Understanding Namada inflation
The current, the potential, and the strategic 
What is Namada’s inflation rate?
Currently, Namada’s inflation rate is effectively 5.536%.
Breakdown → 5% staking inflation + 0.536% PGF inflation = 5.536%
But that’s not the entire story!
Effective vs Potential Inflation
Some may be inclined to refer to Namada’s inflation by its effective rate, while others are inclined to refer to its potential.
Namada’s potential inflation rate is very different from its effective rate.
I propose that the best way to present this is:
“Namada’s effective inflation is ~5.5% with a potential of 10%”
“wdym, potential of 10%?” .. “Namada inflation could go as high as 10% if governance is used to spend its full NAM limit.”
There are four sources of potential NAM inflation.
1. PGF Inflation Potential
So far, PGF has introduced 0.536% inflation (explorer75), and has the potential to issue more tokens into circulation using governance proposals. Each approved PGF governance proposal will increase Namada’s effective inflation for the year. PGF has the potential to introduce a maximum rate of 5% NAM inflation. And voters can deny any amount of this.
2. Staking Inflation Potential
Staking rewards currently introduce 5% inflation, which is its maximum potential. Thus, effective staking inflation = potential staking inflation.
It wasn’t always like this. When Namada launched, staking inflation was 0, and because the percent of NAM supply staked was well below the original target (ie. below 40% of the supply staked), effective staking inflation went up and kept going up until it hit its 5% maximum, where it has remained.
We are preparing a governance proposal to reduce this maximum to 2.5% and to return the target to the original 40% (Reduce Staking Inflation + Launch Validator Subsidy).
3. Shielded Set Rewards Inflation Potential
So far, SSR inflation has introduced no inflation. Assuming Namada governance proposal #28 passes, there’s the potential to automatically issue new NAM into the effective supply–up to 7.2% in total.
Rates are set independently for each token incentive. Executing Prop28 will set the max potential for each of six tokens to 0.9%, and one token with a 1.8% max (0.9%*6 + 1.8% = 7.2%). However, just like the staking system, SSR is designed to be dynamic–the inflation for each begins at 0, increasing toward its max, and decreasing toward 0 after exceeding its target.
4. PGF Steward Inflation Potential
Effectively steward inflation is 0%. The Namada community’s expectation is that PGF steward inflation will be set to 0.5%, in which case there will be a 0.5% potential if a PGF steward is elected. The steward role has been designed to be incentivized to actively and effectively allocate PGF. Voters can remove the steward, returning effective steward inflation to 0.
What is Namada’s max potential inflation rate?
Namada’s inflation potential is 17.2%*.
*Assuming Prop28 introduces Shielded Set Rewards on July 15.
Key Things to Consider
- Inflation has a compounding effect.
As the effective NAM supply increases (from inflation), the inflation rate has a bigger effect. For example, 5% of 1b NAM (supply at genesis) is 50m NAM, but that’s not what will actually be issued. 5% inflation on 1.034b NAM (supply today, July 10 2025) is 51.7m NAM. As the supply increases, so do the issuance rates! By the end of Year 1, a total 5% inflation rate compounding each epoch will result in the supply being 5.127% greater than at genesis. But this is not so with PGF: the PGF limit grows with inflation, but only affects the supply when PGF has been allocated.
- The PGF treasury can be thought of as a spend limit, rather than an actual pool of tokens.
Along with burned and slashed NAM, PGF is not included in Namada’s effective token supply. Anyone can propose that NAM be issued and allocated (ie. introduced into the effective supply), and any attempt at introducing PGF inflation can be denied by voters (thus preventing PGF inflation). Denying a steward also unseats the steward.
- Shielded Set Rewards are designed as a bootstrapping mechanism.
a) Designed to be a temporary cost needed only to jump-start Namada’s shielded pool
b) The maximums may never be reached
c) Are expected to be actively managed by Veil
Inflation is a cost for Namada
Printing tokens to attract speculators has failed. It’s not a growth strategy. Issuing NAM is a means to an end, not an end in itself, and networks that printed high “yield” as a goal are now ending themselves (eg. Evmos).
Inflation mis-allocation
Overpaying stakers is bad. The point of stake is to provide some strength of economic guarantee that the network will always operate as expected, but some communities have turned this into a gambling mechanism by cranking up the staking rewards. In the short term, people may buy and lock up the token for high staking rewards, but it’s often with the aim of extracting a “yield” from Namada’s economy. Passive investment in Namada is important to get its economy running, but long-term sustainable value will come from active investment (eg. effective contributors), and this is what long-term holders will want.
Inflation gets taxed
More inflation = more value extracted from Namada by tax authorities. Most jurisdictions of major economies (eg. USA, Canada, UK, Germany, Australia, France, Japan, Brazil, India, and more) tax network rewards (like those from staking) as income.
Simply put:
Vast majority of stakers will owe taxes on the value of any staking rewards they gain at the time they were gained, even if they hold. In this case it’s wise to immediately sell and save enough to pay the taxes when they’re due (otherwise you could owe more in taxes than what your tokens are worth).
Alternatively, if token price goes up, this has no affect on most people until they choose to sell/trade.
Given the choice, it’s better for tokenholders if the unit value goes up versus their number of units going up.
Why inflation?
Inflationary funding, despite value-leak from taxation, is a powerful investment tool. Inflationary funding should always be done with the ultimate aim of sustainability, via substantially increasing productivity and capital efficiency. Since the paths to success (ie. sustainability) in crypto are uncertain, there will continue to be learning costs. But we can use inflation to make leveraged bets on big returns on mission progress.
Token issuance is a tool: it enables us to collectively re-allocate ownership, ideally away from passive holders and toward active participants. Despite dilution, this should still benefit passive holders if they benefit from the success of the mission (brought about by effective, active contribution). It’s a win-win, because with the potential to develop a meaningful position within Namada (tokens, reputation, influence) at any time, these’s an opportunity for new contributors to join our mission and for existing contributors to grow their position.
Next Steps
If this resonates with you, please consider supporting two of upcoming initiatives:
- Our proposal to cut staking inflation in half, from 5% to 2.5%: Reduce Staking Inflation + Launch Validator Subsidy
- Luminara’s upcoming proposal to become the Namada PGF Steward with the goal of effective, productive inflationary funding
Please feel free to reach out with any questions or comments! Grateful for your support, especially through candid feedback.