On Cosmos, the adoption of a governance proposal has halved maximum ATOM inflation. Let’s take a look at this novelty, which has seen ATOM rise by almost 10% in the last 24 hours.
Cosmos ATOM sees its maximum inflation halved
On Saturday, a governance proposal was approved for the Cosmos ecosystem, allowing the maximum ATOM inflation to be halved.
The development teams refer to this as halving, in the sense that this maximum ATOM inflation, which was previously 20%, is now reduced to 10%:
Proposal 848 is approved ✅
The max inflation parameter will be reduced from 20% to 10%, bringing ATOM’s current inflation rate to 10%.
This decision comes with the highest turnout in Cosmos Hub history: 72.7% pic.twitter.com/03MPSsUsmx
– Cosmos Hub ⚛️ (@cosmoshub) November 25, 2023
In reality, this is not a classic halving in the sense that it is generally understood in the crypto ecosystem such as on Bitcoin (BTC) for example. To understand the process, we need to look at the way ATOMs are issued.
Until now, tokens have been subject to 7-20% annual inflation, depending on the number of ATOMs stored on the network. If this amount is less than two-thirds, inflation rises by 0.45% annually, mechanically increasing staking yields (APR) to attract new investors to stake their ATOMs.
A beneficial change for ATOM?
This “max_inflation” has been halved, bringing the staking APR down from around 19% per annum to the current 13.84%. Indeed, this variable rate was 14.24% before the governance proposal was accepted, and cannot now exceed 10%.
While Cosmos technology is often highlighted in the ecosystem for its innovative character, ATOM is regularly criticized for its usefulness, its high inflation being a major weakness.
If we focus solely on the pecuniary aspect, it is the selling pressure generated by this high inflation that partly explains the asset’s poorer performance compared to other cryptocurrencies during the last bull run.
In addition, the proposal highlighted a study by Blockworks Research, according to which most Proof-of-Stake (PoS) blockchains with inflation below 7% still manage to raise more than 60% of their native token in staking.
Furthermore, these changes could also prove beneficial in the long term for the profitability of validators, creating a virtuous circle for staking on Cosmos.
While this proposal had a 72.6% participation rate, with 41.1% in favor and 31.9% against, its adoption has led to an increase in ATOM. At the time of writing, it was up 9.83% over 24 hours, at a price of $9.86 per unit.
