5 ♥ · Incentive · Draft
Token Inflation
New tokens are minted on a schedule and handed to people who do what the DAO wants more of.
How it works
The DAO sets an issuance rate, for example 2 percent of supply per year, and writes it into the token contract. It also sets rules for who receives the new tokens: validators, liquidity providers, contributors, or a treasury. At each block or epoch the contract mints the new tokens and sends them by those rules. Every holder who does not take part sees their share of the total shrink a little. The reward for taking part therefore comes from holders who stay passive. Token holders can vote to change the rate later.
Use it when
- You need to pay for security, liquidity, or work before the protocol earns fees.
- Push holders to stake or take part rather than sit on tokens.
- Spread ownership to new members over time instead of fixing it at launch.
Watch out for
- If rewards exceed real demand, recipients sell at once and the price falls.
- The rate is easy to raise and hard to cut once recipients depend on it.
Example
Cosmos Hub. Cosmos Hub has minted new ATOM since 2019 at a rate that moves between 7 and 20 percent a year, depending on how much of the supply is staked.