Inflation rate too high

Is there any sentiment among the community that our inflation rate is too high? In the current zeitgeist inflation above some small amount is seen largely as a bad omen for the economy, and something to be avoided. I’m personally worried that this is scaring off potential immigrants.

Obviously we set it, so it doesn’t denote much in our system, but potential dotters aren’t going to see it that way, as they largely don’t understand the technology. They see - high inflation… problems lurking. Already I see on forums that Polkadot ‘prints money’ and it gets laughed at. I love Polkadot and I hate to see that the non-technical community sees it as a joke.

I still haven’t gotten a full answer as to why we set it high in the first place, and am not necessarily against it, but I would at least like to see us actively combat this type of sentiment in our marketing.

Sidenote: if it was set high to impart opportunity costs on crowdloaners, is there discussion around lowering it once agile coretime hits?

There has been some discussion previously. For instance: What if Polkadot had 10% deflation instead of inflation?

I am not the expert on this topic to make suggestions, but can provide a bit more explanations of status quo.

Inflated tokens have two purposes:

  • Staking reward
  • Treasury

I will leave the treasury part out. There are many discussions on how to improve treasury income mechanism.

The primary reason for inflation is security budget. We need people to pick good validators and stake. That’s what make the network economic secure while maintaining decentralization.

The more staking rewards, the more people stake, and therefore the more secure the networks (relaychain + all the parachains).

There is obviously a balance required between not enough staking reward (resulting insecure network) and too high (resulting low liquidity of token, unhealthy market and increase the cost of passive holding due to dilution).

An insecure network is completely unacceptable whereas the problem of too high inflation is not that bad compare to security. That may be able to explain why people may be biased towards to a high inflation model.

So to me, the first step to discuss on the inflation adjustment is to find out how much staking rewards is needed to maintain the network security.


So I agree with everything you’ve said in this paragraph completely. The issue is the growth of a network is still dependent on psychology. Even if the system itself is sound, if people feel ill towards it growth will be stunted. So it’s something to take into consideration. However, upon further reflection I do agree that it’s fine for now. I’m sure we’ll figure something else out as the system matures.

In other words, inflation transfers wealth from one person to another. As long as the transferred wealth is used efficiently and productively for useful purposes, it’s not a big problem. It’s all about the governance design of Polkadot, as discussed in this article.

A very high inflation can disincentivize users from buying and holding the token, thus impacting ecosystem growth, as DOT decreases in value over time. Implementing mechanisms like Bitcoin’s halving or gradually reducing inflation over time, or making it dynamic based on the value of DOT, can be useful. This way, the ecosystem can grow over time, and more transaction fees can be collected for the treasury.

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Amusingly, bitcoin’s consensus shall break down due to halvings transitioning from inflation to fees.

It might not matter since bitcoin is centralized into a few mining pools, which makes double spends a choice by those parties, not an incentives game. It’s also maybe fixable without soo much inflation, just burn most fees and print block rewards.

It’s a fun cautionary tail about deflation though.

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Could the funds already in the treasury (with inflation set to 0%) accomplish the same effect?

everyone knows high inflation cause harm to value of dot ,polkadot is the only one set so high inflation rate while utility is limited now.

Of course inflation is far too high. It could be low single digits (positive…there’s a reason no one implements demurrage – the UX is terrible).

But speaking from experience on another network, proposing to lower it will be the biggest shitstorm to ever hit OpenGov by an order of magnitude.

It’s called the money illusion. The harm is less debasing the token directly but more negative externalities from the payouts (like tax liability and selling rewards to pay it).

Best to wait until 2025 when the current treasury wars and Parity decentralization have wound down.