This proposal suggests an inflation rate of 5% to chain stakers and the validators operating the chain. Inflation is denominated in $ALTHEA token and is distributed to active validators and delegators on a per block basis.
Rationale
The transaction fees generated by the Micro-tx module (machine-to-machine) payments is expected to sustain the rewards necessary for validators and token stakers to participate in operation and security of the chain once the ecosystem has matured, however there is expected to be a ramp period where the chain must be live and maintained and users to the network are onboarded, where the transaction fees may not be adequate to encourage operators and token stakers.
The blockchain launched in April 2024, and is currently in an integration phase, which allowed the development teams and validators to work on connecting $USDC from Gravity Bridge, the Althea.link front end, and the on-chain DEX, “DePIN DEX”. During this time, operators and chain stakers have not received reward for their participation.
As the integration phase is nearing completion, it is proposed for the community’s consideration to change inflation from 0% to 5%. This will encourage validator and token staker participation which will be important for the health of the chain and ecosystem.
How Inflation Works:
Cosmos-SDK inflation can be configured as dynamic, increasing and decreasing based on the total number of staked tokens. Or it can be static, this proposal is for a static 5% inflation.
The total amount of issued tokens is computed by multiplying the chain supply by the percentage inflation. Validators take a commission fee, and the rest is distributed to delegators.
There are currently 20.66 million Althea tokens, the 5% inflation rate value will mint an additional 1.033 million over the next year.
Potential Downsides
Currently only about 15% of liquid ALTHEA is staked. Ideally â…” of all liquid tokens would be staked at any given time. If â…” or greater of the total liquid token supply is participating in staking many theoretical staking attacks become impossible and chain security is improved.
Inflation is distributed among active stakers. So an inflation rate of 5% would generate an approximate APR of 60% for current stakers. While this value may fall quickly, poor community communication could result in inflation being distributed to a small pool of stakers if other ALTEHA holders are not made aware of the new inflation rate.
Unless changed by another governance vote this inflation rate will continue indefinitely. Depending on the outcome the community should re-visit this rate at least once a year. If not twice a year to ensure that the inflation rate is having the desired effects.
The token is not currently unlocked, so while existing ALTHEA holders can participate, new participants to the network cannot easily join.
To mitigate these downsides, it is suggested that educational and awareness efforts continue. It is also suggested that the community consider an unlocking proposal in the near future.
How the AltheaL1 Blockchain works (from Althea Whitepaper summarized)
Validators stake tokens in order to produce blocks for the Althea L1 blockchain. Althea L1 uses a Delegated Proof of Stake (DPoS) model, meaning that users can delegate their tokens to any given validator and receive rewards minus some amount of commission set by the validator. Validators and anyone who delegates tokens to them risk losing some of their stake if the validator misbehaves, called slashing. Misbehavior includes failing to participate in block validation or trying to sign multiple versions of the same block. The rewards for validators and delegators come from inflation and fees.
Inflation is distributed among all active validators proportional to their stake. The final staking APR is variable depending on the total number of staked tokens during the creation of each given block.
As long as a validator is in the active state, having participated in the minimum required number of blocks to avoid slashing, it will receive the same inflation rewards as every other validator during that period proportional to stake.
EVM transaction fees must be paid in $ALTHEA and are burned, not distributed to validators
MicroTX module transaction fees can be paid in any stable currency used in the machine-to-machine transactions.
MicroTx transactions pay a percentage fee in exchange for being exempt from the minimum fee requirements of other transaction types and given priority on inclusion. MicroTx fees are distributed to the validator who proposed the block. This incentivizes validators to include as many MicroTx as possible in each block.
Transaction fees for all other transactions are distributed to all active validators using the same computation as inflationary staking rewards.
Followup
Inflation parameters are changed by governance. Any community member can submit a governance proposal for voting. Suggested best practices for governance proposals is located on the forum - Althea Governance Parameters
Live information about token distribution is available at https://info.althea.zone/ public api documentation is available as well GitHub - AltheaFoundation/info-server: A simple and lightweight utility for gathering information and displaying about the Althea L1 blockchain