Disclaimer: This is not financial advice. Please do your own research. This article is based on publicly available information and assumptions where information is not available (e.g. future use of ICON network).
TL;DR: I appreciate the feedback from my last article, “ICON Inflation Demystified.” I received overwhelmingly positive feedback along with some suggestions of areas to improve.
In this article, I present a simpler and broader view of inflation rewards. The resulting data is based on % of circulating supply staked, ranging from 0 to 100%. I removed ICON transaction effects, as it is impossible to accurately guess what these will be in the future since the ICON decentralized network has not even launched yet. Transactions will lower inflation, leading to a higher value increase through staking, so the data presented below are the WORSE-CASE, given the scenarios, as inflation will go down with every ICX transaction. Even without transaction fees lowering inflation, if 50% of circulating supply is staked, we will see an overall increase of our ICX value by at least 8.15% (calculated by taking the rewards of staking ICX and then subtracting the ICX inflation effects). The graph below shows the results described in this article (follow the orange curve to see ICX rewards: the annual % increase of ICX staked. Follow the green curve to see an overall gain in ICX value: ICX rewards - the ICON inflation percentage). The graph contains three categories:
- Delegation Rewards: Annual rewards ICONists receive for staking (Orange)
- Delegation + P-Rep Inflation: Annual inflation from delegation + P-Rep rewards (Blue)
- Overall Gain: Value increase through staking = Rewards - Inflation (Green)
We are very excited about ICONSENSUS! It will allow ICONists to vote for their favorite P-Rep teams through the on-chain election in September! Additionally, ICONists can also stake their ICX (and be rewarded). The question is, where do these rewards come from? ICON does not have a fixed supply, similar to other Delegated Proof-of-Stake (DPOS) tokens. Some Proof-of-Work (PoW) tokens do not have a fixed supply either. Ethereum is an example of this and has no fixed supply. Bitcoin has a fixed supply, however, the uncirculated tokens will continue to be distributed as miner rewards until 2140. So in most of our lifetimes, Bitcoin does not have a fixed supply, as the supply is constantly increasing via mining rewards. Compared to miners who may or may not care at all about the network, I would much rather have the ICX holders who are voting for P-Reps and supporting the network through staking be rewarded for helping to secure the network and validate transactions.
We took a deep look into ICON rewards and the effects of inflation in ICON Inflation Demystified, published by The ICONist. The initial feedback I received was it was very positive, but many found the details to be a bit overwhelming and that caused confusion. Others had differing opinions on my variable assumptions. I greatly appreciate this feedback. Let me first say, I understand and expect this. It’s not trivial to break down this complex system. I did my best but did not want to leave details out. In the previous article, I chose variables based on public knowledge and history. These are guesses and are not concrete. No one has a crystal ball and can predict the future. I expect many to have different opinions over what the variables should be, such as % staked, transaction fees, daily transactions, etc. If you think my variables are inaccurate, I encourage you to perform the equations with different variables to form your own opinions. The article is not meant to be an end-all-be-all, but more an education piece and tool for others to use and build upon.
In this article, I simplify a few of the equations to what the average person will care about. I also present a broad view of all of the different combinations of % of tokens staked. I leave out transactions, as any guess could be wildly inaccurate since the ICON network has not even launched. ICON Tx fees, however, will be used to offset inflation. So this is the WORST CASE SCENARIO IF NO ONE USES THE NETWORK. Key point there. I also do not include EEP and DApp rewards, because those services are not defined and also are not expected to go live until the end of 2019 or early 2020. (If you’d like to include these, the equations and information is in the previous article). Also, I base all of the information in this article on % of circulating supply staked. I do not expect uncirculating supply to be staked (basically it is ICON reserves). I present three main (and well defined) categories:
- Delegation Rewards: Annual rewards ICONists receive for staking.
- Delegation Inflation: The inflation resulting from delegation rewards.
- Delegation + P-Rep Inflation: Delegation Inflation + P-Rep Inflation (based on official ICON P-Rep guide example here)
I then present the overall gain, which represents the increase in value that ICX holders receive through delegation. This is equal to delegation rewards - inflation.
The three categories described above are presented in the graphs below. The final graph presents the overall gain, which is the rewards - inflation. There is still overall gain up until 91.83% of the circulating supply is staked. This is an extremely higher number because ICX is locked up during staking. Thus people needing ICX day-to-day will not be expected to stake. So essentially, as long as the % staked remains under 91.83% of circulating supply, then ICX holders increase their value through staking rewards.
In conclusion, I believe staking will result in an overall increase in value for ICX holders. Even if 50% of the circulating supply is staked, we will see an overall increase of at least 8.15%. This number will increase further as transactions reduce inflation. I am very excited for ICONSENSUS for many reasons. To name a few:
- P-Rep election — I hope you vote for our team, Ubik Capital!
- Serving the ICON community in partnership with 21 other amazing P-Rep teams
- Work closer with the ICON team to improve the network!
- I am excited to increase the value of my ICX through staking.