Reduce Staking Inflation & Target

Governance Ops Proposal 🗳️
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Revised again Jul 31, 2025 :warning: see history of this post

Revised Jul 23, 2025 :warning: see here

On behalf of Luminara, we are proposing:

@Veildev is taking over the proposal for:

  1. Reduced staking inflation from 5% → 2.75% (revised Jul 23)
  2. Lowered staking target ratio from 55% → 42.5% (revised Jul 23)

These changes are designed to increase validator runway while cutting Namada’s inflation from 5% to 3.42% (revised Jul 23), better aligning incentives now that Shielded Rewards have begun.

Please reply with questions/comments! Let’s discuss.
For information about Luminara’s proposal for a validator subsidy, Prop29, please see here.

Proposal Summary

Proposal Current Proposed Impact
Staking Inflation 5% 2.75% reduces inflation, but lowers rewards to passive delegators to ~6.6% APR
Target Staking Ratio 55% 42.5% inflation :up_arrow: < 42.5% staked < inflation :down_arrow:

Projected Metrics

Metric Current After Proposal
Staking Ratio 36.2% (433M / 1.036B NAM) Assume unchanged
Staking Inflation 5% 2.75%
Staking Reward Rate (APR) ~12% ~6.6%
Total Network Inflation* 5% 2.75% + 0.67% = 3.42%

Note: PGF subsidy will use uncirculated NAM, introducing new tokens into supply over the course of the year. Jul 31 revision: shielded rewards inflation is now adding 4.47% inflation, according to https://rates.nam.run, for a total of 9.47% inflation. If this proposal were enacted now, it would instead be 7.89%, preventing ~16.4m NAM from entering circulation.

Details

This proposal would introduce a net reduction in inflation, which will help to offset the inflation increase from funding Shielded Rewards.

Discussion

Luminara has shared this idea and received broad support from:

Q&A

Q. “Will this hurt my staking returns?”

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A. It will cut them in half.

Q. “What if delegators may unbond due to lower APR?"

Short-term holders may unbond and leave, but we think long-term holders will find more value in NAM if its inflation is minimized and used effectively.

Q. “Will less stake weaken network security?"

It can, but staking security evaluation has been hotly debated. Rule of thumb for me has been that we should ensure value of deposits are less than an order of magnitude lesser than stake value. Current Namada’s stake value is nearly an order of magnitude greater than deposit value. Perhaps @cwgoes can offer a more informed opinion.

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Off the cuff thoughts on this:

  • I support subsidizing validators for operating cost. I support the equal distribution (keeping in mind also larger validators still get nominally more commission than smaller ones)
  • Could/should there be a retro-pgf as well for the same purpose? (also thinking of other infra-runners)
  • I see halving of pos inflation (net reduction of little less than half) as a separate measure introduced here as a bundle.
  • I don’t know where I stand on reducing staking inflation. I think reducing inflation generally is super good, I hope it will not too adversely affect staking, and a little unsure if reducing apr right now is good.
  • Could we use some of this freed inflation to think about incentivizing nam shielding?
  • I can support this proposal but with some of the remarks above
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Thanks @Gavin for this proposal , I fully support it :fire: . but would like to ask same question as my friend @preto
* Could we use some of this freed inflation to think about incentivizing nam shielding?
Thanks

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Hey, interesting to propose something to support validators! I’m grateful that you’re always trying to have our backs. We appreciate you!

I’ll kind of mention a couple of thoughts that pop up as I’m reading this — no need to address them all. I keep saying this, but I find tokenomics difficult so bare with me. There never seems to be one golden route without (potentially) sacrificing something in the process.

  • I’m not sure what to think of the part where the overall network’s inflation gets lowered. One hand, it will prep us for shielded rewards and potentially slow down the growth at which the total supply increases, but on the other we’re making staking less attractive for a big portion of users. Like you said, I too wonder if we’ll see a rise of unbonds if this proposal passes. It is valid to consider that a short-term move vs a long-term one, but I just hope it won’t make the network even less interesting to stake at and promote paper hands.

  • There’s no way to discover whether someone has more than one validator running, besides those who we know of (Unit410, ValidtyOps). If this is going to become an annual thing, this could easily get gamed. For this reason this might become a troublesome proposal to continue. It would basically mean that it becomes more beneficial for someone to run multiple validators. I don’t think we want that to happen. This may mean that we have to become stricter at some point in the future with the ‘rules for eligiblity’ (omg, this sounds like DD or SE :sob:).

  • If this proposal passes, we should probably address the problem of a validator leaving and still receiving. Maybe doing something like a weekly/monthly cleanup – if necessary?

  • Short-term perspective: if I look at the amount every validator is getting, it’s not much with the current pricing. Personally I would not be able to cover my server costs with this. But it will overall help out validators to get by (hoping that this proposal will not contribute to lowering the already low valuation we have atm).

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  • Could/should there be a retro-pgf as well for the same purpose? (also thinking of other infra-runners)

Yes, this is something we are working on

  • I see halving of pos inflation (net reduction of little less than half) as a separate measure introduced here as a bundle.

The governance proposals are independent, but intended to pass together. Meaning that it’s possible to support one and not the other. The only proposed bundle is the staking inflation + target ratio reduction.

  • Could we use some of this freed inflation to think about incentivizing nam shielding?

Namada has ~29m NAM shielded currently. Thoughts about a goal for amount we want shielded? cc @cryptosj

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Like you said, I too wonder if we’ll see a rise of unbonds if this proposal passes.

I just hope it won’t make the network even less interesting to stake at and promote paper hands.

Personally, the longer I plan to hold a token, the lower the reward rate I’m willing to stake for.

we’re making staking less attractive for a big portion of users

Why do you think that? Isn’t it more comfortable to be locked into a token that isn’t over-inflating?

If this proposal passes, we should probably address the problem of a validator leaving and still receiving. Maybe doing something like a weekly/monthly cleanup – if necessary?

A PGF steward could handle this with relatively low overhead, and we (Luminara) are working on a steward election proposal.

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Thanks @preto @cryptosj @zenodeapp for your feedback :heart:

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Do we have a breakdown of current total inflation (with expected inflation when phase 4 passes)?

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Lovely proposal! I’ll just respond to the point you tagged me on – all the questions I would have had have already been raised by others in this thread!

Unfortunately, I probably can’t offer a more informed opinion – staking design is a bit of a black art, no one really knows exactly what set of parameters is safe or where the boundary lies (and it’s an expensive hypothesis to test, because if you get it wrong and someone attacks your system it may be irrecoverable – so most err on the side of safety, and probably pay way more than necessary). Personally, I think it’s easy to over-focus on “economic security” ($ value of tokens staked) as a measure for network security (how difficult it is to attack the network, or who would have to collude in order to do so) – the latter is what we actually care about, but it’s not possible to measure directly, and $ value of tokens staked is a pretty poor proxy. I would rather say that this is something to keep an eye on – if deposits greatly increase (which they might), and/or if token price greatly increases or decreases (which it might), then we might want to consider changing parameters again.

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Just to quickly answer my own question with regards to current inflation, from namadac query-protocol-parameters and the discussion on upcoming shielded set rewards:

Current inflation:

  • pgf inflation: 5% p.a.
  • pos inflation: 5% p.a.
  • cli lists steward inflation as 0%, but I think this is a roinding bug? If I recall we do have a small steward inflation rate or is it not set yet?

Total current inflation: ~ 10%

Upcoming inflation: (from a gavin post in discord regarding the canceled proposal 22, assuming same params will be proposed again)

"

  • targeting 421k ATOM (Cosmos Hub) :bullseye: max 0.9% NAM inflation

  • 8.7m OSMO (Osmosis) target :bullseye: max 0.9%

  • 781k TIA (Celestia) target :bullseye: max 0.9%

  • 27k stATOM (Stride) target :bullseye: max 0.9%

  • 625k stOSMO (Stride) target :bullseye: max 0.9%

  • 70k stTIA (Stride) target :bullseye: max 0.9%

  • 2.2m USDC (Noble) target :bullseye: max 1.8%
    "

Total shielded rewards max. inflation, thus 7.2%

This makes a total of current inflation + upcoming shielded inflation (if no reduction, and not counting the proposal at hand here) of roughly 17-18% per year after phase 4 enable. I will make some comments on this a bit later, just to gather all data.

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This proposal seems very reasonable, especially in light of recent discussions around PoS networks overpaying for security. We fully support the effort to reduce staking inflation - we believe this could help alleviate sell pressure on NAM, positively impact ecosystem growth, and make the economics more sustainable long-term.

The cPGF strikes a good balance - it supports validator runway while aligning with the broader goal of minimizing inflation. It’s great to see unused PGF funds being redirected in such a capital-efficient way.

One question: could you clarify how cPGF distribution will be managed when a validator receiving the subsidy exits the active set or shuts down infrastructure @Gavin? Ensuring the subsidy continues only for active and contributing validators seems important to avoid inefficiencies. We’d love to understand how that will be handled in practice.

Thanks for pushing this proposal forward!

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(got a text in progress wrt the general inflation but have to rework it a bit)

when it comes to how much nam we want in masp, I think again we should aim for a yield that significantly offsets the inflationary effect, but perhaps is a little lower than pos stake yield to not cannibalize staking efforts.

Extremely tentatively, if we had a target of 100m nam shielded, and if nam had its own 0.9% inflation pool like most other shielded tokens, that would be a p.a. yield of 9% if my math is not completely off. (if 50m were shielded with same parameters it would then be an 18% yield). Somewhere between 100-200m I would say.

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Taking these points together. I too actually agree with this. I’m all for more peace of mind in crypto. I may have over-generalized it in the comment above, by stating that. Was pointing towards those who are motivated by yield to unbond. Short-sighted, but could temporarily become a reality.

However — been thinking, less stakers would actually raise the overall yield again, right? [Insert Godfather GIF where Michael says: “Just when I thought I was out, they pull me back in!”].

Oh, that would totally make sense! Love how we’re gradually getting justifiable use cases for these built-in features on-chain.

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The following are not finished thoughts, so tentatively:

on inflation, I’ve said before that I worry we have brought in one of the most problematic aspects of traditional economies. However, just as inflation serves a purpose in those economies, so it can serve a purpose with the protocol as long as it does not get out of hand, and we are careful which purposes inflation serves.

Inflation in the context of Namada will effectively redistribute wealth to recipients of inflationary gains from passive holders by a devaluing of tokens that are not getting any inflation benefits (such as tokens not staked, or not otherwise receiving inflation gains), and if directed strategically to desired activities like staking, shielding, pgf etc, it is perhaps more sustainable than the “random inflation” of traditional economies.

As with traditional economies where interest to a great part offsets inflation (thus incentivizing capital holders to invest rather than passively keep their money under the mattress so to speak), staking your tokens in namada (or perhaps shielding them if we allow for shielded nam incentives) should give a yield that it would be reasonable to expect at least offsets the inflationary effect if not putting stakers better. So if for instance we have a 17.5% p.a. inflation rate, having a 16% p.a. staking yield almost offsets the inflation devaluation of holding nam passively - it would be better imo if it went above it.

Tldr, I am generally pro cutting inflation, I am not sure cutting pos inflation is the best place to cut at this time. Personally I think a total protocol inflation of no more than 10-15% would be more suitable than the numbers currently on the table.

I wonder if the shielded rewards inflation is perhaps a bit high, and especially the pgf inflation seems high to me if we are about to cut pos inflation. An alternate proposal could for instance halve pgf inflation to 2.5%, cut pos inflation to 4% thus fully funding the cpgf for validators at 0.67%. Perhaps total shielded set inflation could be brought down from 7.2% to 5-6% instead. Thus having a total inflation closer to 13% than 17.5% (if one counts pgf in the tally). This also leaves room to include nam in the shielded set which I think should be a strong strategic priority.

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@preto I think your ideas can improve the proposal a lot . i support this one

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could you clarify how cPGF distribution will be managed when a validator receiving the subsidy exits the active set or shuts down infrastructure @Gavin?

As it stands, they would continue to receive the subsidy. However, a PGF steward could handle this with relatively low overhead, and we (Luminara) are working on a steward election proposal.

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Thank you for the clarification, @Gavin! While it makes sense that subsidies would continue by default, we’re concerned about a potential scenario where validators might massively shut down their infrastructure yet still collect subsidies without contributing to network security. This could harm both overall network security and the trust among active, committed validators who are genuinely contributing.

We believe it’s essential to establish clear mechanisms to ensure subsidies only go to validators who are fulfilling their responsibilities. We look forward to learning how the steward election proposal will address this issue!

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I support, thanks for the idea! :shield:

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I see inflation to bootstap the shielded pool and inflation for PGF as productive versus overpaying for staking.

Wrote this, in case helpful way to understand types of Namada inflation (cc @cryptosj )

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I think it’s wrong to not think of pgf inflation as real inflation. tokens are created via inflation and put aside into the pgf wallet for its purpose. I think pgf inflation at 5% is very high if we cut staking inflation, and believe it should be the first to be reduced. Again, I am for cutting inflation, but I think things should be proportionate.

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