By: Eliza Bennet
The Cosmos Hub has voted in favor of a proposal that will decrease the maximum inflation rate of its native cryptocurrency, ATOM, from 14% down to 10%. The regulation, which narrowly passed with 41.1% votes in favor against 38.5% opposition, will also affect ATOM's annualized staking yield, reducing it from around 19% to approximately 13.4%.
ATOM uses a dynamic inflation model that fluctuates between a floor of 7% and a ceiling of 20%. With the new adjustment, if less than two-thirds of all ATOMs are staked, the inflation rate will increase, thereby incentivizing staking to secure the network. The proposal aims to address concerns related to the sustainability and predictability of ATOM's future supply.
This adjustment is also expected to influence the Atom Economic Zone (AEZ) and the burgeoning decentralized finance (DeFi) ecosystem on the Cosmos network. By abating ATOM's inflation rate, the proposal intends to bolster ATOM's role as a security provider for consumer chains within the Cosmos Hub. This movement is vital as projects like Neutron and Stride are gaining momentum in the AEZ.
This initiative is the first of three proposed adjustments which aim to refine ATOM's inflation dynamics and foster a more sustainable and secure Cosmos network. The other two proposals will focus on decreasing the minimum inflation parameter and increasing the inflation change parameter that impacts the speed of inflation variation on a block-by-block basis.
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