**Abstract**

Moonbeam’s current inflation model is set at 5% which compounds annually.

This proposal is a signal vote (System.remark) to confirm community support to change Moonbeam’s inflation model to a linear model where inflation is capped at 60M GLMR per year.
If approved, the Moonbeam Foundation has confirmed it will include this change in an upcoming runtime upgrade (likely RT3800).



**Details**

Further to the discussion that was taken [here](https://forum.moonbeam.network/t/changing-moonbeam-inflation-to-linear-model/2113?u=legendnodes) - I would like to suggest changing Moonbeam inflation to a linear model, starting when Moonbeam total supply reaches 1.2B tokens.

Nowadays, the inflation is 5% compounding, meaning the number of minted tokens increasing year by year. When total supply was 1B tokens, those 5% inflation was 50m GLMR per year, while today those 5% are almost 60m GLMR. 

I suggest changing the inflation model from compounding to linear. It means fixed annual expansion of total supply The advantage of the linear model is that the inflation naturally & gradually decreases over the years thanks to the convexity. It keeps the network healthy and sustainable, rather than deciding in an arbitrary way to cut the inflation by half for example.

The change will be taken into effect once Moonbeam GLMR total supply reaches 1.2B tokens (currently it’s \~1.176B). Meaning, **inflation = 5% x Min\[1.2B, TotalSupply]**. Therefore, we cap the annualized inflation to a maximum of **60m GLMR** regardless of total supply size. 

To illustrate how minting 60m tokens in a course of 30 years impact the annualized inflation rate, please have a look at the chart below:

<img height="329" width="533" title="Chart" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeggoDcmvcAS_81fYXrr_5PC4QW_rrNn8K8Y_EGVr9bp_PdOKLAhDuKyRX0oY0YmBlVq76AkNhmSKMggbsMSl7Dvr5IUv5eZ5WTwYfRnraVCXXxBwhYk77oYerZ4Yim9z-rtXmCug?key=x_GRP8IchrNGurMDa_xGgQ" />

Assuming we start with 5% inflation in 2025 - it drops to 4% & 3.33% after 5 & 10 years, respectively. The convex curve ensures the inflation decreases less each year which minimizes the reduction impact.

Any ecosystem tries to find the balance of minimizing the inflation subject to keeping the network secured and sustainable. The linear approach makes it possible since it lets the market digest the changes in reasonable time and simultaneously reduce the selling pressure. 

The main claim against it will be the decreasing in delegators and collators' rewards which may cause people to leave the ecosystem. This is a fair argument but let’s break it down:



1. **Delegators** - currently the staking APR is around \~10% (assuming we remove outliers). Let’s assume total stake share remains the same - it means that 5 years from now the APR will decrease to 8%. This is not a meaningful impact at all. Needless to say that modest price appreciation of 20% in those 5 years will totally offset this loss. 
2. **Collators** - Same as delegators, running moonbeam collator will still be profitable even if the reward is decreasing by 20% in 5 years. Unlike 99% of the networks where the top 1% validators take 99% of the rewards, in DOTSAMA ecosystem rewards are evenly distributed between collators/validators (regardless their pool size and assuming similar performance/fee). Therefore, such inflation changes are much easier to mitigate and digest. In the table below we can see how the collator’s monthly $ revenue gradually decreases over the years (assuming constant price). After 1, 3 and 5 years the monthly revenues go down to $830, $758 and $697, respectively. To me, it looks like a very modest decrease that collators can absorb, and hopefully GLMR price will compensate for it eventually.

<img height="315" width="511" title="Chart" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdyNRR0bX1tLRqVSouseGr0LAysylgbSu63V7WzavQxIXehuUy5n-J4lDadf0apx7rpzF_QrFGmX7WxrH-sL6L5zFQuPABNJ7qWVvzgZatRwNKYQ1qcU-MoFrJ1UXjgaSabhQqm?key=x_GRP8IchrNGurMDa_xGgQ" />

Changing the inflation model will obviously reduce selling pressure as well. This move together with other burning mechanisms we should discuss separately could really turn Moonbeam deflationary one day, (which will be a game changer for the project), but first let’s change the inflation to a linear model first.

Thanks,

Rafael


\*\* Disclaimer - I’m a collator in both Moonbeam and Moonriver network.

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#116 Changing Moonbeam inflation to linear model

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