WAXplained #2: Mainnet total supply
What the total supply of the mainnet will be like.
With WAX introducing the Genesis Block Members Program there has been a lot of confusion about how circulating and total supply will increase.
First of all, no, the total supply will not actually be 3.7 billion, but fluctuate instead. To understand the supply, you need to understand how the coin swap works.
The WAX mainnet chain will be created with an initial supply of 3.7 billion; this is what we consider the total supply. BUT, not all of these 3.7 billion will still exist once the token swap concludes at the end of August.
In the beginning, the entire supply will be locked. Now for every ERC-20 token that gets swapped ONE protocol token will be unlocked. This is, what makes up our circulating supply. So in the beginning, while the total supply increased, the circulating supply actually decreases.
From past experiences we know, that not everyone will swap their ERC-20 tokens, so after the end of the token swap period in August the circulating supply will most likely be less than the circulating supply the ERC-20 had.
But also, the new total supply will decrease. For every ERC-20 two protocol tokens got created, now that tokens cannot be swapped any more two tokens are basically lost and can be burned, decreasing the total supply.
So just from the swap, the total supply of the protocol token at the end of the swap period should be 3.7 Billion deducted by up to two times the amount of unswapped tokens.
Over the next three years, the total supply will keep decreasing every time Genesis tokens get unstaked.
For the token holder, this means, as long as he keeps his tokens staked and votes regularly, he is not affected by inflation. The percentage of the total supply he owns remains the same. But with every token that gets burned his share increases percentage-wise. This mechanism discourages speculation and day trading while benefitting long term holders, resulting in a more stable price.
The reason we usually take total supply into consideration and are afraid of it increasing is that with an increase of total supply people tend to expect an increase in circulating supply and in return a huge influx of sellers, that would kill the price. But even though the total supply of WAX will increase, the circulating supply will not increase in the same manner and actually decrease for now.
In the case of WAX, the total supply is kind of a misleading indicator because it will fluctuate over time, likely with deflationary and inflationary mechanisms offsetting each other.
As said, what matters to us as holders, is the circulating supply, because we determine availability and thus price by it. The circulating supply is what makes up the market cap.
But even the circulating supply will be hard to quantify due to the variety of staking mechanisms WAX will provide.
What will actually matter is liquidity. Tokens that are unstaked and available on the free market to be bought and sold. Considering the high incentive to keep your genesis tokens staked, it will take over half a year for the liquid supply, what I would call the actual circulating supply, to just reach the amount that is available on a single exchange right now.