Cosmos Network Community Approves Proposal to Cap ATOM Inflation Rate at 10%

9:01 am
November 27, 2023

The Cosmos Hub community has voted in favor of a proposal to limit the maximum inflation rate of ATOM to 10%. According to the results shared on November 26, Proposal 848, titled “ATOM Production Reduction: Proposal to Set the Maximum Inflation Rate to 10%,” gained 41.1% of the vote in support and 31.9% against, with a record-high voter turnout of over 72% in the Cosmos Hub’s history. This decision marks a significant adjustment in ATOM’s inflation parameters, with the current inflation rate set to decrease from 14% to 10%.

Cosmos Network

Key Points of the Proposal

The proposal aims to reduce the maximum inflation of the cryptocurrency from 20% to 10%, which will also lower the annualized staking yield from 19% to approximately 13.4%. The community believes that this adjustment will enhance Cosmos’ security and growth potential, consequently improving the value proposition of ATOM within the market, making it more attractive to potential consumers.

The proposal suggests that reducing the inflation rate is vital for Cosmos (ATOM) to maintain its market value and remain competitive with other blockchain networks, as high inflation has hindered the growth of Cosmos’ decentralized finance (DeFi) protocols compared to rival chains. By implementing this change, the Cosmos Network aims to encourage the adoption of its Inter-Blockchain Communication (IBC) DeFi protocols, while also positioning ATOM as a more appealing option for collateral and liquidity provision.

The proposal also highlights that by maintaining a 10% maximum inflation rate, the majority of validators will still be able to operate at break-even or profitable levels. This consideration is crucial for ensuring the sustainability and efficiency of the network’s validator ecosystem.

Following the approval of the proposal, the price of ATOM surged by nearly 9% on the market, reaching $9.64 per token.

FAQs

What is the significance of capping the maximum inflation rate of ATOM?

By capping ATOM’s maximum inflation rate at 10%, the Cosmos Network aims to enhance the security and growth potential of the cryptocurrency. Additionally, this adjustment is expected to improve the value proposition of ATOM and make it more competitive in the market, particularly in relation to decentralized finance (DeFi) protocols.

How will the reduction in inflation rate impact Cosmos’ staking yield?

The reduction in inflation rate from 20% to 10% will lead to a decrease in Cosmos Hub’s annualized staking yield from 19% to approximately 13.4%. This adjustment is intended to optimize the network’s economic incentives and attract more participants to engage in staking activities.

What are the potential implications of this decision for the Cosmos Network’s validators?

With the approval of the proposal, the majority of validators are expected to continue operating at break-even or profitable levels, ensuring the sustainability and efficiency of the network’s validator ecosystem. Validators may also have the option to adjust their commission rates to cover operational costs and potentially generate profits.


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