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)
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
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: Astar on Polkadot - Big Partners, Big Builds - The Community & NFT Strategy 👀 - Alpha Shots 45 - YouTube
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