Adaptive inflation

There was a good discussion between Arthur and others in Tezforce Chat in Telegram. I believe its a good discussion that will add value to the thread - anyone that wants to read it feel free to join the chat and search the discussion. The name of the chat is @ TezForce

Initially I planned to add a transcript from the discussion here but I guess its easier to link to the chat and maybe others do not want to have it displayed here.
I am in strong favor of supply emission change instead of the fixed 42 for a long time. And its great to see the discussion. I also like the idea for upgrade shipping disabled by default. However this might be indeed be opposed by bakers so I am a bit afraid to never see it.

But we are at a point where the fixed emissions seem a bit useless or out of date now.

Lets add this (disabled by default) in one of the upgrades asap.
Why not use the adaptivity of Tezos and utilize it with a tokenomics change too?


you may get in a situation when no one bakes.
the adaptive inflation has the upside of low emission but can adjust if security of the network is not enough

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 :wink:

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 :slightly_smiling_face:

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 :slightly_smiling_face:


Personally I still think there is way too much focus on the “may become” issues. Isn’t it better for the core devs and Arthur to focus on current issues, rather than looking into the far distant future? If we never even get to the point of this becoming an issue because we don’t solve our current issues, then isn’t this just wasted tech and time?

Price action would come from the foundation turning off their bakers like Arthur promised the community a long time ago. Also increasing the fee’s a bit and paying bakers with that rather than mainly baking rewards.

This proposal Arthur made would give them even more rewards on the network and incur even more dumping if they keep mis-appropriating funds.

Inflation is a problem right now, not a problem of the future
Paying bakers more won’t change anything at all


You do realise that the foundation is what is keeping Tezos afloat, right? Successful projects like Ethereum, Polkadot and Cardano also use inflation (or funds raised through ICO) to fund protocol development. We should do everything in our power to increase the sustainability of the operations of the Tezos foundation. Adaptive issuance as proposed here would contribute positively, since the foundation’s real returns from baking would increase. That’s a win.

keeping redbull and manchester united afloat :slight_smile:


I would agree with you that the value of those projects to the Tezos ecosystem is extremely questionable. Nevertheless, this is not “misappropriation of funds” and the Tezos foundation is the main or only sponsor of many good things for the ecosystem as well (such as funding for the development teams Nomadic Labs, Marigold, Functori etc.).

I never said it was a misappropriation of funds
TF is the main sponsor of many good things for the ecosystem, however iirc it still holds hundreds of millions of dollars from the ico participants, the main sponsors of TF
That’s why personally I’d be happy to see this thing pass, if TF gets 0.2-0.3% x their 100M tez stake it’s just 300k tez a year, not much

Got the feeling that most of people buying crypto don’t look at protocol details or quality. They are just attracted by rewards rate. So give high reward and high inflation gives more output than fiar low rewards and fair low inflation or even 0

Just pragmatic, not judging what is the smart way to do it

Hey as I can see, the higher the market cap, the more people care about token emissions

  • Eth ultra sound money (+ burn to make the token supply almost fixed) - this was shilled on Twitter much more than the tech of POW → POS
  • Btc halving narratives

Here tezos would go for a triple halving (reducing emissions by 87.5% or so)!!

I do think some people don’t really understand money printing and would like 3-4% APR from thin air but is the net buying pressure from them > selling pressure of the unnecessary tokens from everyone else?

My guess would be the people interested by APR are in the tail (lots of small bags), while people with size would be smart enough to look at tokenomics

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Relying on fees to reward validators is naive. Let’s not go down the Cardano route of nonsense.

What “current issue” not already being addressed is more important than issuance? Let me guess… you want to pull levers to unsustainably make price go up at any cost. Again, let’s not stoop down to Cardano and Solana type tactics that would set tezos down the wrong path just to appeal to moon chasers.

Tezos should always choose the smart and sustainable path, and play the long game. The tech is getting there and we are on the verge of scaling to support onboarding really large use cases.

Time and time again the past few years other chains and trends have been exposed while tezos growth has been steady and organic.

Stop looking at the price and emotionally reacting to it.

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Tezos is a smart-contrat platorm and TF is making efforts to attract devs, users… in this sense.
Tezos is also a product consisting in programable money like Bitcoin, however Bitcoin doesn’t have smart contracts but the market appreciates its non-inflationary design.

Products are valuable as much as market see interest on them, no one will engage with Tezos as programable money if it has infinite inflation… it is not sustanaible as “reserve of value”. Also, people using Tezos as reserve of value can be turned on smart contracts adopters afterwards, it is not exclusive.

We can play the long term way as smart contract platform, the long term way as reserve of value… or both. Why not trying to attract both niches and creating sinergies from both? It should not be negative from a baker rewards perspective if it is done properly.

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I like it! Is it perhaps a good idea to couple this with some mechanism for slashing non-voting bakers? :thinking: Seems this will create a larger divide between bakers and users, and perhaps harder to influence votes for users and create a more entrenched system long-term? :thinking::sweat_smile:

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Adding this Thread from FounderJabba about the inflation topic - just to keep it here in the discussion

edit: the topic is getting traction, great!
Here another tweet thread about this discussion

We need more! :slight_smile:


I am a fairly small baker. In my 16 month of operation I earned 7.7 tez in network fees. That is certainly not something i could sustain on. Without baking rewards. How would that change?

How would small baker be able to run?

If we’re overpaying in the current model, we can lower the current model and expect it to matriculate into adaptive inflation at some future point after several decreases to emissions with current model and after seeing the intended outcome to market performance along the way.

If we can get some sense of consensus around this idea, we can make Tezos much more predictable and exciting to look forward to for everyone. This level of consensus for a future change can be the fulcrum of a loose “economic roadmap” we can use to bring about the same outcome as Adaptive Inflation tries to bring on another level.

There is no reason to impose severe economic shocks to our system in the short term on a hunch that the new way will be better. We can instead use this as an opportunity to make Tezos more predictable and exciting to look forward to while still accomplishing the same goals and giving people the thing they’ve been asking for the longest time. Our inflation is not the #1 reason people part with their tez when they do.

How do we address the possibility that this change, especially if rushed, will not result in a worse governance outcome for the chain? We’re implicitly assuming full health on the governance front when proposing this change. Are we really at full health of governance discussions and process? Are we ready to just upturn the whole economic staking consensus and baking/reporting logistics for all bakers in a rushed manner without something solid to point to or anchor around?

Another twitter thread regarding Adaptive Inflation. We are getting good engagement here! And a wide discussion is needed! :slight_smile:

Lets start a hashtag to easy identify related posts or discussions on twitter! #adaptiveInflation or # tezflation? :smiley:


We should implement in the next protocol upgrade disabled. And be able to activate it automatically by block/voted


Is there any example that reducing the baking rewards, will increase the price automatically? I believe the price is a market action and we should let the market decide it. If current inflation is high so be it, the baking rewards are enjoyed by both bakers and delegators.
Who are we trying to appease with the lower inflation model?
What happens if the price doesn’t appreciate even after reducing inflation by applying this model or any other model? will we be changing to another model?
If we want to prevent people from selling Tezos, then TF should directly start Defi staking pools/farms with a longer lock-in period(6 months to 1 year or more) against tzbtc /Sirius tokens. It will improve the liquidity for these tokens and make sure Tezos get locked for a longer time.
We should focus more on bringing new projects/people to tezos and supporting existing projects rather than tweaking the economics of the protocol. Because by focusing on inflation, it seems we have already accepted that there is no other way to prop up the price of Tezos.

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