# SIP-244: New inflation mechanism

Author JVK & Danijel Rejected Governance Ethereum & Optimism TBC TBD Loading status... 2022-05-30

## Simple Summary

This SIP proposes a new plan for SNX Inflationary Staking Rewards

## Abstract

Reduce inflationary SNX staking rewards by 1% each week until the target of 20% yearly inflation is reached and then maintain that with weekly readjustments

## Motivation

SIP-202 introduced inflation increases based on % of SNX staked. During a period of 3 months, inflation has gone from 300k SNX a week to more than 2 million SNX a week. Unfortunately, the percentange of SNX staked has not seen a tangible improvement, but it could be argued that 202 has stopped further decreases in amount of SNX staked.

SIP-202 was paused by spartan council leaving the inflation at a seemingly random number of a bit more than 2 million SNX per week. That sets the yearly inflation at about 45% of total circulating supply, inclusive of escrowed rewards. Considering that about 60-70% of SNX is staked, the current staking APR on SNX rewards alone is usually above 100%.

Since the futures functionality was released it has brought an increase of sUSD fees to stakers with debt stabilisation - approaching neutral thus far.
Last few weeks atomic swaps have seen a large adoption due to 1inch aggregation. Between futures and atomic swaps the sUSD staking APR has seen 7-10% last few weeks.

With the above in mind, drafters believe that the high inflation, which would double the total SNX supply in less than 2 years, is much more than required and puts the nominal value of SNX at risk as well as the system once the unlocks of current bloated inflation kick in.

Drafters are proposing a iterative decline of 1% a week until a target of 20% yearly inflation is reached. Once reached, the inflation than readjusts weekly based on total circulating supply to maintain the 20% yearly inflation, as laid out in specification section.

Compared to SIP-202, this should require less labor from the pDAO, and be thus less susceptible to implementation and maintenance errors. This outcome should therefore also be more aligned with a greater decentralised status for the operation of the protocol.

## Specification

Current total supply of SNX per coingecko (at the time of writing the SIP) is 266,473,982 with inflation being close to 2 million SNX.

The SNX inflation shall be reduced by 1% until the target of 20% yearly inflation is reached. It will take roughly a year for inflation to hit that threshold.

Once hit, the new formula to calculate weekly inflation should be:

(totalSupply*1.2 - totalsupply)/52

This makes for 20% yearly APR assuming all SNX is staked, or 22.09% APY, thus the actual yearly inflation at any given time is 22.09%.

The intent is to not have any manual weekly transaction to readjust inflation, but rather codify the above iterative reduction until the target is reached, and then use the new formula.

N/A

### Configurable Values (Via SCCP)

• Yearly Inflation rate multiplier = 1.2
• Weekly decline till Yearly Inflation Rate Reached = 1% (0.01)

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