Inflation and Staking - the details


This number is indeed arbitrary. Sure, the higher the inflation rate, the better for stakers, but with delegated proof of stake, I tend to believe anyone that will plan to hold will be staking (thanks to these businesses such as chainomatic). Only those needing access for purchase (spending account) will have non-staking tezzies.

But on the other hand, it sends a cold shower to anyone interested in Tezos once they learn about a high inflation rate (the general public only knows about Bitcoin and somewhat less Ethereum). In my opinion, I would make it 2% to fit with this “ECB mandated 2% inflation rate” Bovine Excrement that they have in their mandate. We know very well that in reality, the European Central Bank is talking about price inflation without consideration for asset inflation (ie: it’s not the inflation of the currency supply but price inflation they are talking about) - so in reality they had a higher rate, but that’s beside the point since the public don’t think or know about these details.

It’s all about public perception. One of the attraction of Bitcoin to many is to know it has a hard limit of 21 million bitcoins, even though that will not be reached until about 2140.

Alternatively, we very likely should not have it at 0% since then not as many might care to stake (only transactions fees as reward). The security of the Tezos network will be stronger with a higher number of nodes staking, hence the incentive to stake so not to lose.


Spot on - “It’s all about public perception.”


I think there’s an opportunity to adjust the inflation rate based on interest in an effort to keep the price stable. In times of rapid adoption, like we’re seeing right now in crypto, it would make sense to have a higher inflation rate to satisfy demand, and then lower it when things calm down. From this standpoint, 5% might be too low for the times, but in a year or so I could see it going down to 1-2%, maybe even 0% for a time to combat negative price pressure. Once Tezos reaches max adoption (when everyone has been given sufficient info and time to adopt), then inflation can be set to something close to population inflation.

One of the complaints you hear about bitcoin is that the price is too unstable to use it in day to day business. Tezos seems well suited for this kind of community driven inflation adjustment. Before now it’s always been controlled by those in power.


Ben, the point was valid for Bitcoin to have a high rate of inflation in the beginning (50 BTC rewards) since there wasn’t much bitcoins to start with. But that is not the case with Tezos since it has been pre-funded and distributed ahead of time.
As for price instability of Bitcoin, it is indeed an issue, but will always be an issue as long as the market cap is low (and it is still low, not just as much as it was before). Market cap of Bitcoin at say >$1 Trillion, it will make it more stable. But look at gold - it is still not considered a stable price - the ultimate in price stability is when it is used as a currency by one or more countries - where people have contracts (rents, payroll, …) that are fixed in that currency.


I do not believe price stability in any crypto will be possible until the fiat demise.


That’s a good point. It only matters that the inflation rate be greater than the cost for validators of running their node, and 2% would likely cover that pretty soon. I think it could be addressed in further amendments.

  1. does delegation always require you to give up both staking rights and voting rights? or can we separate the two?

  2. Assuming we use the 10K minimum for staking, while that does seem a bit high, if it is possible to delegate < 10K if that is all you have, then the 10K min may not seem so bad.

  3. yeah, inflation of 5% does seem a bit high. and I say this as a member of the upper 5% category (for this 2nd 5% figure you see here, im not referring to inflation, but to the group of accounts who own more than 44K XTC). Especially if it pushes out the ability for people to delegate less than 10K out to someone else.

  4. it appears there are 2 types of rewards here: rewards for fees when its your “turn” to generate a block, and then the nondilutionary inflation due to staking?

  5. So lets assume I delegate 10K out to someone, and their baker operates correctly, does the consensus mechanism reward my nondilutionary inflation directly? or will this be up to the delegate to determine how to appropriately reward?

  6. And the same question for block generation and its fees. will the delegate be responsible for calculations of fees splitting out to constituents? or does the consensus mechanism handle this?


I thought about it for a while and I’ve decided that people who are able to host a full node are probably wiser about voting on software updates so I am inclined to delegate my votes with persons who are managing staking pools.

Something for people and the market to decide but as long as it’s not too big of a penalty, i don’t mind assigning my votes to a more knowledgeable voter.


About the 5%, Mike makes a valuable statement:

Basically, this can be adjusted based on the number of tezos involved in staking versus the cost in bandwidth to maintain the network.


i was thinking the same exact thing. Based on what Ive seen with NXT over the past few years, with it being 100% PoS, they have sort of had issues with having network power forging. Arthur’s dilutionary inflation is a pretty novel way to address this issue. so yes i can see a need for having inflation change based on how the network is operating, but how to agree on that, well that could be a point of contention, unless the voting/selfAmeding part is functional from the start.

But then, why wouldnt the big dogs then vote for tons of inflation???

This will be very tricky.


Decouple voting from delegation.

It comes down to the:
Carrot and stick.
Carrot + carrot and stick.

Delegate now = Voting rewards + inflation rewards.

Too many carrots going to delegates.


sorry - that was a rhetorical question, and was meant to point out the issue here, what with the possibility of large exchanges getting some serious power.


Although decoupling voting and delegation could result in giving the Tezos owner more voting flexibility, it won’t solve the real threat. Exchanges will soon hold a huge percentage of tokens and can vote however they want. You can’t split voting from ownership and unlike delegators, exchanges will actually be in possession of the tokens themselves.


unfortunately this is the case. as best i can tell, the best way to combat this is to spread the word on the inflation inherent to the system, and provide services for people to realize gains on the inflation. otherwise they will be content to just park their funds in exchanges


I figured it was and you did point that out {;–)

When I speak to clients they understand PoW very well, many have large Bitcoin holdings and learned quickly that miners rule, which is understandable in PoW. They had to get “into” mining to vote, arms race all the way, cost, pollution, on and on it goes in PoW.

When it comes to DPoS, clients logically ask why nodes get their vote?
They do not want to build out in order to gain the right to vote, staking yes, running nodes, no.

DPoS optimization leads to what 101 node choices?

Selection of node operators should be based on sound stewardship.


In order to vote one must stake.

It matters not, delegate yourself or someone else, you are staking.

Stake = Vote, decoupled or not the equation remains.

When you stake you see a future and want to be a part of it.

Exchanges are going to lose against Tezos because they can only play a derivative game; they cannot vote unless they stake and if they stake and customers withdrawal their tezzies, a world of hurt will ensue.

Lack of supply concerns me, not exchanges.


thats a fair point, but they are still able to play it as a type of reverse fractional reserves market, and still be able stake/vote with a very large amount of power. with the DSL/foundation 10% vesting scheme, it may even be that the exchanges get on top first. speaking of which, does anyone know the specifics on the nature of DLS’s and the foundations’ 10% stake in XZT that vests over 4 years? I assume it will be a smart contract handling all this. So maybe they will not be allowed to spend, but they can still vote and stake/delegate? Does anyone know? Has anyone asked this question?

like I keep hammering at though - surely people will not want to just sit and let their stake dilute by keeping it on an exchange and letting it basically rot, for all intents and purposes. this concept really needs to be pushed to the public.

although we may end up seeing a paradigm shift here with fees and exchanges, where they may actually pay YOU interest. at least where XTZ is concerned anyways. this kind of thing is why I really went hard into XTZ.


I agree and said as much:

Exchanges are going to lose against Tezos because they can only play a derivative game; they cannot vote unless they stake and if they stake and customers withdrawal their tezzies, a world of hurt will ensue.

Yes, we could, but, exchanges that pay out interest would have so much red tape coming at them for a single token I doubt they could justify it.

Lack of supply concerns me, not exchanges.


This is going to be such an interesting model as we all develop it! I know the Foundation has a hard coded veto authority for the first 12 months on protocol upgrades. I don’t know the vesting scheme vs. voting scheme after that period.


can you expound on “lack of supply”?