I dont think it was mentioned so far, or maybe its a given, but the main driver for the adaptive inflation is the price action.
I am not saying that the 42m of baking rewards every year all end up being sold on the market, but its a use case of the baking rewards. For example I buy NFTs with them, XTZ that goes in the artist pocket that directly send them to Coinbase to swap them to USD (or to ETH).
With the following assumptions:
- 1B XTZ
- AMM like with 100M XTZ in liquidity (in a pool like quipuswap or uniswap x*y=cte)
→ 42m tokens (5% baking rewards emissions) added and sold to the market along the year nuke the price by 50% (try swapping 42% of a quipuswap pool to see)
→ 4.2m tokens (0.5% baking rewards emissions) added and sold to the market along the year only decrease the price by 7.8% (try swapping 4.2% of a quipuswap pool to see)
This is not exactly the market scenario because:
- Majority of liquidity is on CEX using order book (lower slippage)
- Liquidity of tez is much lower than 100m tez (much worse slippage/price impact!), probably closer to 20-30m tez in liquidity.
I suspect a lot of users/holders to assume that “if 5% tez is added every year, the price may decrease by 5%, but not a biggie since the bag is 5% bigger”. Unfortunately this is not how it works as shown above
I am not saying that unnecessary baking rewards is the main culprit for tez price action either, lots of L1s have higher token emissions that tezos. However, this is part of the pumpamentals, if you cant improve the buying pressure, you can look at the selling pressure, and if you do something about it, maybe that will also bring buying pressure?
Why do we need a better tez price?
Since the ecosystem is mostly funded from TF and the Tezos entities, if XTZ goes from $0.75 to $3, then we can fund 4 times more projects with the same XTZ budget
Now, given the amount of changes on delegations, governance, custody etc, I think this change would ideally come after “super easy tools to self bake” are made available. I believe BakeBuddy is doing a great job in this regard but it can always get better and easier!
And lastly, tezos is the blockchain that evolves, changing the tokenomics is good PR stunt prove once again that things can change