Changing Moonbeam inflation to linear model

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Hi Everyone,

I wanted to open a discussion about Moonbeam inflation and how can we naturally decrease it but still maintaining the network stability

Today, the inflation is 5% compounding, meaning the number of minted tokens increasing year by year. When total supply was 1B tokens, those 5% inflation was 50m GLMR per year, while today those 5% are almost 60m GLMR.

Moonbeam partnered with Gauntlet to suggest a new optimized tokenmic model, and as part of their job, they suggested a new allocation within the 5% inflation. However, they haven’t recommended changing the inflation itself (size nor model).

I suggest changing the inflation model from compounding to linear. It means fixed annual expansion of total supply

The advantage of the linear model is that the inflation naturally & gradually decreases over the years thanks to the convexity. It keeps the network healthy and sustainable, rather then deciding in arbitrary way to cut the inflation by half for example

The main question is what should be the fixed amount? To avoid sharp moves, we should start with [5% x totalSupply]. The current total supply is 1.17B tokens, but if we take the time we need for discussions and implementations, we can initiate it when the total supply hits 1.2B tokens. In that case the annual minted amount should be 60m tokens

To illustrate how minting 60m tokens in a course of 30 years impact the yearly inflation, please have a look at the chart below:

inflation
inflation625Ă—382 6.92 KB

Assuming we start with 5% inflation in 2025 - it drops to 4% & 3.33% after 5 & 10 years, respectively. The convex curve ensures the inflation decreases less each year and this way minimizes the reduction impact

We’re not inventing the wheel here - any ecosystem tries to find the balance of minimizing the inflation subject to keeping the network secured and sustainable. The linear approach makes it possible since it lets the market digest the changes in reasonable time and simultaneously reduce the selling pressure.

The main claim against it will be the decreasing delegators and collators rewards and therefore may cause people to leave the ecosystem. This is fair argument but let’s break it down:

  1. Delegators - currently the staking APR is around ~10% (assuming we remove outliers). Let’s assume total stake share remains the same - it means that 5 years from now the APR will decrease to 8%. This is not a meaningful impact at all. Needless to say that modest price appreciation of 20% in those 5 years will totally offset this loss. The same logic works for a longer period but we all know that 5 years in crypto is like 50 in real life:)

  2. Collators - Same as delegators, running moonbeam collator will still be profitable even if the reward is decreasing by 20% in 5 years. Unlike 99% of the networks where the top 1% validators take 99% of the rewards, in DOTSAMA ecosystem rewards are evenly distributed between collators/validators (regardless their pool size and assuming similar performance/fee). Therefore, such inflation changes are much easier to mitigate and digest

Last but not least - I won’t go around here - one of the purposes of this move is increasing the price by reducing selling pressure. Simple as that. No need to be an economist to realize that less minted tokens → less selling pressure. I also wouldn’t ignore the psychological impact when people hear about this move, where the inflation is naturally decreasing year by year. I’m sure it’ll have a positive impact (and not only for a short term). In addition, this move together with other burning mechanism we should discuss and consider could really make Moonbeam deflationary one day, and this will be a game changer for the token demand

If that happens - I have no doubt that no one would really care if he/she gets 20% less tokens while the GLMR price strongly compensates for it. The way I see it, the lower the inflation, the higher the chances GLMR rewards will be worth much more in $ value . Therefore it should be everyone interest to lower it

Will be happy to hear your thoughts!
Rafael

** Disclaimer - I’m a collator in both Moonbeam and Moonriver networks

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finally someone took the time to actually break this down instead of just complaining about inflation :clap:

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In my opinion, the proposal looks very reasonable and well thought out. It could be an important step toward a more sustainable future for Moonbeam.

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Thanks for raising the topic and providing this level of detail. You have clearly thought a lot about this!

I have been thinking a lot about inflation for the past while and I’m happy to share some thoughts here but I want to make it clear that these are my own as a community member and don’t necessarily reflect the views of the Moonbeam Foundation.

Of course, there are several dials available for lowering inflation. The inflation directed toward collators, stakers and/or treasury/PBR could be lowered but that of course has to be carefully thought through.

For example, if we lowered inflation going toward collators, we’d probably need to reduce the size of the active set to ensure collators could still operate profitably. This probably wouldn’t be very popular with the collator community. We could also lower inflation going to treasury/PBR but I think these funds are going to be needed to finance important infrastructure for the ecosystem.

So changing those dials probably requires a lot more thought and analysis. What you propose here seems reasonable. It certainly wouldn’t make sense to leave the inflation compounding indefinitely as it will just snowball. But as you say, what is the right amount and when is the right time to do this?

I would love to hear thoughts from other community members as well!

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Hi @aaron.mbf, thanks for your feedback. I’m also waiting to hear what other people think, but meanwhile I’ll comment to your collators profitability concern, and whether it requires to reduce the set accordingly

To put it in numbers - collators make today about 350 GLMR daily → ~10.5k GLMR per month which is ~$872 in todays price ($0.083)

In the table below we can see how the collator’s monthly $ revenue gradually decreases over the years (assuming constant price). After 1, 3 and 5 years the monthly revenues goes down to $830, $758 and $697, respectively. To me, it looks like a very modest decrease that collators can absorb, and hopefully GLMR price will compensate for it eventually

glmr2
glmr2583Ă—349 6.28 KB

On the expenses side, running Moonbeam collator is very affordable. Servers monthly costs are ~$150 (including backup server), and the network maintenance is very smooth and straightforward. In the early days it required additional active maintenance but nowadays it’s very rare. Therefore, even with the inflation reduction it’s still profitable to run Moonbeam collator

Obviously we can’t predict the market, and the price can go lower afterwards (and no one will run a validator node in 2055 for monthly $349 before expenses). In those scenarios decreasing the set will be mandatory and not questionable in order to keep the network attractive for collators. But I think we’re still far from that (even if we change the inflation model), and assuming the price remains at the current levels - I don’t see a real justification for decreasing the set in the near future. Having said that, if it’s required for changing the inflation model, I’ll definitely support it. I believe the inflation change is much more crucial than keeping the collator set size

Regarding the timing - I think the first and ideal station to do it is in the block where we reach a total supply of 1.2B (6-7 months from now). It should give us enough time for discussion, voting, testing and code modifications. Even if we need more time for that, I still think we should stick to 60m GLMR tokens each year starting the moment we’re ready

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I find @legendnodes post on changing the inflation to a linear model to be well-reasoned, and appreciate the time he took to apply his expertise to Moonbeam’s tokenomics. Even with attempting to model over the long term, and while I am not in favor of continuous changes in this regard, the option to further refine would still exist if we implement this change, and I am in favor of it.

With regard to the discussion around delegator, and collator earnings, I would say my personal view is that if changes have an overall benefit to the network (which may also increase token adoption), and the changes don’t have an immediate detrimental impact to rewards (both collator and delegator), then it would also make to put in these changes.

Specifically, and in regard to collator earnings, I would say currently the costs are a bit higher than provided by @legendnodes – it’s well known that running a node on an inexpensive $75 server can impact block production, and at least a BMS with nvme and a modern, high clock speed cpu is needed to ensure the best rewards delegators, costing minimum $200/m (cost averaged across multiple providers for diversity, and not just the cheapest one) [edit: arguably one could say the backup could be of less spec, or contended]. Combined with other operational costs, the revenue from running a collator currently results in earnings slightly above break-even. Of course the nodes don’t need much maintenance, but, when they do, they do - sometimes in short order, and I don’t know anyone that is willing to be on-call 24x7 for free - so those costs need to be considered.

However, I don’t think collator earnings are as much of an issue that should be a focus at this point. I think the majority of collators recognize the long term promise of the network, and would continue to operate even at a loss in the short to medium term, given the high barrier to re-entry to the active set in terms of receiving delegations (excluding those that would just buy their way in). And for those that would decide to leave the set because they are concerned about the change in rewards – then clearly they also don’t see the long-term potential, and so I would say the real reason they are leaving has little to do with the loss of rewards due to a change to linear inflation model.

Back to one of my previous points, even if this would decrease token rewards to delegators and collators, the net effect will be beneficial to all participants – assuming the continued execution on the delivery of the vision of Moonbeam.

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Agree with @Jim_CertHum on the collator points.

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Hi Jim, thanks for your comment. I strongly here with your statement below -

That was my main purpose by suggesting this change, even though it means I’ll personally earn less tokens as both delegator and collator, but if you zoom out - it’s definitely benefit with the whole network and this is what matters

About the costs - well, I took average costs, and as you said, backup servers are usually cheaper then main ones since they should give a solution for a short period. Therefore people for example run multiple backup nodes (from different networks) on the same machine. But even with the main server you can find some in reasonable price of less than $60 that are totally stands with the network spec requirements - here is one of them (OVH):

OVH
OVH1033Ă—119 15.9 KB

You’re absolutely right that albeit the low daily operation maintenance, when something happens you need to be available, regardless the day and the time

Don’t get me wrong, I want collators to earn as they deserve - my comment about the expenses was to emphasize that I don’t really think it’s required to decrease the set in order to increase the collators profitability. It may need to be in the future if things get worse, but I don’t think we are there (and hopefully never will be)

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Thanks for sharing that screenshot – the S-1 I have not seen before, and it seems like pricing has gone down (although OVH and Hetzner are still the exception wrt pricing and not the rule – a counter-balance would be to add in some AWS BMS pricing inc. BW charges if we use OVH as one example). Time to look at a server refresh :).

Also, we all know that if Hetzner + OVH went down, so would half of web3 infrastructure so I would argue that earnings should consider an ideal situation making it possible to use a wide variety of providers including owned infra deployed in a Tier 3 DC which may have the highest cost when including labor and maintenance (which could be offset with scale, but is a whole other angle on this discussion). To put it another way, when revenue was higher I was much more likely (and did) use other BMS providers to help make the chains CertHum operated on be more resilient, even if they cost a bit more.

(edit: that last point also may offer a strategic advantage because chains look for provider diversity for their block producers, and decentralization delegator maxis do tend to look for this, too)

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Yes, absolutely. From decentralization perspective, OVH isn’t ideal at all and as you said - if tomorrow they ban any kind of nodes operation - I think that even more than 60% of the web3 ecosystem will be in trouble (exactly like what happened in Hetzner back then)

I also agree that when profits are good, then you also invest more in decentralization (even if it’s not required by the network), and running even your own infra (which is very costly, but for the sake of decentralization is the best)

Anyhow we’re totally aligned here

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Love to see our collator community coming out in support of this even if it means it will cap their earnings in the long run! Agreed that we can re-evaluate the active set side at a later date.

I will float @legendnodes suggestion of capping inflation to 60M GLMR/yr at the point we reach 1.2B total supply with the development team and see what they suggest for implementation. Then we could have a signal, on-chain vote to ratify the change and, assuming it passes, figure out which release it would come in.

We also need to figure out what we want to for Moonriver. @legendnodes - any suggestion there in terms of total supply at which to cap?

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Indeed, this calls for the community concern and opinions.

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Hi @aaron.mbf , sounds great - will be happy to hear the dev’s team insights and whether it’s possible to start it when total supply reach 1.2B (assuming the voting pass obviously)

Regarding Moonriver - this is a good question and I thought about it as well but didn’t have a significant answer whether it’s required or not

On one hand, it totally makes sense to apply it on Moonriver too - it has the same tokenomic as Moonbeam, so what’s good for Moonbeam should be good for Moonriver too, right? in addition, there are two criterias that make it even easier to apply it on Moonriver-

  1. Active set - Moonriver active set is already smaller than Moonbeam (72 vs 76), meaning it should be easier for collators to absorb this change

  2. APR - Moonriver has much higher APR compared to Moonbeam (~17% vs ~10%). Meaning it’s easier for delegators as well to absorb inflation reduction

On the other hand, there is one main difference between Moonbeam & Moonriver that makes me think if this change is really required - the total supply

GLMR genesis total supply is 1B while MOVR is 10m. Why is it important? There is a very known mistake/phenomenon where people tend to attribute meaning to meaningless figures. For example - people may think that $1 stock is cheaper than $100, although the stock price is absolutely meaningless since the market cap is the only way to rank stocks’ value. Same thing with the total supply - people think that 1B total supply is A LOT, while 10m is very low

I won’t be surprised at all if one of the reasons that MOVR significantly outperformed GLMR over the years is because people prefer to invest in 10m total supply token rather than 1B

If we apply this “logic” to inflation - people don’t think that 500k MOVR yearly inflation is meaningful, but 50m GLMR definitely is. Therefore, they don’t attribute much importance to Moonriver inflation and maybe we can avoid any changes there

To summarize, I still tend to think that we should do it on Moonriver as well after all for keeping on consistency, but I would be happy to see how it affects GLMR first (where it’s much more required imo as we discussed before)

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Oh man you know I love some behavioral economics @legendnodes. Yes, I agree, if the community decides to go forward with the idea I think it should be done on Moonriver too, and sooner than 6 months.

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Dear Rafael,

First of all, thank you for taking the time to put together such a thoughtful and well-structured proposal. It’s clear that you’ve approached this topic with a long-term perspective and a genuine interest in the health and sustainability of the Moonbeam ecosystem.

At Iceberg Nodes, we’ve always paid close attention to the voice of the community — and over the past few months, the request to revise and reduce inflation has grown increasingly strong. We believe it’s time to act on this, and for that reason, we want to state clearly that we fully support your proposal and the transition to a linear inflation model. We agree that this is a balanced and forward-looking approach that can help reduce selling pressure while preserving the economic health of the protocol over time.

That said, we would like to share some additional thoughts regarding both Moonriver and Moonbeam, as they differ in context and needs:

On Moonriver

We suggest making no changes at all (or at least observe the impact on Moonbeam before), for the following reasons:

  1. No need to reduce inflation, as the network follows Kusama’s model with a limited supply — a psychologically beneficial factor appreciated by the community. This is reflected in the stronger price performance of MOVR compared to GLMR in the last period.
  2. No need to reduce the collator set, which is already at 72 (compared to 76 on Moonbeam). The collators on Moonriver appear more active, and there’s a healthy buffer of inactive collators ready to enter the set if needed — a setup that’s already aligned with our recommendation for Moonbeam.

On Moonbeam

We fully support your proposal to reduce inflation. At the same time, we believe this change should be accompanied by a reduction in the collator set size, for the following reasons (in order of importance):

  1. From a liveness perspective, having empty slots is not useful if there are no inactive collators ready to step in during issues or expulsions. Also, low entry thresholds in terms of staking can destabilize the set by attracting delegators only focused on high APR.
  2. The current size of 76 seems too high in the recent period: up until a few hours ago, one slot had been empty for weeks, and now there are two more vacant due to offline collators. As in the past we have increased the collator set due to high request for slots, we should do the same at opposite.
  3. Any reduction in the set size — even minimal — helps improve economic sustainability for active collators.

For these reasons, we suggest starting by reducing the active set from 76 to 74, in the same proposal of the future inflation reform referenda. Based on how the set evolves, the community may eventually consider reducing further to 72 in the future based on circumstances and scenarios.

We’d also like to point out that a smaller set does not necessarily mean less decentralization — at opposite, it may help preserve or even increase it, as it could create more competition and higher entry barrier. Moreover, a larger collator set should be used in order to increase the decentralization of the network. If not, there are no benefits from it — and even worse, it dilutes rewards.

We conclude by saying that this isn’t only about technical optimization — it’s also a clear message to the collator community: we’re reducing inflation, but we’re equally committed to safeguarding the profitability of those who demonstrate real dedication and alignment with the long-term success of the network.

This adjustment would help strengthen the economic resilience of the collator set while encouraging quality and commitment. We’re confident this dual move — inflation reform paired with a small but symbolic optimization of the collator set — can reinforce both sustainability and confidence across the ecosystem.

Looking forward to further discussion and always happy to contribute.

Michele on behalf of Iceberg Team

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Thanks @micheleicebergnodes for your valuable insights. Icebergnodes is a strong player in the DOTSAMA ecosystem and has unique role in the Riverbeam eco as well - hence I’m very happy to see your support in this proposal

Regarding your main comments:

  1. Moonriver - I fully agree with this approach. I also personally suggested to wait first and see how it evolves on Moonbeam before we examine whether it’s required for Moonriver

  2. Moonbeam set reduction - I totally agree that the demand to become Moonbeam collaotor has been significantly reduced, and this is one of the reasons only 74 out of 76 seats are occupied nowadays. Having said that, keep in mind that only yesterday RT3600 took into effect and GLMR self bond lowered to 500k GLMR. Therefore, I believe that the available seats will be occupied soon and I’d wait a bit before reducing the set

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