Hard Pressure Capped & Stepped Supply Schedule

2d 15hrs ago

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AI Summary

Kusama originally launched with an issuance of 10 million KSM tokens. Today, about 6 years after its creation, we have already reached over 17 million. This is neither financially sustainable nor financially responsible, as the network is not financed by innovation and business, but by a steady expansion of its money supply (KSM tokens), which leads to a steady devaluation of its value.

This selling pressure stems from the fact that around 50% of all tokens newly created through inflation are immediately sold by nominators and validators. In addition, it is obvious that those who understand Kusama's tokenomics have an incentive to exploit this system by betting on falling prices (= short selling Kusama). Both of these practices must be stopped in order to build a future that is not based on exploitation and investor fraud, but on the creation of business models that are sustainable and fair.

It is often said that Kusama stands out for testing changes for Polkadot, but in this fundamental evolutionary step, Kusama has not yet been given its due responsibility. This proposal aims to change that: The total supply is to be limited to 21 million KSM. The inflation schedule offers an initial 55% cut to emissions, starting on October 31 (2025), with a softening curve to cap (15% every two years).

Polkadot's proposal 'Hard Pressure Capped & Stepped Supply Schedule' should serve as a model for restoring Kusama to its former glory, to a network that develops business models through innovation and development on its own, and can thus finance itself sustainably. And so the content of this motion should also be enshrined in JAM. (DOT proposal: https://polkadot.subsquare.io/referenda/1710)

Committing to long-term fiscal responsibility with a Capped & Stepped Supply implies:

cutting unnecessary expenses
subsidizing inflation with new sources of revenue.

Gavin Wood says he consulted renowned economists on this topic and always spoke out explicitly in favor of this model in his interviews, which is why I am convinced that Kusama will not only benefit from it, but will flourish. (Interview with Gavin: https://www.youtube.com/watch?v=RVEVb2SmcsI)

Let us remember that Polkadot has conducted research on this topic and that the unpleasant figures describing the current emergency cannot be dismissed. Clear action is needed, and it is needed now!

TLDR:
Total Supply: 21M KSM (21 000 000; like BTC).
Inflation Period: 2 Years.
Step: Initial Step = 55%, then 15% of remaining supply (21M minus Total Issuance) every two years.
First Step date: October 31st 2025 (Reformation Day).
Extra Request: Enshrine in JAM.

Response and explanation to questions from 'Attempt at Governance Kusama (AAG #269)'
(Video: https://www.youtube.com/live/MnFTnwOVJW8?si=Pfp0QjUwippUM41u)

First of all, I would like to thank you for presenting my proposal! In this regard, I would like to comment on the questions and concerns that have been raised. In my opinion, the most important question, which underlies the others, focused on the consequences for validators that would arise if the proposal were accepted, which is why I would now like to explain my view on this.

In a nutshell, the current Kusama system suffers from a mixture of (misplaced) incentives that tempt its participants to act against the interests of the system itself. What do I mean by that? The 10% inflation rate and the absence of a limited total supply mean that new participants stay away because the price is constantly falling due to inflation. (Supply and demand curve: https://www.britannica.com/money/supply-and-demand)

So while supply increases towards infinity, demand falls towards zero. After all, no one wants to lose their money. So many are selling their KSMs, and others are shorting them as well, which brings me to the validators. It is well known that validators finance themselves from their commission on staking rewards. So when the price falls, they earn less or have to sell more of their commission share.

What can they do about this? One option is to increase the minimum commission that everyone who stakes KSM must pay them. This happened recently, but it didn't help much because it is not a remedy for the problems caused by inflation and the lack of total supply; it merely prolongs the bleeding a little. (Proposal #533: https://kusama.subsquare.io/referenda/533)

While the 50% increase in the commission for validators at the time may have brought relief (no one knows for sure because they do not disclose their income and expenses transparently), it damaged the overall Kusama system because it became less attractive for ordinary people to participate and stake as it was less profitable.

Basically, there is a systematic incentive for participants and validators to play off each other, and this is precisely what needs to change. The price action, even if some people don't want to hear it, must not lead to disagreement, but rather unite. It is perfectly legitimate to want one's efforts, whether in the form of money or computing power, to be rewarded.

Both normal participants and validators have an interest in seeing positive price developments, because this means that validators earn more and normal participants also have more, as their investment increases. However, this requires three things:

a lower inflation rate (part of this proposal)
limited supply (part of this proposal)
specific business models and applications that generate revenue for the Kusama system and thus stimulate demand (not part of this proposal)

Since I can't conjure up business models out of thin air, I limit myself to what I can personally contribute, and that is to address the fundamental problem of perpetual inflation and unlimited supply, which is slowly but surely breaking Kusama's neck.

It's true that the timeline is tight, but it is possible, and since the developers at Polkadot are currently working on the same thing, it can certainly be coordinated with them. The same applies, by the way, to a solution that ensures the validators' income remains secure. Polkadot and Gavin have announced that they are working diligently on this.

Where there's a will, there's a way! And as a canary network, it is still up to Kusama to boldly lead the way, not the other way around. The most important thing, however, is that we stick together and don't let ourselves be played off against each other. Together we are considerably stronger than divided.

Edited

Up 1

Status

Decision14d

Confirmation

Attempts

Tally

35.3%Aye

64.7%Nay

Aye

≈172.26KKSM

Nay

≈315.23KKSM

0.0%
0.0%
Threshold
0.0%

Support

0.32%

≈52.86KKSM

Issuance

≈16.6MKSM

Votes

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Comments

EfWt...RF1U

Many thanks to all supporters of this proposal for your commitment so far! I really appreciate it! I will place the deposition deposit by the end of next week at the latest.

Up 1

EfWt...RF1U

Many thanks to all supporters of this proposal for your commitment so far! I really appreciate it!

I will place the deposition deposit by the end of next week at the latest so that proposal 599 has a sufficient lead.

Up 1

Fkbj...uNjN

Weak hands say NO. Smart, strong people vote YES

Fa6m...wiBr

Dear Proposer,

Thank you for your proposal. Our first vote on this proposal is NAY.

The Wish For Change track requires 60% quorum according to our voting policy v0.2, and any referendum in which the majority of members vote abstain receives an abstain vote. This proposal has received zero aye and two nay votes from eight available members, with two members abstaining. Below is a summary of our members' comments:

The voters conveyed their concerns about the proposal, emphasizing the need for a more extended discussion and clearer justifications before implementing such a fundamental change. One comment noted that while approval on Polkadot brought some reassurance, the proposed timeline—with an initial step scheduled for October 31, 2025—appeared unrealistic without strong support from leadership. Another viewpoint argued that the decision should have been made by the community as a whole. An abstention accompanied an expressed uncertainty regarding the potential impact of the change, reflecting an overall cautious stance toward the proposed capped and stepped supply schedule for Kusama.

The full discussion can be found in our internal voting.

Please feel free to contact us through the links below for further discussion.

Kind regards,
Permanence DAO
Decentralized Voices Cohort V Delegate

📅 Book Office Hours
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HcEb...jJ5F

The path of the inflation reduction should have been tested on Kusama first but due to the neglect that Kusama is suffering this is done in parallel and it's currently a good option.
However the main responsible for an abstention is the fact that this is an anonymous proposer backed by certain known parties who participate in Opengov through proxies (something already rewarded on Polkadot Opengov too) and ideas like fraud and exploitation are being advertised here.
"Both of these practices must be stopped in order to build a future that is not based on exploitation and investor fraud, but on the creation of business models that are sustainable and fair."

Disclaimer:
Our modeling includes more than 1000 non-linguistic parameters so these are only verbal observations also included in the vote calculations and they are not an extensive review of the full rationale behind this vote.

HcEb...jJ5F

Edited

Echj...R82r

NAY by principle:
For such a critical update, the minimum requirement is to have a proposer with a verified address.

NAY by insufficient arguments:
Our members voted AYE on the hard cap tokenomics on Polkadot side, but it doesn't mean the same exact solution should apply to Kusama.
Both ecosystems have waaayyyy different dynamics, so It may not be obvious to copy-paste it on Kusama without deep explanations on consequences. The ref itself should include way more precisions with diagrams and economic arguments.
A deeper discussion should be raised within the community.

Kusama is not Polkadot by design.

EvoL...oVus

First of all I applaud you for having the initiative of wanting to change an aspect of our network that clearly needs some revision, it's great to see token holders take matters into their own hands without waiting for things to be magically solved, also I respect your privacy and don't need to know who you are and see any identity verification, as long as the arguments make sense only the content of the proposal matters ;)

I'm not sure what the best inflation model for Kusama can be, I'm not an economist but even they can't predict the future to know for sure what will work and what not, we need to try something, I feel your frustration and the feeling that printing large amounts of money that have no other use case other than selling is not sustainable, the community already rejected the idea to put printed money into a protocol that slows down the sell pressure, proposing to start closing the money faucet like Polkadot is simple and could be the measure we are missing.

I'm glad to support this initiative, the community can always revise tokenomics later, specially when "light JAM" starts materializing a bit more. Kusama certainly is not Polkadot and what works there might not work in Kusama, but the main premise of the proposal makes sense and leveraging Polkadot's developments can be beneficial as no new development is needed, I'd be skeptical of the proposal if it required a complex new development that would require the Fellowship/Parity to step in. Let's try this out and adapt if necessary, we are an agile community that should exploit more its ability to move fast and correct course when needed.

Fvrb...FVGn

Why Referendum #596 is the wrong move for Kusama: A case for patience over imitation

Capping and stepping down KSM issuance will undermine Kusama's edge as a bold experimentation lab.

It's a huge strategic mistake, for the following quantitative and qualitative reasons:

The Bitcoin Clone Trap: Adopting a hard-capped, stepped supply schedule is basically a bet on Bitcoin's digital gold scarcity narrative. But this invites KSM (and DOT) holders to rotate into BTC instead, accelerating relative valuation erosion. Kusama thrives on differentiation - not convergence to a proven but rigid model that will turn it into a discounted BTC proxy. This approach hasn't worked for any other token, they all devalue relative to Bitcoin. This should give some pause for thought.
Game-Theory and Polkadot: If DOT's governance is already testing this inflation curb, why rush Kusama to follow suit? As the newly independent canary Kusama should preserve optionality to observe outcomes, not take on entirely unnecessary risk.

Evidence: Inflation tweaks in Polkadot haven't shifted the KSM/DOT market cap ratio - in fact Kusama has moved pretty much in sync the last 12 months at around 0.04:1 and has been on a consistent uptrend since the ratio bottomed in July.

Mkt Cap Ratio vs. Date last 12 months.png

Mkt Cap Ratio vs. Date total history.png

There is no upside from alignment; just shared downside exposure.

View the full Kusama/Polkadot ratio back to September 2020 sourced from Coingecko here. Don't trust, verify.

Action Bias in OpenGov: When "Doing Nothing" is the Innovation: There's a subtle misconception that progress demands constant tweaks, especially in a system like OpenGov that lowers barriers to change. History warns otherwise: Polkadot's $200M+ treasury spends since 2020 have zero impact on the the KSM:DOT ratio. Pulling levers here, with a tiny current turnout of currently 0.32%, feels like premature tinkering, especially when DOT is already absorbing the initial risk.
Toward a Productive Economy, Not Deflationary Games: If the goal is a thriving Kusama ecosystem, lean into inflationary designs backed by real output: on-chain assets, revenues, and DAOs. This positions Kusama as an experimental platform for actively improving the fiat system through productive money creation tied to expanding public services rather than aping BTC's zero-sum scarcity and the mirage of a return to a 'gold' backed currency.

For a grounded intro to how modern economies (like the UK's) actually mint money via accounting flows, not endless dilution, check Professor Steve Keen's breakdown: youtube.com/watch?v=zLzcSTjtCzA or read this post which makes broadly the same point.

It's a reminder:

The issue isn't inflation; it's unproductive inflation.

Pls Nay (or abstain) to preserve Kusama's pioneer spirit. Let's trust in imagination rather than make a decision rooted in fear of the unknown.

Edited

EqZG...DnCs

@EfWt...RF1U Thanks for your reply, but I see Kusama’s role a bit differently!

Kusama wasn’t created to comfort the choices made on Polkadot. It was born to challenge them, to move first, break early, and teach through chaos.

The canary doesn’t wait for instructions from the miners. It flies ahead, because that’s how you know the system is still alive.

Kusama is not a treasury project or a policy sandbox. It’s a living lab, a sovereign network where governance is an experiment, not a script.

That’s the point you seem to miss, Kusama wasn’t designed to follow stability, but to test its limits!

I’m not against rethinking our economy or supply, but not like this. Kusama deserves innovation, not imitation....

EqZG...DnCs

@EfWt...RF1U You’re mistaking hesitation for resistance!

Saying “no” to imitation isn’t falling behind, it’s protecting Kusama’s purpose. Flying ahead doesn’t mean following Polkadot’s flight path faster, it means daring where others won’t.

Kusama was never built for comfort or business. It was meant to stay volatile, experimental, alive.

In the end, it’s not about you or me, it’s about what the community decides Kusama should be. Let the network speak for itself ;)