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How can an increasing WAX Token supply lead to deflation?

5月 31, 2019

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50% Deflation Potential for WAX - Very Good for Stakers

Some may think increasing the WAX Token supply from 1.85 billion to 3.7 billion tokens through the Genesis Block Member (GBM) program will result in inflation for stakers. Despite what you might imagine, this token supply increase will likely have a deflationary benefit for stakers, and deflation is incredibly good for a token holder.

But how can issuing more WAX Tokens increase my percentage of ownership?

Inflation occurs when other people get new tokens but you don’t, thereby reducing your percentage of ownership of the entire token supply.

The GBM program allows participants to potentially double their WAX Token holdings by staking the tokens that they receive from the upcoming WAX Token Upgrade over three years. To accommodate the GBM program, we have doubled the WAX Token supply. Since everyone is eligible to double their WAX Tokens by participating in the GBM program, everyone potentially will wind up with the same percentage of ownership they had before the token upgrade. Whether you increase or decrease your percentage of ownership of the total token supply (i.e. experience deflation or inflation) will depend on whether you stake continuously for the three year duration of the GBM program.

Note that the GBM program allows for up to 50% of the WAX Token supply to be burnt when Genesis WAX Protocol Tokens are unstaked. In other words, 1.85 billion of the 3.7 billion WAX Tokens could potentially be burnt. Put another way, there is the potential for 50% deflation in the WAX Token supply.

This means if you keep your tokens continuously staked as per the GBM program, you will experience no inflation and could theoretically experience up to 50% deflation.

Here are two extreme scenarios to illustrate:

Scenario 1 - A staker experiences no deflation nor inflation

Prior to the WAX Token Upgrade, you start with 1% of the WAX Token supply, i.e. 18.5 million ERC-20 WAX Tokens out of 1.85 billion tokens.

Then 1.85 billion Genesis WAX Protocol Tokens are distributed to token holders as part of WAX Token Upgrade, with another 1.85 billion WAX Protocol Tokens to be disbursed over three years as per the GBM program. However immediately after the upgrade, all the WAX Token holders including you unstake their Genesis WAX Protocol Tokens (to transfer them to another address or for any other reason). This would cause 1.85 billion WAX Protocol Tokens to be burnt since they are no longer being given as GBM rewards. The effect of this? No deflation and no inflation. Nothing changed for you. You still have 1% of the supply of WAX Protocol Tokens - 18.5 million out of 1.85 billion.

Scenario 2 - A staker experiences maximum deflation

You have 1% of the WAX Token supply as described above, but you don’t unstake your Genesis WAX Protocol Tokens while everyone else does. This means your WAX Token holdings eventually double in number due to GBM rewards, but no one else’s does. After three years of earning daily GBM rewards, you would have 37 million WAX (i.e.18.5 million x 2) or about 1.7% of the token supply. The math on that is (37 million ÷ (1.85 billion × (1.05)^3 + 18.5 million ) = ~1.7%

Note: re (1.05)^3 is included in the supply because of a 5% annual inflation for WAX Staking Rewards, WAX Guild Rewards, etc.

Scenario 1 and 2 are extreme, so the reality will be somewhere in the middle. Some people WILL unstake their Genesis WAX Protocol Tokens and some people will keep their Genesis WAX Protocol Tokens staked for a full three years. But in all cases, it’s deflationary or neutral for stakers because every day some GBM tokens are likely to be unstaked. The result is that every day, more WAX Protocol Tokens will be burnt, thus reducing the WAX Token supply and increasing the percentage of ownership for the continuous stakers.

There is a big reason to cheer every time you see someone unstake their Genesis WAX Protocol Tokens. It’s a deflationary event and that means your ownership of the total supply of WAX increases.

An active member of the WAX Community also covered this topic in a recent blog post which can be read here.

To learn more about Genesis WAX Protocol Tokens and the Genesis Block Member Program, view the blog post here.

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Disclaimer: WAX reserves the right, at its sole discretion, to modify, change, edit, alter, delete and/or replace the terms of the launch of, and other information concerning, the WAX Mainnet found in this post at any time and without notice. You are encouraged to check the latest information on the launch of the WAX Mainnet on the WAX website at https://wax.io/.

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