconsidering Astrar’s Inflation Rate.” This has drawn me into my first foray into Polkadot. This statement by sota is what drew me into this conversation:

“Decentralizing one of the roles of the FED can be a challenge but also an interesting trial.”

Before I get started, let me define some terms so that I may communicate better. To me, the term “inflation rate” is verry different from a currencies total creation rate (including any burned). A better term for me would be “coin creation rate.” The inflation rate is the value of the currency compared to goods and services. A comparison with “stable fiat” currencies would be a “One off” from this. For example, as has been pointed out in this thread, the USD “inflation rate” seeks to be at a 2% rate compared to goods and services. For example, if a currency had an absolute, relative to goods and services inflation rate of -2%, it would have a -4% compared to any fiat currency with a +2% inflation rate compared to goods and services.

We’ve recently started a topic on a consensus building and tracking system at Canonizer with the goal of building and tracking consensus around what might be required to create a truly “stable” crypto currency here. The initial dynamic petition like “consensus camp” is “Yes, this could change the world.”

I would love to know everyone’s thoughts on the possibility of this, and of course if anyone agrees, please sign and support the dynamic petition, or if you have a different opinion, feel free to start building consensus around a competing camp. May the best camp achieve the most consensus.

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Apologies if I’m off a bit, I’m an actuary but completely new to the crypto space. So I’m agreeing with a lot of what I’m reading above especially regarding the Fed vs Astar rates. I think there should be a more “crypto”-centric solution instead of based off a centralized monetary policy approach.

Limit my issues with comparing to the Fed to the following two:

  1. Reserve banks set target inflation then use monetary policy to try and achieve it. Astar is setting a predetermined rate (absolutely now, or if mimicking ETH/BTC, formula driven based of traffic/time). If Astar were to create a targeted inflation rate, they would need to create a token policy to control it (Increase/decrease burn, increase/decrease creation of new Astar). Not sure this is the most suitable approach for a decentralized token as it requires a centralized authority to make these calls.

  2. Comparing a risky (volatile) asset’s inflation rate to the target inflation rate of the USD (or other stable currencies) is not a like-for-like comparison. It would be worth looking into competing tokens and observing how they handle inflation rates. Not just BTC or ETH, but also tokens that are ‘similar’ to ASTAR. Not sure something ground breaking needs to be invented, but rather take the best bits of what is working for others and adapt it to Astar’s usecase.

As for reducing the rate:

Someone said above, and I whole-heartily agree: Any change should be made incrementally, over time if possible, or at minimum explained well in advance of the change happening. A system has already been built up where both sides of the contract have agreed to the terms. Changing the terms may change some uknown-knows into “oh no!” know-knowns. We see this a lot when governments make financial policies without providing sufficient consulting time stakeholders. A recent example is with the hardships cause by covid: In Australia policymakers created and passed a bill within a few months that allowed everyone to withdraw $10k from their mandated retirement products. 10k doesn’t sound like much but when millions of people do it, the money adds up. Further, time from conception to enacting did no allow enough time for the retirement investment firms to become sufficiently liquid (retirement investing relies heavily on unlisted assets due to duration of the liability). This caused an asset-liability issue forcing the premature sell of more liquid assets at a discount (ie loss of value of retirement balances).

Anyway, thanks for reading all that, and good luck with the decision.

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Hello Sota,

The subject of the inflation rate for a POS blockchain is always a sensitive one, as it impacts a number of stakeholders with different objectives. Holders want the lowest possible rate to protect their investments from a loss of value associated with the dollar, while collators, builders or stakers who are remunerated through inflation will want a higher rate for a better income.

Two parties with two opposing objectives, so we need to find the right balance to satisfy both sides.

Before discussing any changes, it’s important to have a detailed overview of the Astar inflation situation and its distribution to the various parties involved:

  • Build2Earn (Stakers & Builders)
  • Collators
  • Treasury

In January 2023, a reduction in inflation distributed to collators was implemented (from 10% to 5%). This was to have an impact on Astar’s overall inflation, which was also to be reduced by around 5%, bringing current inflation down to around 8.32% (253.08 ASTR issued per block, ~665,000,000 ASTR yearly). Cf: Tokenomics & Inflation Model

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What is the current state of inflation on Astar and its distribution?

Bitcoin, Ethereum, Polkadot models

As far as I’m concerned, it makes no sense to apply an inflationary model from another blockchain directly to Astar without adapting it, because the stakes are not the same.

  • Bitcoin inflation is used to remunerate miners:

Bitcoin inflation = 1.74% after 3 halving and 14 years of activity

  • Ethereum inflation served to remunerate miners and is currently used to remunerate validators and reward stakers:

Pre-merge, Ethereum inflation ~ 4.61 %, Post-merge, ETH inflation ~ 0.52% (cf :How The Merge impacted ETH supply | ethereum.org)

  • Polkadot inflation is used to remunerate validators, reward stakers and feed the treasury:

The Polkadot inflation rate is set at a maximum of 10%, but the number of DOTs in staking reduces this rate to around 6.82% at present.

As far as Astar is concerned, inflation is used to remunerate collators for maintaining the network, builders for creating applications and services thanks to dApp staking, stakers for locking their tokens, and finally to feed the treasury to promote activities and initiatives that enhance the network. We’re therefore on an inflationary model, on which more aspects of our network depend to subsist than on Bitcoin, Ethereum or even Polkadot. Furthermore, these 3 blockchains have had many more years of use and experience to test their models and grow their activity than Astar.

Even if Astar inflation remains high at present, it’s for a reason, and changing it will therefore have a greater impact on many players in our ecosystem, whether it’s stakers or builders, who will see their staking rewards decrease, or collators, who will receive less Astar per block, or the treasury, which will see a drop in its funding, limiting its use.

The initiative to discuss the implementation of a burn system for transaction fees similar to Ethereum seems to me to be a good way to explore and try out first, before touching the inflation rate. The problem with this point comes down to the fact that tx fees on Astar are far too low and so a burn model has no impact at the moment. Cf: https://youtu.be/IFAr4dIkuAs?t=114

I’d be in favor of increasing fees, but that’s directly related to Reconsidering Astar's Token Economics.

This has to be decided by analyzing the network and the potential impacts we will see. After receiving the analysis report, we will publicly debate this topic and act quickly to fix it. Ideally we can change this within a month and we are working hard to do so.

I look forward to reading the analysis report to learn more about the current inflation situation and recommended solutions.

Thank you for reading my opinion and I hope we can find a good solution to satisfy all parties.

G’, Astar & Polkadot Ambassador

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Hello everyone,

I think the goal of blockchains is to be used and to store data in order to increase the value of the network itself.
Inflation is necessary to give a boost to the use of the network and to be able to compete with low fees compared to other blockchains.
We hear a lot about deflation, but I find that it’s just a trend born on blockchain whose transaction costs are so high that it is not possible to use it. If a user has more incentives to NOT use the blockchain, the blockchain will never grow, while we need Astar to be used by many users and we need to incentivize those who use the network.

If instead we choose the “buy and hold” path we will have many users who will not use the network and a network that is not used is a network that has no value.

Thank you for reading my opinion
an Astar developer.

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In my opinion, the inflation rate alone is meaningless.

Moreover, by definition, if we keep all variables static, it will reduce the unit value of the token.

Inflation does make sense when it is used to generate value to the protocol and the token.

So to my way of thinking the proper question is
what do you do with the money that inflation generates?

If it is given away, it will reduce the value of the token.

But if it’s used to generate value contribution to the token, that’s fine with me.

That’s why a Dapps Staking mechanism, it should bring value.

So the question is,
what is the inflation rate that generates sufficient value?

I think for this there is no historical data, and history is just being written.

And when there is no data, expert judgment is used.

Without an expert, I would try a gradual reduction of 0.5% per month for six months,
with monitoring of token economics and activity on an ongoing basis.

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