Adaptive inflation

Thanks for bringing it up. In all the current design concepts there is such a flag, it’s good to know that this is indeed important for bakers.


Please elaborate on the statement if baking will have adaptive inflation then liquidity baking should have adaptive inflation as well - why exactly do you think that?

These are two different mechanisms, and imho this does not makes much sense. What I would like to see is a switch (similar to the toggle for turn on/off liq baking) to activate another new pair. But this is a bit off topic.

Regarding the recent AI discussion I really like seeing it where it goes. And look forward to an implementation. Better not rushed and with all the considerations and implications it will have.

How was the current rate of inflation chosen for liquidity baking? Welcome to magic number land.

Thank you for this explanation. I understand it now much better. One maybe stupid question: Why don’t we just implement a burn mechanism. More usage = more burned, Less usage = less burned. Wouldn’t that equal to the same regulation of inflation without reinventing the whole delegation process?

Can you confirm that the AI which will be included in O will have this flag. I think it’s important to have ability to not accept co-staking.

Yes, the plan is indeed to allow bakers to chose whether or not they allow co-staking operations. Bakers will have control over a couple of parameters, and will be able to forbid staking operations towards them. A public announcement will be released in a few weeks, explaining the feature in more details, so please look forward to it

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Has anyone considered how this incentivizes large bakers to drive inflation down, potentially to the detriment of smaller bakers? As these larger entities suppress inflation, they can continue to operate, possibly even profiting from negative inflation. Meanwhile, smaller bakers may be compelled to either completely exit the market or join larger bakers through co-baking, incurring additional fees. This seems to encourage centralization. Does this not seem concerning to anyone else?

Iirc ETH researched it as griefing attack. And this should be why polka curve looks the way it looks (increasing inflation slightly up to the target level to balance out)

There is already a burn mechanism, storage fees are all burned, gas fees are tiny and even if they were burned too, it wouldn’t make any difference in regards to the inflation. Even if all blocks were full, the amount of fees burned would be small compared to the 46m xtz that are emitted per year.

Looking at how much fees are generated by a chain is misleading. Supposedly we want mass adoption and as many people as possible using the chain so you would want fees to be as low as possible so the chain can be inclusive.

Like we could double our fees costs right now and then Tezos would generate double the amount of fees, isn’t that a BS metric to go by?

Don’t profit from inflation out of thin air, profit from price appreciation.


As a part of the Oxford protocol announcement, we have shared a high-level functional specification of Adaptive Issuance and Staking.


Our assessment and current plan to address the two issues recently reported on the implementation of Adaptive Issuance in the Oxford proposal :

Hello Tezos community!

At P2P.ORG we’ve been involved with Tezos since the early days and I’d like to share the respect to everyone in the community who actively participates in discussions and thinks towards Tezos improvement.

The purpose of this post is to share our perspective on Adaptive Issuance [AI] and its potential influence on baker, delegator, staker economics and collect more feedback from bakers and delegators.

We’ve made a public Oxford AI spreadsheet so you can get a grasp of the numbers in different scenarios. Feel free to make a copy and play with it, if you will find any critical issues with the calcs, let me know.


After AI activation, delegators will start earning less rewards than stakers. Initially, it will lead to delegators transitioning to the staker role raising amount of XTZ locked → lower issuance (current amount of staked XTZ is ~7%).

After staked % doubles and grows further, baker economics will be under pressure as fee gains will decrease along with AI. It becomes crucial in current market conditions. AI activation can take ~4-6 month (fixes in the next proposal + separate activation) but we can’t properly forecast the timeline for better market environment. It’s important to ensure stability in this period.

At 30% of staked XTZ APR will be ~0.66% for delegators and ~1.32% for stakers. It will cause bakers who operate as a business to raise the fee in order to remain profitable decreasing rewards of delegators and stakers even further. At high staked ratio they might raise fees up to 50-70% to maintain a profitability breakeven point assuming current XTZ price of ~0.7 (lower selling pressure won’t cause XTZ price to skyrocket x times).

Possible outcome: Some delegators can leave the ecosystem while some bakers can shut down their operations.

In order to be a baker you need to provide a slashable self-bond that can be considered as an opportunity cost versus alternatives like simple ETH staking. Even assuming that ETH APR will decrease over time, self-bond reward rate (RR) that is comprised of earned rewards + fees from delegated and staked XTZ should ideally be higher to justify running a bakery. In Oxford it’s hardly achieved at staked XTZ of >40% and might be even harder for smaller bakeries.

Possible outcome: Bakers can withdraw self-bond and deploy funds to more fruitful sources of income.

There are clear benefits of AI that were emphasized by @murbard pretty well so I won’t repeat those again. All of the above are just thoughts as in the end it’s very hard to predict the exact behavior of participants and network parameters.

We encourage bakers and delegators to calculate and share their perspective on economics under various AI conditions. We might need to fine tune AI parameters based on the feedback to ensure lower pressure on baker economics in the days of uncertainty.

Hello, everyone!
Following our previous statement regarding Adaptive issuance, we at Everstake have published our next statement along with some proposed suggestions to the original Oxford proposal concerning Adaptive Issuance.
Your input and participation in the discussion would be greatly appreciated! Oxford proposal - adaptive issuance discussion - #7 by Anna