What happens when the 50% participation target is reached?

A lot of people have asked what happens when the 50% participation target is reached on the network.

Each round (about a day), the protocol looks at the current participation rate. It is 43.7% as of the writing of this post. If the participation rate is less than the participationTarget (50% currently), then the inflation rate increases by inflationChange. If the participation rate is greater than the participationTarget, then the inflation rate decreases by inflationChange. That’s essentially it. The inflation creeps up slowly or down slowly depending on if current participation is above or below the target.

The inflationChange is 3 / 1000000. inflation (as of the time of this writing is 1442 / 1000000 (see https://etherscan.io/address/0x8573f2f5a3bd960eee3d998473e50c75cdbe6828#readContract).

So if participation rate were under 50% then next round inflation would be 1445 / 1000000. If participation rate were over 50% then next round inflation would be 1439 / 1000000. Inflation rate can not be less than 0. Inflation is by round, and not by year, so to apply an inflation rate of 1442 / 1000000 for example, you would multiply the number of current LPT by 1442 and then divide by 1000000 to get the number of new token for the current round.

Hope that helps. Any questions?


What happens if that inflationary mechanism fails to limit participation rate to near 50%? Will the inflation rate of change be adjusted?

Adjusting the inflation change parameter is something that could be considered via a decentralized governance upgrade mechanism - such as parameter change proposals after a governance related upgrade enabling such things - or a fork - or a protocol update proposal that updates the curve from being linear based on this param to something that adjusts more rapidly. But there’s no plan to update this param on the current roadmap.

It’s worth noting that the 50% target is a little bit arbitrary, but moving that number would be a more likely community decision than moving the change %, if it was determined that the network would benefit from more participation or more unparticipating liquid token. Again, this would likely be moved via a decentralized upgrade mechanism however, rather than a pre-planned protocol upgrade.

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I just worry that the rather simplistic linear inflation mechanism won’t prevent the staking from threatening market liquidity which is already severely limited.

Really great post @dob .

maybe the liquidity problem is not so bad when demand is greater than supply

Bringing this post to the top, as the participation rate just dipped below 50% for the first time in awhile. The only change from the OP is that the rate of change is now 0.5 / 1000000 round rather than 3 / 1000000 / round, as per a governance update last year.