As a proof of stake protocol, Divi uses an inflationary model to reward validators of the network. If we're told to believe all inflation is bad, then how does this work? How does Divi maintain a healthy and strong ecosystem?
April 10, 2021 · 4 min read
How does Divi control for inflation?
It’s important to have a discussion about inflation, as it’s both vital to the success of cryptocurrency, yet detrimental to many protects. One of Bitcoin’s selling points is its hard-cap of 21 million BTC. This means no more than 21 million BTC will ever exist. Many people believe this means eventually, scarcity will drive up demand. But how realistic is it to expect Bitcoin to function as a global currency, as supply dwindles?
Then there is the opposite end of the spectrum where coins offer incredibly high masternode or staking returns, in excess of 100% per year. You can produce all the coins you want, but if the value of that coin is zero, then they’re not worth having.
So how does a project find that balance? How do we discover the point at which a currency has enough inflation to future-proof its use, whilst facilitating value growth in that very ecosystem?
Divi solves a trillion-dollar problem by making crypto easier for non-technical people to use. We believe the financial revolution belongs to everyone, not just those in the know. It sounds simple, yet we’re the leaders in this space. From our one-click masternode installer to our world-class mobile wallet, and secure staking vaults, we’re just getting started. We’ve been around since 2017. We survived the bear market through sheer hard work, an incredible community, and a will to succeed. We understand crypto, and we’re here to make it better.
Our natural reaction to inflation is bad. Just the word elicits a negative response as it reminds us of the inflation we see in daily life. Central governments printing more cash, passing it on to bankers, to bail them out of the situation they caused. In this model, the system wins, and future generations lose. However, in a cryptocurrency, the winners are the coin holders themselves who make up the network.
Medium article: Why inflation can be good
Inflation can be negative if too many masternode holders and stakers decide to sell their block rewards, and there are not enough new people coming into the system. This is less of a result of inflation, and more a result of a lack of value creation in that ecosystem. Turnover in a system is inevitable and even healthy, but you must draw users in to support it.
In the first two years, Divi adopted a high inflation rate to attract people to participate in our proof of stake network. There is so much growth yet to be seen in this space, and we wanted to ensure we had the ecosystem to become a global currency. Our goal is and always has been to expand our network and ecosystem consistently, drawing from a diverse group of people, not just coders and crypto-enthusiasts. Our solutions are for the common person, and we’re proud of that.
Below is the current inflation schedule for Divi. This is hard-coded into the blockchain and is only editable through dynamic value sporks
Divi's inflation model
Note that with this system we’ll be targeting over 5 billion DIVI in total circulation. What we’re trying to do is build a blockchain that is designed to support 50 million users. With 100 DIVI or more needed per person, we need at least that many. Take Bitcoin for example. It has a large value, so most people can only own small amounts. This is unfamiliar to people and can become a hindrance later on.
So far, we’ve only talked about inflation, as reflected in the chart above.
The most important deflationary pressure is the adoption of Divi. More people using it, buying nodes, and locking away coins. Not only does this combat inflation, but it also makes our network more secure. It’s a win-win.
Other deflationary pressures:
So, that’s Divi and inflation in a nutshell. Next time you hear someone say “inflation is always bad!”, take the time to educate them. Not all inflation is bad, just the kind we are used to, and exposed to. Divi takes a novel approach to inflation, one that facilitates ecosystem and community building.
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April 10, 2021 · 4 min read