Mina Protocol Unlimited Supply and Inflation

Is Unlimited Supply in Mina Bad and Does Inflation Have a Negative Impact?

There are several questions that investors often have in mind:

Why is there unlimited supply? 
Does unlimited supply negatively impact price? 
Isn't inflation bad?

These are certainly questions that may come to mind for those investing in Mina. Let's address them one by one.

Why is there unlimited supply?

There are validators in Mina who have expenses, such as electricity and monthly fees for running a node. Additionally for the security.

What are validators and what do they do?

Validators are an important part of the proof of stake mechanism used in the blockchain network. They take on the role of miners in a proof of work system and add and verify blocks on the blockchain instead of miners. Only when a transaction is approved by a validator is it considered complete on the chain. Therefore, validators are the key link in the chain.

Validators are necessary for the operation of Mina, so they must be regularly rewarded. That is why the supply is unlimited.

Does unlimited supply negatively impact price?

In the Mina Protocol, inflation is set to regularly increase this supply. The inflation schedule is as follows:

After the launch of the main network, the inflation in Mina is 12% and you can earn supercharged stake rewards up to 24%. They will decrease the inflation from 12% to 7%. You are not losing anything thanks to stake, even though there is inflation. Currently, this stake rate is between 16-18%.

A question that may immediately come to mind is: Isn't inflation bad?

First, let's briefly summarize what inflation is: Inflation is a function of the supply and demand for money, which means that producing relatively more dollars leads to each dollar being worth less and the general price level rising.

Is inflation always bad?

No, not necessarily. Most economists believe that moderate inflation levels can benefit an economy. How? In a healthy economy, stable and moderate inflation rates are expected. Economic growth is characterized by increased spending and demand for goods and services by consumers and businesses that exceeds supply. When demand exceeds supply, producers increase prices and inflation increases. In this context, inflation can be seen as a good thing.

If we relate this to crypto, we see the following scenario: As the Mina ecosystem develops and proves itself, the transactions on the network will create demand. This will result in a decrease in supply and an increase in price. It's all quite simple, really...

Here, the mentioned inflation shows the growth rate of the supply. In other words, a regularly decreasing inflation is actually a good thing, but there seems to be a problem. Remember that inflation is never zero. It always exists (in bitcoin, etherum, monero, solana, etc.), but the goal should be to reach the lowest level of inflation. In other words, to get as close to zero as possible. The Mina team wants to fix the inflation at 7% at some point. But there is a problem with fixed inflation.

Consequences of fixed inflation:

For example, let's say we have a coin with a supply of 100. It has an annual inflation rate of 12%. That means that our supply will be 112 after 1 year. Each year, our inflation rate will decrease by 1%. So the next year, our inflation will be 11%. That means our supply will be 124.32. But if the inflation was fixed, our supply would be 125.44. In other words, the number will increase exponentially each year. This will inevitably have an effect on the price. However, there is currently no problem in the long run. However, there is also a situation like this: Currently, the inflation rate is related to the stake rate (currently the team is awarding a bonus greater than the inflation rate as a reward). If the inflation rate decreases, it will also cause the stake rate to decrease. That's when nobody wants to remain as a validator. This could cause the system to collapse. However, the team can change the relationship between inflation and stake over time, and there is also a possibility that they will be able to see independent rates. In other words, the team has not yet made a definite decision on this matter.

This is a scenario that could occur if Mina remains a flat (non-utility) coin and does not become an ecosystem. If the ecosystem is established and all the coin burns, NFTs, metaverse, and web3 that we are expecting are all present, the ecosystem will be alive and this will be reflected in the Mina network. The situations that are reflected in the Mina network will affect both the price and the supply. Of course, positively.

Those who see that the Mina project has proven itself will want to buy, so demand will be created. When you buy Mina, you will see airdrops, draws, and news that create hype within the ecosystem. This time, those who want to participate in these will pay the transaction fee. This will also have an impact on supply. Of course, when there is demand for the ecosystem, tokens will be issued within the ecosystem. In order to issue these tokens, a certain amount of Mina will have to be bought (I think it will be the same in Mina because I have seen this situation in other ecosystems). This is another factor...

Similarly, as pioneers of the community, we can go with requests like these: a portion of the transaction fees incurred as a result of transfers on the network are burned. Or let's say that the Mina ecosystem offers the opportunity to enter social media with a tool produced within it. But it was requested that 20 Mina be staked to use this tool. Don't focus on the numbers, I'm just giving an example. For example, such innovations will contribute to the ecosystem. However, these innovations will slow down after a while. Because technology is new, everyone is curious and producing something. But when this slows down (in the very long run), this fixed inflation will again be a problem. Because it will turn into a growing situation. Then you will need to make a system that needs to be burned continuously. Or there may be other solutions that we do not yet know.

When a few people are damaged by the false accusation that the team is dumping its assets, there is a chaotic environment among our people and they try to make their voices heard and blame the team everywhere. There is definitely no such situation. If there were, huge communities would have stirred up the place before us.

This article was written with the support of Talha by Xenit. If you liked our article, don't forget to follow Xenit and MinaTimes on Twitter and subscribe to my YouTube channel where you can access the video version of this article!