[Proposal] Temporary Change inflation to 9%

Hey everyone,

In line with the discussions in this thread ([Proposal] The creation of a new inflation schedule) and several discussions over the course of the last months (also see here: Lowering Inflation in Secret Network), adjusting our current inflation rate is at a point where we can make an on-chain proposal.

As many of you know, our network currently has an inflation rate of 15%, and I suggest that we lower the inflation down to 9%. This is in line with what SCRTLabs also likes (see: [Proposal] The creation of a new inflation schedule - #12 by Carter-Woetzel) and is liked by most community members now. Also, we’ve seen some significant price increases (for example: JUNO) after inflation has been lowered.

Some of the thoughts on why a reduction in inflation down to 9% might be beneficial for us (as taken from my previous post of lowering inflation):

  1. Inflation and Value Preservation: Lowering inflation could help preserve the value of SCRT and thus make it more attractive to hold. Higher inflation can often lead to depreciation in value, and this might discourage participation.

  2. Balancing Rewards for Long-term Sustainability A lower inflation rate could mitigate the risk of over-saturating the market with tokens and ensure that staking rewards remain attractive without devaluing SCRT. A lower inflation rate may therefore be more sustainable in the long term.

  3. Network Security and Decentralization: While inflation is a tool to incentivize staking and thus secure the network, it’s crucial to strike a balance. Too much inflation can lead to centralization issues if large validators obtain a disproportionate amount of tokens. Reducing inflation could promote more equitable distribution.

This proposal would change the Inflation to 9% and adjust the BlocksPerYear parameter accordingly as @assafmo mentioned.

Best,

Alex | SNF | Secret Saturn

5 Likes

After discussions with SCRTLabs at the gov call, we put this proposal on hold.

Hey everyone,

Following extensive discussions with relevant entities in the Secret Network community, we are revisiting the proposal to adjust the inflation rate. The plan is to temporarily reduce on-chain inflation to 9%. This measure will be in place until SCRTLabs performs a more thorough research for an updated tokenomics model for Secret (announced as part of Q1 roadmap), which will include more variables and additional modeling. It is my understanding that the resulting inflation rate will still stay at or very close to 9% when the research is done.

Best,

Alex | SNF | Secret Saturn

3 Likes

Careful about defying Tor, he stated a schedule would be in place. :smile: https://pink-poised-skunk-989.mypinata.cloud/ipfs/Qme29iDX3RpdoDnEiEU1eNc45CGHT3D36445YLsWjWs8T2

Hey everyone,

I’ve checked the block time of the latest 100k blocks via mintscan (just via a blank block page here: Mintscan), which turned out to be AVG. Block Time : 5.844s last 100,000 blocks.

If you extrapolate this number to a whole year, this equates to the following BlocksPerYear parameter which is also going to be adjusted:

BlocksPerYear = 365.2425*24*3600s/5.844s = 5,399,889.1170431211 ≈ 5,399,889

The new blocks per year parameter is therefore going to the 5,396,304.

As to the fear that the newly set inflationMax parameter by this proposal might not change quick enough due to InflationChangeParam being too low, I’ve looked at the cosmos-idk v0.45 definitions (see here: Begin-Block | Cosmos SDK).

Looking at the code below, the Inflation will be set to InflationMax if Inflation > InflationMax. we should therefore not have any problem an inflation change to 9% if your inflation right now is at 15%:

NextInflationRate(params Params, bondedRatio sdk.Dec) (inflation sdk.Dec) {
	inflationRateChangePerYear = (1 - bondedRatio/params.GoalBonded) * params.InflationRateChange
	inflationRateChange = inflationRateChangePerYear/blocksPerYr

	// increase the new annual inflation for this next cycle
	inflation += inflationRateChange
	if inflation > params.InflationMax {
		inflation = params.InflationMax
	}
	if inflation < params.InflationMin {
		inflation = params.InflationMin
	}

	return inflation
}

I’ll put up the final json of this Proposal up on the forums shortly. Please double and triple check if everything is alright, thank you :slight_smile:

Best,

Alex | SNF | Secret Saturn

1 Like

Could you tell me what the impact of reducing inflation would be on the staking yield? I completely agree with the reduction.

1 Like

Hey,

Let me break it down. The total staking yield is:

(Inflation / Bonded Rate) * (1 - FoundationTax - CommunityTax) * (1 - Commission)

Inflation now would be 9%, down from 15%
Bonded Rate right now is 59%
Foundation Tax right now is 0%
Community Tax right now is 2%
Commission is assumed to be around 5% for a validator (which is the median).

In total, that is:

(9% / 59%) * (1 - 0% - 2%) * (1 - 5%) = 14.2%

The staking yield at 15% inflation is at 24.91%.

4 Likes

Here is the draft proposal JSON, please comment everything you find:

{
        "title": "The 9% Temporary Inflation Proposal and Adjusting Blocks per Year",
        "description": "Following extensive discussions with relevant entities in the Secret Network community, we are revisiting the proposal to adjust the inflation rate. \n\n The plan is to temporarily reduce the on-chain inflation to 9% \n\n For this, the InflationMax parameter will be set to 9%. \n\n This measure will be in place until SCRTLabs performs a more thorough research for an updated tokenomics model for Secret Network (announced as part of the Q1 roadmap), which will include more variables and additional modeling. \n\n Also, the BlocksPerYear parameter has to be routinely adjusted as the average block time. Exactly one year has passed between the blocks 6,317,200 and a recent block at 11,752,974, so SCRTLabs suggests using 5,435,774 as the BlocksPerYear parameter. \n\n The InflationMin parameter remains at 7% and will not be changed by this proposal. \n\n The forum post can be found here: https://forum.scrt.network/t/proposal-temporary-change-inflation-to-9/7128 \n\n Places this has also been discussed: \n\n 1. https://forum.scrt.network/t/governance-meeting-notes-mega-thread/3946/131 \n\n 2. https://forum.scrt.network/t/governance-meeting-notes-mega-thread/3946/126 \n\n 3. https://t.me/SCRT_gov",
        "changes": [{
                "subspace": "mint",
                "key": "InflationMax",
                "value": "0.090000000000000000"
        },{
                "subspace": "mint",
                "key": "BlocksPerYear",
                "value": "5435774"
        }],
        "deposit": "100000000uscrt"
}
1 Like

Can someone give me some more context as to why the blocksperyear parameter needs to be adjusted as well? To stay true to the expected inflation rate?

Additionally, i think we should increase the rate_of_change parameter for the inflation settings and we also need to lower the min-inflation so that inflation actually remains adjustable by the bonded rate. These can be separate proposals ofc.

1 Like

In each block, the chain uses the BlocksPerYear value to calculate the amount of SCRT to mint as inflation. I.e. something like (Inflation * TotalSupply) / BlocksPerYear is the amount of SCRT to mint in this block to distribute as infaltion.

Exactly one year ago we were at block 6,317,200 (Interchain Explorer by Cosmostation), so I suggest using 5,435,774 as BlocksPerYear. That includes events like upgrades and doesn’t require any extrapolation.

1 Like

Thanks for the input, I’ve corrected the json

1 Like

I’ve updated the prop json once more, please do some last checks. This is going on-chain today :slight_smile:

1 Like

The BlocksPerYear value has an extra whitespace, other than that LGTM.

1 Like

Corrected, thank you :slight_smile:

1 Like

Thanks everyone for their input, the proposal is now on-chain: Mintscan

2 Likes

Looks like this is going to pass, yet I don’t see in the proposal how long the 9% will be in effect for and when it will begin?

1 Like

It will go into effect immediately when the proposal passes. Any on-chain vote later down the road can change it.

2 Likes

Sort of like Bitcoin halving, each year the inflation rate should go down.