Concordium’s Tokenomics Redesign #4: A New Dawn in Staking
The Concordium blockchain is undergoing a significant redesign in its tokenomics model to increase its appeal and attract a broader spectrum of Web3 players. In the previous articles (#1, #2, #3) of this ongoing series of tokenomics changes, we focused on a new dawn of staking.
Now, the focus is on the reassessment of the mint rate for CCD, Concordium’s native token.
Following two stable years of operation on mainnet and a significant consensus protocol upgrade, which saw the block time divided by 5 and the maximum TPS multiplied by the same factor, the Concordium Governance Committee has undertaken a full revision of the tokenomics with the goal of boosting the overall design of the blockchain’s monetary policy.
The nexus of security & minting
While the introduction of new tokens may dilute the value of existing ones, this is a strong and strategic long-term investment into the network´s robustness. The minting of new tokens plays an essential role in enhancing the security of the blockchain. It encourages more users to stake tokens, thus decentralizing and strengthening the network. This reduces the risk of attacks and promotes democratic governance, making Concordium more resilient and secure.
Without reasonable rewards, there is less incentive to be a validator, and with fewer validators whose job it is to confirm the validity of transactions and blocks, the security of the chain decreases.
While rewarding validators and delegators is the main purpose of minting new tokens, we also know from macroeconomics that producing new money is one of the tools available to central banks to regulate the economy. By providing liquidity it creates incentives for consumption and access to finance which promotes industrial growth, economic development and innovation. But if the economic growth does not follow at the same pace, printing money can also lead to excessive inflation.
Decreasing the mint rate
The long term plan laid out by the Concordium Foundation remains unchanged: The CCD mint rate was set to start at a yearly rate of 10%, and gradually decrease to 2% as the Concordium ecosystem grows.
Concordium is experiencing a dynamic and exciting progress in its development. Originally, the number of transactions per second (TPS) was considered a key metric for guiding the mint rate. However, recognizing the need for flexibility, the Governance Committee has shifted to a more holistic approach. Particularly ecosystem growth and the balance between security and token value are key factors.
This adaptive and holistic approach is timely, as Concordium is witnessing a surge in diverse and impactful use-cases. Most notably, the NFT marketplace Spaceseven, ClimaFi’s innovative solutions for carbon reduction, Aesir’s commitment to data privacy, Energinet’s renewable energy certificates, mysome.id’s social media authenticity verification and the decentralized exchange Concordex. With a promising pipeline of use-cases ready to launch, Concordium is heading into the right direction to significantly increase transactions, showcasing its robust growth and potential for future development.
Given the current growth of the ecosystem and the high amount of staked CCD, the Governance Committee has decided to take the first step toward the goal of a 2% mint rate, and will therefore decrease the mint rate to 8% annually (from the current 10%). The Concordium Foundation and the Governance Committee are still committed to reaching the long-term goal of a 2% mint rate in the future
The change of the mint rate from 10% to 8% will take place at the same time as the other tokenomics parameter changes, namely between the 7th-11th of December 2023.
Next revision of the mint rate
One of the next major events for Concordium is the election by token holders of two new members to the Governance Committee. This will take place in the summer of 2024. And one of the first tasks of this new Governance Committee will be to revisit the CCD mint rate and consider when is the time for the next decrease.
In summary, given the current growth of the ecosystem and the high amount of staked CCD, the Governance Committee has decided to take the first step toward the goal of a 2% mint rate, and will therefore decrease the mint rate to 8% annually (from the current 10%). The parameter change will take place between the 7th-11th December.
You can read more about our tokenomics HERE.