# inflation

### Abstract[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#abstract" id="abstract"></a>

The `x/inflation` module mints new LagomChain tokens and allocates them in daily epochs according to the LagomChain Token Model distribution to

* Community Pool `50%`.
* Staking Rewards `50%`,
* Usage Incentives: `0%`,

It replaces the Cosmos SDK `x/mint` module, that other Cosmos chains are using.

The allocation of new coins incentivizes specific behaviour in the LagomChain network. Inflation allocates funds to 1) the community pool(managed by sdk `x/distribution` module) to fund spending proposals, and 2) the `Fee Collector account` (in the sdk `x/auth` module) to increase staking rewards. The now deprecated `x/incentives` module account (3) does not accrue tokens anymore.

### Contents[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#contents" id="contents"></a>

1. [**Concepts**](#concepts)
2. [**State**](#state)
3. [**Hooks**](#hooks)
4. [**Events**](#events)
5. [**Parameters**](#parameters)
6. [**Clients**](#clients)

### Concepts[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#concepts" id="concepts"></a>

#### Inflation[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#inflation-1" id="inflation-1"></a>

In a Proof of Stake (PoS) blockchain, inflation is used as a tool to incentivize participation in the network. Inflation creates and distributes new tokens to participants who can use their tokens to either interact with the protocol or stake their assets to earn rewards and vote for governance proposals.

Especially in an early stage of a network, where staking rewards are high and there are fewer possibilities to interact with the network, inflation can be used as the major tool to incentivize staking and thereby securing the network.

With more stakers, the network becomes increasingly stable and decentralized. It becomes *stable*, because assets are locked up instead of causing price changes through trading. And it becomes *decentralized,* because the power to vote for governance proposals is distributed amongst more people.

#### LagomChain Token Model[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#evmos-token-model" id="evmos-token-model"></a>

The LagomChain Token Model outlines how the LagomChain network is secured through a balanced incentivized interest from users, developers and validators. In this model, inflation plays a major role in sustaining this balance. With an initial supply of 200 million and over 300 million tokens being issued through inflation during the first year, the model suggests an exponential decline in inflation to issue 1 billion LagomChain tokens within the first 4 years.

We implement two different inflation mechanisms to support the token model:

1. linear inflation for team vesting and
2. exponential inflation for staking rewards and community pool.

**Linear Inflation - Team Vesting**[**​**](broken://pages/KzTc5v4bNck0gBTBmy4V)

The Team Vesting distribution in the Token Model is implemented in a way that minimized the amount of taxable events. An initial supply of 200M allocated to `vesting accounts` at genesis. This amount is equal to the total inflation allocated for team vesting after 4 years (`20% * 1B = 200M`). Over time, `unvested` tokens on these accounts are converted into `vested` tokens at a linear rate. Team members cannot delegate, transfer or execute Ethereum transaction with `unvested` tokens until they are unlocked represented as `vested` tokens.

**Exponential Inflation - The Half Life**[**​**](broken://pages/KzTc5v4bNck0gBTBmy4V)

The inflation distribution for staking and community pool is implemented through an exponential formula, a.k.a. the Half Life.

Inflation is minted in daily epochs. During a period of 365 epochs (one year), a daily provision (`epochProvison`) of LagomChain tokens is minted and allocated to staking rewards and the community pool. The epoch provision depends on module parameters and is recalculated at the end of every epoch.

The calculation of the epoch provision is done according to the following formula:

```
periodProvision = exponentialDecay       *  bondingIncentive
f(x)            = (a * (1 - r) ^ x + c)  *  (1 + maxVariance * (1 - bondedRatio / bondingTarget))


epochProvision = periodProvision / epochsPerPeriod

where (with default values):
x = variable    = year
a = 300,000,000 = initial value
r = 0.5         = decay factor
c = 9,375,000   = long term supply

bondedRatio   = variable  = fraction of the staking tokens which are currently bonded
maxVariance   = 0.0       = the max amount to increase inflation
bondingTarget = 0.66      = our optimal bonded ratio
```

```
Example with bondedRatio = bondingTarget:

period  periodProvision  cumulated      epochProvision
f(0)    309 375 000      309 375 000     847 602
f(1)    159 375 000      468 750 000     436 643
f(2)     84 375 000      553 125 000     231 164
f(3)     46 875 000      600 000 000     128 424
```

Note, that after discussion with the validator community, it was decided to decrease the inflation to 1/3 during the upgrade to v16.0.0.

### State[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#state" id="state"></a>

#### State Objects[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#state-objects" id="state-objects"></a>

The `x/inflation` module keeps the following objects in state:

| State Object    | Description                    | Key         | Value                     | Store |
| --------------- | ------------------------------ | ----------- | ------------------------- | ----- |
| Period          | Period Counter                 | `[]byte{1}` | `[]byte{period}`          | KV    |
| EpochIdentifier | Epoch identifier bytes         | `[]byte{3}` | `[]byte{epochIdentifier}` | KV    |
| EpochsPerPeriod | Epochs per period bytes        | `[]byte{4}` | `[]byte{epochsPerPeriod}` | KV    |
| SkippedEpochs   | Number of skipped epochs bytes | `[]byte{5}` | `[]byte{skippedEpochs}`   | KV    |

**Period**[**​**](broken://pages/KzTc5v4bNck0gBTBmy4V)

Counter to keep track of amount of past periods, based on the epochs per period.

**EpochIdentifier**[**​**](broken://pages/KzTc5v4bNck0gBTBmy4V)

Identifier to trigger epoch hooks.

**EpochsPerPeriod**[**​**](broken://pages/KzTc5v4bNck0gBTBmy4V)

Amount of epochs in one period

#### Genesis State[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#genesis-state" id="genesis-state"></a>

The `x/inflation` module's `GenesisState` defines the state necessary for initializing the chain from a previously exported height. It contains the module parameters, the current period, epoch identifier, epochs per period and the number of skipped epochs. :

```
type GenesisState struct {
    // params defines all the parameters of the module.
    Params Params `protobuf:"bytes,1,opt,name=params,proto3" json:"params"`
    // amount of past periods, based on the epochs per period param
    Period uint64 `protobuf:"varint,2,opt,name=period,proto3" json:"period,omitempty"`
    // inflation epoch identifier
    EpochIdentifier string `protobuf:"bytes,3,opt,name=epoch_identifier,json=epochIdentifier,proto3" json:"epoch_identifier,omitempty"`
    // number of epochs after which inflation is recalculated
    EpochsPerPeriod int64 `protobuf:"varint,4,opt,name=epochs_per_period,json=epochsPerPeriod,proto3" json:"epochs_per_period,omitempty"`
    // number of epochs that have passed while inflation is disabled
    SkippedEpochs uint64 `protobuf:"varint,5,opt,name=skipped_epochs,json=skippedEpochs,proto3" json:"skipped_epochs,omitempty"`
}
```

### Hooks[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#hooks" id="hooks"></a>

The `x/inflation` module implements the `AfterEpochEnd` hook from the `x/epoch` module in order to allocate inflation.

#### Epoch Hook: Inflation[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#epoch-hook-inflation" id="epoch-hook-inflation"></a>

The epoch hook handles the inflation logic which is run at the end of each epoch. It is responsible for minting and allocating the epoch mint provision as well as updating it:

1. Check if inflation is disabled. If it is, skip inflation, increment number of skipped epochs and return without proceeding to the next steps.
2. A block is committed, that signalizes that an `epoch` has ended (block `header.Time` has surpassed `epoch_start` + `epochIdentifier`).
3. Mint coin in amount of calculated `epochMintProvision` and allocate according to inflation distribution to staking rewards and community pool.
4. If a period ends with the current epoch, increment the period by `1` and set new value to the store.

### Events[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#events" id="events"></a>

The `x/inflation` module emits the following events:

#### Inflation[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#inflation-2" id="inflation-2"></a>

| Type        | Attribute Key        | Attribute Value                               |
| ----------- | -------------------- | --------------------------------------------- |
| `inflation` | `"epoch_provisions"` | `{fmt.Sprintf("%d", epochNumber)}`            |
| `inflation` | `"epoch_number"`     | `{strconv.FormatUint(uint64(in.Epochs), 10)}` |
| `inflation` | `"amount"`           | `{mintedCoin.Amount.String()}`                |

### Parameters[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#parameters" id="parameters"></a>

The `x/inflation` module contains the parameters described below. All parameters can be modified via governance.

| Key                                   | Type                   | Default Value                                       |
| ------------------------------------- | ---------------------- | --------------------------------------------------- |
| `ParamStoreKeyMintDenom`              | string                 | `evm.DefaultEVMDenom` // “alagom”                   |
| `ParamStoreKeyExponentialCalculation` | ExponentialCalculation | `A: sdk.NewDec(int64(300_000_000))`                 |
|                                       |                        | `R: sdk.NewDecWithPrec(50, 2)`                      |
|                                       |                        | `C: sdk.NewDec(int64(9_375_000))`                   |
|                                       |                        | `BondingTarget: sdk.NewDecWithPrec(66, 2)`          |
|                                       |                        | `MaxVariance: sdk.ZeroDec()`                        |
| `ParamStoreKeyInflationDistribution`  | InflationDistribution  | `StakingRewards: sdk.NewDecWithPrec(500000000, 9)`  |
|                                       |                        | `UsageIncentives: sdk.NewDecWithPrec(000000000, 9)` |
|                                       |                        | `CommunityPool: sdk.NewDecWithPrec(500000000, 9)`   |
| `ParamStoreKeyEnableInflation`        | bool                   | `true`                                              |

#### Mint Denom[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#mint-denom" id="mint-denom"></a>

The `ParamStoreKeyMintDenom` parameter sets the denomination in which new coins are minted.

#### Exponential Calculation[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#exponential-calculation" id="exponential-calculation"></a>

The `ParamStoreKeyExponentialCalculation` parameter holds all values required for the calculation of the `epochMintProvision`. The values `A`, `R` and `C` describe the decrease of inflation over time. The `BondingTarget` and `MaxVariance` allow for an increase in inflation, which is automatically regulated by the `bonded ratio`, the portion of staked tokens in the network. The exact formula can be found under [Concepts](broken://pages/KzTc5v4bNck0gBTBmy4V).

#### Inflation Distribution[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#inflation-distribution" id="inflation-distribution"></a>

The `ParamStoreKeyInflationDistribution` parameter defines the distribution in which inflation is allocated through minting on each epoch (`stakingRewards`, `CommunityPool`).

#### Enable Inflation[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#enable-inflation" id="enable-inflation"></a>

The `ParamStoreKeyEnableInflation` parameter enables the daily inflation. If it is disabled, no tokens are minted and the number of skipped epochs increases for each passed epoch.

### Clients[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#clients" id="clients"></a>

A user can query the `x/inflation` module using the CLI, JSON-RPC, gRPC or REST.

#### CLI[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#cli" id="cli"></a>

Find below a list of `lagomd` commands added with the `x/inflation` module. You can obtain the full list by using the `lagomd -h` command.

**Queries**[**​**](broken://pages/KzTc5v4bNck0gBTBmy4V)

The `query` commands allow users to query `inflation` state.

**`period`**

Allows users to query the current inflation period.

```
lagomd query inflation period [flags]
```

**`epoch-mint-provision`**

Allows users to query the current inflation epoch provisions value.

```
lagomd query inflation epoch-mint-provision [flags]
```

**`skipped-epochs`**

Allows users to query the current number of skipped epochs.

```
lagomd query inflation skipped-epochs [flags]
```

**`total-supply`**

Allows users to query the total supply of tokens in circulation.

```
lagomd query inflation total-supply [flags]
```

**`inflation-rate`**

Allows users to query the inflation rate of the current period.

```
lagomd query inflation inflation-rate [flags]
```

**`params`**

Allows users to query the current inflation parameters.

```
lagomd query inflation params [flags]
```

**Proposals**[**​**](broken://pages/KzTc5v4bNck0gBTBmy4V)

**Update Params**

Allows users to submit a `MsgUpdateParams` with the desired changes on the `x/inflation` module parameters. To do this, you will have to provide a JSON file with the correspondiong message in the `submit-proposal` command.

For more information on how to draft a proposal, refer to the Drafting a proposal section.

```
lagomd tx gov submit-proposal proposal.json [flags]
```

#### gRPC[​](broken://pages/KzTc5v4bNck0gBTBmy4V) <a href="#grpc" id="grpc"></a>

**Queries**[**​**](broken://pages/KzTc5v4bNck0gBTBmy4V)

<table><thead><tr><th>Verb</th><th>Method</th><th width="250">Description</th></tr></thead><tbody><tr><td><code>gRPC</code></td><td><code>lagom.inflation.v1.Query/Period</code></td><td>Gets current inflation period</td></tr><tr><td><code>gRPC</code></td><td><code>lagom.inflation.v1.Query/EpochMintProvision</code></td><td>Gets current inflation epoch provisions value</td></tr><tr><td><code>gRPC</code></td><td><code>lagom.inflation.v1.Query/Params</code></td><td>Gets current inflation parameters</td></tr><tr><td><code>gRPC</code></td><td><code>lagom.inflation.v1.Query/SkippedEpochs</code></td><td>Gets current number of skipped epochs</td></tr><tr><td><code>gRPC</code></td><td><code>lagom.inflation.v1.Query/TotalSupply</code></td><td>Gets current total supply</td></tr><tr><td><code>gRPC</code></td><td><code>lagom.inflation.v1.Query/InflationRate</code></td><td>Gets current inflation rate</td></tr><tr><td><code>GET</code></td><td><code>/lagom/inflation/v1/period</code></td><td>Gets current inflation period</td></tr><tr><td><code>GET</code></td><td><code>/lagom/inflation/v1/epoch_mint_provision</code></td><td>Gets current inflation epoch provisions value</td></tr><tr><td><code>GET</code></td><td><code>/lagom/inflation/v1/skipped_epochs</code></td><td>Gets current number of skipped epochs</td></tr><tr><td><code>GET</code></td><td><code>/lagom/inflation/v1/total_supply</code></td><td>Gets current total supply</td></tr><tr><td><code>GET</code></td><td><code>/lagom/inflation/v1/inflation_rate</code></td><td>Gets current inflation rate</td></tr><tr><td><code>GET</code></td><td><code>/lagom/inflation/v1/params</code></td><td>Gets current inflation parameters</td></tr></tbody></table>


---

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