The current network inflation rate consists of two components: (the base rate = 8%) + (1% per EVM chain) * # of supported EVM chains. The EVM chain rewards are distributed only to the validators supporting the connection and voting correctly on the external events for that chain.
Half a dozen or so new EVM chains are expected to be supported over the coming months, leading to a high inflation rate.
In addition, a few validators on the network don’t support any external chains and earning the 8% of the base inflation only. This is not a very useful behavior for the network, as validators should be supporting as many chains as possible to continue growing the network.
To continue growing the network and support healthy ecosystem, the following governance upgrade process is proposed:
a. Gradually increase the number of validators on the network to 75 [subject to various performance tests and stability results].
b. Gradually decrease the base inflation rate to 1% as more EVM chains are added.
b1. [Initially decrease it to 6%].
b2. [For every EVM chain added, decrease it in parallel by 1%] until hitting 1% for the base inflation.
c. Decrease the inflation rate per EVM chain to 0.75% to shrink overall inflation going forward as more chains are added.
EDIT: inflation upgrades given the feedback:
Updated (b,c) to minimize number of governance proposals:
Proposal 1.1: Decrease base inflation to 4% (2% in Tendermint inflation + 2% for multi-party signing).
Note: The governance upgrade proposal will only set Tendermint Inflation at 2.00%; multi-party signing inflation just doubles Tendermint inflation based on current parameters.
Proposal 1.2: Decrease the inflation rate per EVM chain to 0.75% to shrink overall inflation going forward as more chains are added. (simultaneously with proposal 1.1).
Proposal 2: When the new inflation reaches 10.75% (2 more EVM chains added), decrease the base inflation to 1% before adding more chains.
In parallel, we’re chatting through a new incentive model. Stay tuned.
This makes perfect sense. The validator set expansion will allow new independent validators to join and decentralize the network to make it more secure and censorship resistant.
In terms of inflation, the general trend in the crypto space is that most chains are overpaying for security. For Axelar, it is good to lower the baseline level of inflation and then pay validators for doing useful work. In Axelar’s case, it is to support additional EVM chains.
We support both expansion of validator set as well as lowering inflation, as it is it is pretty high right now and would just get higher with more chains being added. Gradual decrease sounds great too. Is there any general APR that you guys are aiming for on the yearly level, as target? Maybe that can help adjusting the inflation rates
Thank you for sharing this proposal. Good thoughts on the economics and inflation, which should help in strengthening the support for more chains.
What are your thoughts on validators running their own RPCs versus validator relying on third-party RPCs (Infura, Alchemy etc.), and how do we feel like we could include incentives to ensure that validators run their own RPCs?
Adding more validators and chains without accounting for this core infrastructure component might not lead to more decentralization or reliable operations.
We certainly strongly suggest running your own infrastructure, and can take into account to do some manual checks. I think if validators can form a “verification” group to double-check, that would be helpful also. Not sure what these checks would look like: maybe ask for proofs of logs, check against IP addresses, etc. We’re all together to continue improving robustness and security of the network.
Seems like a plan ! Btw the adjusting the inflation would be done via governance proposals ? If so there will be a lot of proposals to just adjust inflation (basically adding one proposal per new chain).
I would suggest (if it’s feasible) that we write custom inflation module, so the base inflation is a function of number chains onboarded to the network. Wdyt ? Anyways its okay either way, just a suggestion.
Increasing the active validator set and adjusting the inflation rate as described above seems logical in the context of Axelar’s core mission and goals.
Tend to agree with @KingSuper on the inflation module suggestion because you never know when current validators may decide that enough is enough and vote against further decreases of the base rate. IMO, the earlier you can implement something like this and automate, the better.
We, Chainode Tech, are also pro decreasing the inflation gradually and increasing the number of validators. We definitely don’t want to invade the market with tokens that are being generated easily. The work added through supporting a new (EVM) chain should be rewarded accordinly to Axelar’s business case so a direct correlation between rewards and supported EVM chains totally makes sense.
While for Testnet it isn’t that critical/relevant, we believe that for Mainnet is pretty essential that everyone operates their own RPC infrastructure.
Apologies for our late entry to this thread, we were only made aware of its existence when it was mentioned in the testnet voting announcement on Discord earlier today. We believe it is important to manage inflation on the network carefully and we are supportive of the proposals put forward. We also look forward to hearing about the new incentive model.
The validator set on testnet is already increased by 10 [will be done gradually]. Gov proposal to increase on mainnet will be later once all network health checks pass. If you’re interested in participating, setup a node there/monitoring on testnet first, and get in touch with the team to help with health checks.