Reduce Staking Inflation & Target (Revised)

Governance Ops Proposal 🗳️
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Hey all!

This is a revised and simplified version of Luminara’s earlier forum post here. The goal is to present the same changes (simplified) for ongoing discussion and to wrap this process up so we can move the proposal onchain.

Proposed Changes
Staking inflation: 5% → 2.75%
Target staking ratio: 55% → 45%

Note: Since Luminara’s original forum post on this topic, the staking ratio has increased from 36.2% to 42.68%, putting it above the target. This means the proposal would automatically trigger an inflation cut, moving toward zero (which differs from how Cosmos chains typically handle inflation).

Projected Metrics

Metric Current After Proposal
Staking Ratio 42.6% Potentially reduced
Staking Inflation 5% 2.75%
Staking Reward Rate (APR) ~11.7% ~6.4%
Total Network Inflation* 11.12%[1] 8.87%[2]

Why do this?

  1. Eliminate wasteful issuance: Every extra token minted dilutes holders without strengthening security once network stake is sufficiently high. By trimming inflation, we reduce unnecessary dilution, while the cPGF subsidies help smooth the impact for validators.

  2. Rebalance issuance toward real usage: Base staking inflation only rewards passive holding. With Shielded Rewards now live, reducing baseline inflation frees up issuance to directly incentivize privacy usage and adoption. This makes inflation productive, fueling privacy and growth, rather than diluting holders without impact.

Looking forward to hearing any final thoughts before moving forward!

Veil

  1. 5% + 5.45% + 0.67% = 11.12% ↩︎

  2. 2.75% + 5.45% + 0.67% = 8.87 ↩︎

3 Likes
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I was initially not a fan of the proposal because the staking reward is almost halved while the total network inflation is reduced by only 2.25%, but this quoted line changed my mind; in fact, it reminds me of an older suggestion to develop shielded staking. Because with the current system, protocol security and shielding are competing for assets.

1 Like
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Thank you for taking this on @Veildev!

Runway

45 - 42.6913% (current ratio) = 2.3087%

Making the target ratio 45% will give us ~24m NAM headroom before staking inflation begins decreasing toward zero. For example, if everyone staked all of their staking rewards, we’d have over 1.5 years before hitting the 45% target.

However, if we do exceed the target.. I ran some simulations to see how quickly staking rewards would go to zero. Current Kp & Kd values are 0.5–we could leave them as is, or maybe change to 0.4.

Inflation Decay Time Comparison Table

Scenario Staked % Above Target Kp=0.5, Kd=0.5 Kp=0.4, Kd=0.4 Kp=0.33, Kd=0.33 Kp=0.25, Kd=0.25 Kp=0.15, Kd=0.15
1 46% +1% ~183 days ~229 days ~277 days ~367 days ~611 days
2 47% +2% ~92 days ~115 days ~139 days ~183 days ~306 days
3 48% +3% ~61 days ~76 days ~92 days ~122 days ~204 days
4 50% +5% ~37 days ~46 days ~56 days ~73 days ~122 days

Does this appear correct to you, @tomas @brentstone?

Calculation

controlVal = currentRatio * (Kd - Kp) + (targetRatio * Kp) - (lastRatio * Kd)

Day 1:

  • currentRatio = 0.47; targetRatio = 0.45

  • lastRatio = 0.47 (starting assumption)

  • controlVal = 0.47 * (0.5 - 0.5) + (0.45 * 0.5) - (0.47 * 0.5)
    = 0.47 * 0 + 0.225 - 0.235
    = -0.01

controlCoeff = effectiveSupply * (maxRewardRate / epochsPerYear)

  • controlCoeff = 1,040,000,000 * (0.0275 / 365)
    = 78,353.6

control = controlCoeff * controlVal

  • control = 78,353.6 * (-0.01) = -783.54 NAM per day

newDailyInflation = lastDailyInflation + control

  • newAnnualRate = (77,570.06 * 365) / 1,040,000,000 = 0.0272

From 2.75% to 2.72%, we’re dropping ~0.03% per day, so 2.75/0.03 –> ~92 days we’d hit 0%

1 Like
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Sorry for being late. I’m going to say what I’ve said before, which is that as long as we keep a PGF inflation rate of 5%, reducing staking inflation makes very little sense to me. If we care about overall inflation, PGF inflation is a very good place to also trim fat while we are at this.

4 Likes
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I agree. Over 30 million NAM have already been accumulated in the PGF. I suggest reducing the PGF inflation rate as well. Overall, lowering inflation will increase the value of NAM.

2 Likes
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I think this should be addressed. What are the arguments for keeping PGF inflation the same? Why have all proposals not touched this variable?

2 Likes
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There have been some arguments made that PGF inflation is not really inflation because it’s counted as outside of circulation, but I think it is self-evident it is inflation when it’s stored in treasury for spending with governance proposals.

1 Like
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This governance proposal is now live! Vote on it here!

Voting runs until very early morning next Tuesday CET

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:white_check_mark: Hashes match on both governance proposal (#31) and namada-governance-upgrades repository.

Data: Hash: B21D4872EF9BA948874D53EC5F175EDE3CA4AA10F52C42E7AF099D78A86BF890

sha256sum increase_target_staked_ratio.wasm
b21d4872ef9ba948874d53ec5f175ede3ca4aa10f52c42e7af099d78a86bf890  increase_target_staked_ratio.wasm
3 Likes