Idea to adjust KSM's inflation parameters

Redfield
Mon, 14 Apr 2025 17:47:24 +0000
Governance

Disclaimer:

This post deals exclusively with Kusama’s tokenomics and is therefore a purely technical discussion of the core elements of Kusama’s technology.

Nevertheless, the moderators are asked to mark the exact passages in case of a potential violation of the forum rules so that they can be adjusted accordingly.

Idea to adjust KSM’s inflation parameters

Inspired by the last (failed) proposal to reduce inflation at Kusama (Reducing inflation and setting a realistic target for coretime sales), I would like to take the opportunity to raise this issue here in the forum, to put forward my own ideas and to find out what others think about it.

Problem analysis

As we have all seen over the last few years, Kusama (and Polkadot) lost considerable confidence as the inflation issue at KSM became even more relevant due to the realization of the harmfulness of out of control inflation in fiat currencies and the resulting loss of purchasing power.

However, according to the most renowned economic theories, the KSM token performed exactly as one would predict for any product with a 10% inflation rate.

However, with this inflation rate, not only direct harmful conditions prevail, but also indirect ones, because a) with a growing loss of trust, KSM will find fewer partners who decide in favor of KSM, and b) current and future partners will have to overcome additional hurdles in order to be more attractive.

Plain and simple: Kusama loses competitiveness because the opportunity costs, driven by KSM’s inflation, go through the roof compared to those of its competitors.

The bad news is that without a fundamental change in the inflation rate, everyone will lose out, the good news, however, is that this problem can be changed.

Solution

In my opinion, the big challenge with regard to inflation is to reconcile the various conflicting interests of all participants involved (stakers, holders, validators, buyers, sellers). My suggestion is as follows:

[Proposal idea] Adjust KSM’s inflation parameters

1.) Set the Max Inflation to 2%. (old: 10%, new: 2%)

2.) Set the ideal staking rate to 80%. (old: 60%, new: 80%)

3.) Burn 80% of the KSM tokens in the treasury once and on adoption of the proposal.

4.) Create a burn mechanism that automatically burns 80% of all KSM tokens that flow into the treasury.

5.) Grant validators once to demand at least partial compensation from the treasury (through an OpenGov proposal) for the last 360 days after the adoption of this proposal if they can prove with written documents that they have suffered losses due to the changes in this proposal.

Rationale

1. By reducing the inflation rate, the selling pressure decreases, KSM becomes rarer and its value consequently increases.

2. By increasing the ideal staking rate, more will initially flow into the treasury until this levels off. In addition, more KSMs are tied up, which increases the value of the remaining KSMs traded on the exchanges.

3. 80% of the KSM in the treasury is burnt to increase the value of the remaining KSM. In addition, it provides an excellent marketing starter event.

4. By constantly burning 80% of the KSMs flowing into the treasury, KSM generally become more valuable. In addition, the treasury is forced to concentrate on necessary and meaningful projects. Furthermore it provides ongoing marketing events.

5. Validators are very important and should be guaranteed to receive compensation (for up to 360 days after adoption of the proposal), as they will probably have to make the most sacrifices in the short term. However, this will change in the medium to long term, as not only the individual KSM will increase in value, but also the value of the percentage of commission paid to validators.

Opinions

I realize that my proposal may seem radical to many, but I firmly believe that it is the solution that will help everyone (!) involved.

What do you think?

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