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<ol class="chapter"><li class="chapter-item expanded affix "><a href="../introduction.html">Introduction</a></li><li class="spacer"></li><li class="chapter-item expanded affix "><li class="part-title">Newly Proposed</li><li class="chapter-item expanded "><a href="../new/0091-dht-record-creation-time.html">RFC-0091: DHT Authority discovery record creation time</a></li><li class="spacer"></li><li class="chapter-item expanded affix "><li class="part-title">Proposed</li><li class="chapter-item expanded "><a href="../proposed/0026-sassafras-consensus.html">RFC-0026: Sassafras Consensus Protocol</a></li><li class="chapter-item expanded "><a href="../proposed/0089-flexible-inflation.html" class="active">RFC-0089: Flexible Inflation</a></li><li class="spacer"></li><li class="chapter-item expanded affix "><li class="part-title">Approved</li><li class="chapter-item expanded "><a href="../approved/0001-agile-coretime.html">RFC-1: Agile Coretime</a></li><li class="chapter-item expanded "><a href="../approved/0005-coretime-interface.html">RFC-5: Coretime Interface</a></li><li class="chapter-item expanded "><a href="../approved/0007-system-collator-selection.html">RFC-0007: System Collator Selection</a></li><li class="chapter-item expanded "><a href="../approved/0008-parachain-bootnodes-dht.html">RFC-0008: Store parachain bootnodes in relay chain DHT</a></li><li class="chapter-item expanded "><a href="../approved/0010-burn-coretime-revenue.html">RFC-0010: Burn Coretime Revenue</a></li><li class="chapter-item expanded "><a href="../approved/0012-process-for-adding-new-collectives.html">RFC-0012: Process for Adding New System Collectives</a></li><li class="chapter-item expanded "><a href="../approved/0013-prepare-blockbuilder-and-core-runtime-apis-for-mbms.html">RFC-0013: Prepare Core runtime API for MBMs</a></li><li class="chapter-item expanded "><a href="../approved/0014-improve-locking-mechanism-for-parachains.html">RFC-0014: Improve locking mechanism for parachains</a></li><li class="chapter-item expanded "><a href="../approved/0022-adopt-encointer-runtime.html">RFC-0022: Adopt Encointer Runtime</a></li><li class="chapter-item expanded "><a href="../approved/0032-minimal-relay.html">RFC-0032: Minimal Relay</a></li><li class="chapter-item expanded "><a href="../approved/0042-extrinsics-state-version.html">RFC-0042: Add System version that replaces StateVersion on RuntimeVersion</a></li><li class="chapter-item expanded "><a href="../approved/0043-storage-proof-size-hostfunction.html">RFC-0043: Introduce storage_proof_size Host Function for Improved Parachain Block Utilization</a></li><li class="chapter-item expanded "><a href="../approved/0045-nft-deposits-asset-hub.html">RFC-0045: Lowering NFT Deposits on Asset Hub</a></li><li class="chapter-item expanded "><a href="../approved/0047-assignment-of-availability-chunks.html">RFC-0047: Assignment of availability chunks to validators</a></li><li class="chapter-item expanded "><a href="../approved/0048-session-keys-runtime-api.html">RFC-0048: Generate ownership proof for SessionKeys</a></li><li class="chapter-item expanded "><a href="../approved/0050-fellowship-salaries.html">RFC-0050: Fellowship Salaries</a></li><li class="chapter-item expanded "><a href="../approved/0056-one-transaction-per-notification.html">RFC-0056: Enforce only one transaction per notification</a></li><li class="chapter-item expanded "><a href="../approved/0059-nodes-capabilities-discovery.html">RFC-0059: Add a discovery mechanism for nodes based on their capabilities</a></li><li class="chapter-item expanded "><a href="../approved/0078-merkleized-metadata.html">RFC-0078: Merkleized Metadata</a></li><li class="chapter-item expanded "><a href="../approved/0084-general-transaction-extrinsic-format.html">RFC-0084: General transactions in extrinsic format</a></li><li class="spacer"></li><li class="chapter-item expanded affix "><li class="part-title">Stale</li><li class="chapter-item expanded "><a href="../stale/0004-remove-unnecessary-allocator-usage.html">RFC-0004: Remove the host-side runtime memory allocator</a></li><li class="chapter-item expanded "><a href="../stale/0006-dynamic-pricing-for-bulk-coretime-sales.html">RFC-0006: Dynamic Pricing for Bulk Coretime Sales</a></li><li class="chapter-item expanded "><a href="../stale/0009-improved-net-light-client-requests.html">RFC-0009: Improved light client requests networking protocol</a></li><li class="chapter-item expanded "><a href="../stale/0015-market-design-revisit.html">RFC-0015: Market Design Revisit</a></li><li class="chapter-item expanded "><a href="../stale/0020-treasurer-track-confirmation-period-duration-modification.html">RFC-0020: Treasurer Track Confirmation Period Duration Modification</a></li><li class="chapter-item expanded "><a href="../stale/0034-xcm-absolute-location-account-derivation.html">RFC-34: XCM Absolute Location Account Derivation</a></li><li class="chapter-item expanded "><a href="../stale/0035-conviction-voting-delegation-modifications.html"> RFC-0035: Conviction Voting Delegation Modifications</a></li><li class="chapter-item expanded "><a href="../stale/0044-rent-based-registration.html">RFC-0044: Rent based registration model</a></li><li class="chapter-item expanded "><a href="../stale/0054-remove-heap-pages.html">RFC-0054: Remove the concept of "heap pages" from the client</a></li><li class="chapter-item expanded "><a href="../stale/0070-x-track-kusamanetwork.html">RFC-0070: X Track for @kusamanetwork</a></li><li class="chapter-item expanded "><a href="../stale/0073-referedum-deposit-track.html">RFC-0073: Decision Deposit Referendum Track</a></li><li class="chapter-item expanded "><a href="../stale/0074-stateful-multisig-pallet.html">RFC-0074: Stateful Multisig Pallet</a></li><li class="chapter-item expanded "><a href="../stale/0077-increase-max-length-of-identity-pgp-fingerprint-value.html">RFC-0077: Increase maximum length of identity PGP fingerprint values from 20 bytes</a></li><li class="chapter-item expanded "><a href="../stale/0088-broker-pallet-slashable-deposit-purchaser-reputation-reserved-cores.html">RFC-0088: Add slashable locked deposit, purchaser reputation, and reserved cores for on-chain identities to broker pallet</a></li></ol>
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<p><a href="https://github.com/polkadot-fellows/RFCs/pull/89">(source)</a></p>
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<p><strong>Table of Contents</strong></p>
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<ul>
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<li><a href="#rfc-0089-flexible-inflation">RFC-0089: Flexible Inflation</a>
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<ul>
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<li><a href="#summary">Summary</a></li>
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<li><a href="#motivation">Motivation</a></li>
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<li><a href="#stakeholders">Stakeholders</a></li>
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<li><a href="#explanation">Explanation</a>
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<ul>
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<li><a href="#existing-order">Existing Order</a></li>
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<li><a href="#new-order">New Order</a></li>
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<li><a href="#proposed-implementation">Proposed Implementation</a></li>
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</ul>
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</li>
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<li><a href="#drawbacks">Drawbacks</a></li>
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<li><a href="#testing-security-and-privacy">Testing, Security, and Privacy</a></li>
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<li><a href="#performance-ergonomics-and-compatibility">Performance, Ergonomics, and Compatibility</a></li>
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<li><a href="#prior-art-and-references">Prior Art and References</a></li>
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<li><a href="#unresolved-questions">Unresolved Questions</a></li>
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<li><a href="#future-directions-and-related-material">Future Directions and Related Material</a></li>
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</ul>
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</li>
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</ul>
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<h1 id="rfc-0089-flexible-inflation"><a class="header" href="#rfc-0089-flexible-inflation">RFC-0089: Flexible Inflation</a></h1>
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<div class="table-wrapper"><table><thead><tr><th></th><th></th></tr></thead><tbody>
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<tr><td><strong>Start Date</strong></td><td>May 6 2024</td></tr>
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<tr><td><strong>Description</strong></td><td>Revise the inflation logic in the runtime such that it can be parameterized and tweaked in an easier and more transparent way.</td></tr>
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<tr><td><strong>Authors</strong></td><td>Kian Paimani</td></tr>
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</tbody></table>
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</div>
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<h2 id="summary"><a class="header" href="#summary">Summary</a></h2>
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<p>This RFC proposes a new <code>pallet_inflation</code> to be added to the Polkadot runtime, which improves
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inflation machinery of the Polkadot relay chain in a number of ways:</p>
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<ol>
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<li>More transparent and easier to understand inflation logic</li>
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<li>Easier parameterization through governance</li>
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<li>Decoupled from the staking logic, should inflation and staking happen in two disjoint consensus
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systems, as proposed
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<a href="https://polkadot-fellows.github.io/RFCs/approved/0032-minimal-relay.html">RFC32</a>.</li>
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</ol>
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<h2 id="motivation"><a class="header" href="#motivation">Motivation</a></h2>
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<p>The existing inflation logic in the relay chain suffers from a number of drawbacks:</p>
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<ul>
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<li>It is dated, as the number of parachain slots (and consequently auctions) will soon no longer be a
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factor in determining the inflation rate.</li>
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<li>Is hard to parameterize through on-chain governance, as the only way to tweak the inflation amount
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is through changing a particular function directly in the source code (<a href="https://github.com/polkadot-fellows/runtimes/blob/cc3beb8b2337a65e879e1d739c33e30230888267/relay/polkadot/src/lib.rs#L743-L769">example in Polkadot
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runtime</a>).</li>
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<li>Is deeply intertwined with the staking system, which is not an ideal design. For example, if one
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wishes to know the inflation amount, an <a href="https://polkadot.subscan.io/event?page=1&time_dimension=date&module=staking&event_id=erapaid"><code>Event</code> from the staking
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system</a>
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has to be interpreted, which is counter-intuitive.</li>
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<li>Given all of this complexity, implementing an alteration which suggested a fixed percentage of the
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inflation to go to the treasury was also <a href="https://github.com/paritytech/polkadot-sdk/pull/1660">not possible in an ergonomic
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way</a>.</li>
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</ul>
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<p>This RFC, as iterated above, proposes a new <code>pallet_inflation</code> that addresses all of the named
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problems. However, <strong>this RFC does not propose any changes to the actual inflation rate</strong>, but
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rather provide a new technical substrate (pun intended), upon which token holders can decide on the
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future of the DOT token's inflation in a more clear and transparent way.</p>
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<p>We argue that one reason why the inflation rate of Polkadot has not significantly change in ~4 years
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has been the complicated process of updating it. We hope that with the tools provided in this RFC,
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stakeholders can experiment with the inflation rate in a more ergonomic way. Finally, this
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experimentation can be considered useful as a final step toward fixing the economics of DOT in JAM,
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as proposed in the JAM graypaper.</p>
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<p>Within the scope of this RFC, we suggest deploying the new inflation pallet in a backwards
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compatible way, such that the inflation model does not change in practice, and leave the actual
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changes to the token holders and researchers and further governance proposals.</p>
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<blockquote>
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<p>While mainly intended for Polkadot, the system proposed in this RFC is general enough such that it
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can be interpreted as a "general inflation system pallet", and can be used in newly onboarding
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parachain.</p>
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</blockquote>
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<h2 id="stakeholders"><a class="header" href="#stakeholders">Stakeholders</a></h2>
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<p>This RFC is relevant to the following stakeholders, listed from high to low impact:</p>
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<ul>
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<li>All token holders who participate in governance, as they can possibly now propose (some degree of)
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changes to the inflation model without any coding required. Depending on the parameters, these
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changes may or may not require a particular governance track.</li>
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<li>Validators and all other stakers, as the staking rate of the chain might possibly change through
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the means that this pallet provides.</li>
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<li>All other token holders.</li>
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</ul>
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<h2 id="explanation"><a class="header" href="#explanation">Explanation</a></h2>
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<h3 id="existing-order"><a class="header" href="#existing-order">Existing Order</a></h3>
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<p>First, let's further elaborate on the existing order. The current inflation logic is deeply nested
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in <code>pallet_staking</code>, and <code>pallet_staking::Config::EraPayout</code> interface. Through this trait, the
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staking pallet is informed how many new tokens should possibly be minted. This amount is divided
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into two parts:</p>
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<ul>
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<li>an amount allocated to staking. This amount is not minted right away, and is instead minted when
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the staking rewards are paid out.</li>
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<li>an amount allocated to <code>pallet_staking::Config::RewardRemainder</code>, which is configured to forward
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the amount to the treasury.</li>
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</ul>
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<p>As it stands now the implementation of <code>EraPayout</code> which specifies the two amounts above lives in
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the respective runtime, and uses the original proposed inflation rate proposed by W3F for Polkadot.
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Read more about this model <a href="https://wiki.polkadot.network/docs/learn-inflation">here</a>.</p>
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<p>At present, the inflation always happens at the end of an <em>era</em>, which is a concept know by the
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staking system. The duration of an era is recorded in <code>pallet_staking</code> as milliseconds (as recorded
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by the standard <code>pallet_timestamp</code>), is passed to <code>EraPayout</code> as an input, as is measured against
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the full year to determine how much should be inflated.</p>
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<h3 id="new-order"><a class="header" href="#new-order">New Order</a></h3>
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<blockquote>
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<p>The naming used in this section is tentative, based on a WIP implementation, and subject to change
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before finalization of this RFC.</p>
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</blockquote>
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<p>The new order splits the process for inflation into two steps:</p>
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<ol>
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<li><strong>Sourcing</strong> the inflation amount: This step merely specifies by how much the chain intends to
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inflate its token. This amount is not minted right away, and is instead passed over to the next
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step for <em>distribution</em>.</li>
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<li><strong>Distributing</strong> the aforementioned amount: A sequence of functions that decide what needs to be
|
|
done with the sourced inflation amount. This process is expected to <em>transfer</em> the inflation
|
|
amount to any account that should receive it. This implies that the staking system should,
|
|
similar to treasury, have a key-less account that will act as a temporary pot for the inflation
|
|
amount.</li>
|
|
</ol>
|
|
<p>In very abstract terms, an example of the above process can be:</p>
|
|
<ul>
|
|
<li>The chain inflates its token by a fixed 10% per year, an amount called <code>i</code>.</li>
|
|
<li>Pay out 20% of <code>i</code> to the treasury account.</li>
|
|
<li>Pay out 10% of what is left of <code>i</code> to the fellowship account.</li>
|
|
<li>Pay out up to 70% of what is left of <code>i</code> to staking, depending on the staking rate.</li>
|
|
<li>Burn anything that is left.</li>
|
|
</ul>
|
|
<p>A proper configuration of this pallet should use <code>pallet_parameters</code> where possible to allow for any
|
|
of the actual values used to specify <code>Sourcing</code> and <code>Distribution</code> to be changed via on-chain
|
|
governance. Please see the <a href="#example-configurations">example configurations</a> section for more
|
|
details.</p>
|
|
<p>In the new model, inflation can happen at any point in time. Since now a new pallet is dedicated to
|
|
inflation, and it can internally store the timestamp of the last inflation point, and always inflate
|
|
the correct amount. This means that while the duration of a staking era is 1 day, the inflation
|
|
process can happen eg. every hour. The opposite is also possible, although more complicated: The
|
|
staking/treasury system can possibly receive their corresponding income on a weekly basis, while the
|
|
era duration is still 1 day. That being said, we don't recommend using this flexibility as it brings
|
|
no clear advantage, and is only extra complexity. We recommend the inflation to still happen shortly
|
|
before the end of the staking era. This means that if the inflation <code>sourcing</code> or <code>distribution</code> is
|
|
a function of the staking rate, it can reliably use the staking rate of the last era.</p>
|
|
<p>Finally, as noted above, this RFC implies a new accounting system for staking to keep track of its
|
|
staking reward. In short, the new process is as follows: <code>pallet_inflation</code> will mint the staking
|
|
portion of inflation directly into a key-less account controlled by <code>pallet_staking</code>. At the end of
|
|
each era, <code>pallet_staking</code> will inspect this account, and move whatever amount is paid out into it
|
|
to another key-less account associated with the era number. The actual payouts, initiated by stakers,
|
|
will transfer from this era account into the corresponding stakers' account.</p>
|
|
<blockquote>
|
|
<p>Interestingly, this means that any account can possibly contribute to staking rewards by
|
|
transferring DOTs to the key-less parent account controlled by the staking system.</p>
|
|
</blockquote>
|
|
<h3 id="proposed-implementation"><a class="header" href="#proposed-implementation">Proposed Implementation</a></h3>
|
|
<p>A candidate implementation of this RFC can be found in
|
|
<a href="https://github.com/paritytech/polkadot-sdk/compare/kiz-new-staking-inflation-system?expand=1">this</a>
|
|
branch of the <code>polkadot-sdk</code> repository. Please note the changes to:</p>
|
|
<ol>
|
|
<li><code>substrate/frame/inflation</code> to see the new pallet.</li>
|
|
<li><code>substrate/frame/staking</code> to see the integration with the staking pallet.</li>
|
|
<li><code>substrate/bin/runtime</code> to see how the pallet can be configured into a runtime.</li>
|
|
</ol>
|
|
<h4 id="example-configurations"><a class="header" href="#example-configurations">Example Configurations</a></h4>
|
|
<p>The following are working examples from the above implementation candidate, highlighting some of the
|
|
outcomes that can be achieved.</p>
|
|
<p>First, to parameterize the existing proposed implementation to replicate what Polkadot does today,
|
|
assuming we incorporate the fixed 2% treasury income, the outcome would be:</p>
|
|
<pre><pre class="playground"><code class="language-rust"><span class="boring">#![allow(unused)]
|
|
</span><span class="boring">fn main() {
|
|
</span>parameter_types! {
|
|
pub Distribution: Vec<pallet_inflation::DistributionStep<Runtime>> = vec![
|
|
// 2% goes to treasury, no questions asked.
|
|
Box::new(pay::<Runtime, TreasuryAccount, dynamic_params::staking::FixedTreasuryIncome>),
|
|
// from whatever is left, staking gets all the rest, based on the staking rate.
|
|
Box::new(polkadot_staking_income::<
|
|
Runtime,
|
|
dynamic_params::staking::IdealStakingRate,
|
|
dynamic_params::staking::Falloff,
|
|
StakingIncomeAccount
|
|
>),
|
|
// Burn anything that is left.
|
|
Box::new(burn::<Runtime, All>),
|
|
];
|
|
}
|
|
|
|
impl pallet_inflation::Config for Runtime {
|
|
/// Fixed 10% annual inflation.
|
|
type InflationSource =
|
|
pallet_inflation::FixedRatioAnnualInflation<Runtime, dynamic_params::staking::MaxInflation>;
|
|
type Distribution = Distribution;
|
|
}
|
|
<span class="boring">}</span></code></pre></pre>
|
|
<p>In this snippet, we use a number of components provided by <code>pallet_inflation</code>, namely <code>pay</code>,
|
|
<code>polkadot_staking_income</code>, <code>burn</code> and <code>FixedRatioAnnualInflation</code>. Yet, crucially, these components
|
|
are fed parameters that are all backed by an instance of the <code>pallet_parameters</code>, namely everything
|
|
prefixed by <code>dynamic_params</code>.</p>
|
|
<p>The above is a purely inflationary system. If one wants to change the inflation to
|
|
<em>dis-inflationary</em>, another pre-made component of <code>pallet_inflation</code> can be used:</p>
|
|
<pre><code class="language-diff">impl pallet_inflation::Config for Runtime {
|
|
- /// Fixed 10% annual inflation.
|
|
- type InflationSource =
|
|
- pallet_inflation::FixedRatioAnnualInflation<Runtime, dynamic_params::staking::MaxInflation>;
|
|
+ type InflationSource = pallet_inflation::FixedAnnualInflation<
|
|
+ Runtime,
|
|
+ dynamic_params::staking::FixedAnnualInflationAmount,
|
|
+ >;
|
|
}
|
|
</code></pre>
|
|
<p>Whereby <code>FixedAnnualInflationAmount</code> is the <em>fixed</em> absolute <em>value</em> (as opposed to <em>ratio</em>) by
|
|
which the chain inflates annually, for example 100m DOTs.</p>
|
|
<h2 id="drawbacks"><a class="header" href="#drawbacks">Drawbacks</a></h2>
|
|
<p>The following drawbacks are noted:</p>
|
|
<ol>
|
|
<li>The solution provided here is possibly an over-engineering, if we want to achieve the goal of
|
|
making the existing formula parameterize-able. In that case, we can merely add an instance of the
|
|
<code>pallet_parameters</code> to the runtime and make the existing formula's ratios be provided by
|
|
governance-controlled parameters. Although, this shortsighted but simpler solution fails to
|
|
decouple the staking and inflation logic. This will be an issue depending on whether staking
|
|
lives in AssetHub, or its independent parachain.</li>
|
|
<li>Some of the interfaces proposed in the draft implementation still leak the implementation detail
|
|
of the inflation amount being reliant on eg. the staking-rate. We acknowledge this as a drawback,
|
|
but given that many PoS inflationary systems rely on the staking rate, we believe it is a
|
|
reasonable compromise. Such parameters can be ignored if the implementation does not need them.</li>
|
|
</ol>
|
|
<h2 id="testing-security-and-privacy"><a class="header" href="#testing-security-and-privacy">Testing, Security, and Privacy</a></h2>
|
|
<p>The new <code>pallet_inflation</code>, among its integration into <code>pallet_staking</code> must be thoroughly audited
|
|
and reviewed by fellows. We also emphasize on simulating the actual inflation logic using the real
|
|
polkadot state with Chopsticks and try-runtime.</p>
|
|
<h2 id="performance-ergonomics-and-compatibility"><a class="header" href="#performance-ergonomics-and-compatibility">Performance, Ergonomics, and Compatibility</a></h2>
|
|
<p>The proposed system in this RFC implies a handful of extra storage reads and writes "per inflation
|
|
cycle", but given that a reasonable instance of this pallet would probably decide to inflation eg.
|
|
once per day, the performance impact is negligible.</p>
|
|
<p>The <a href="#drawbacks">drawback</a> section above noted some ergonomic concerns.</p>
|
|
<p>The <a href="#new-order">"New Order"</a> section above notes the compatibility notes with the existing staking
|
|
and inflation system.</p>
|
|
<h2 id="prior-art-and-references"><a class="header" href="#prior-art-and-references">Prior Art and References</a></h2>
|
|
<ul>
|
|
<li>Previous updates to the inflation system:</li>
|
|
<li><a href="https://paritytech.github.io/polkadot-sdk/master/pallet_parameters/index.html"><code>pallet_parameters</code></a></li>
|
|
<li>https://forum.polkadot.network/t/adjusting-the-current-inflation-model-to-sustain-treasury-inflow/3301</li>
|
|
</ul>
|
|
<h2 id="unresolved-questions"><a class="header" href="#unresolved-questions">Unresolved Questions</a></h2>
|
|
<ul>
|
|
<li>Whether the design proposed in this RFC is worthy of the complexity implementing and integrating
|
|
it? Note that a draft implementation already exists, yet the amount of further work needed to
|
|
integrate it is non-negligible.</li>
|
|
<li>Given that this pallet is general enough to also be used by parachain, the usage of timestamp
|
|
poses risks with regard to agile-coretime, and parachains that only use on-demand cores. Accurate
|
|
timestamps must be provided to the pallet in order to function, possibly being sourced from the
|
|
relay-chain. @ggwpez has explored issues related to on-demand core-time and time-based systems
|
|
<a href="https://github.com/paritytech/polkadot-sdk/issues/3268">here</a>.</li>
|
|
</ul>
|
|
<h2 id="future-directions-and-related-material"><a class="header" href="#future-directions-and-related-material">Future Directions and Related Material</a></h2>
|
|
<ul>
|
|
<li>If initial reaction is positive researchers and economic experts should formulate their desired
|
|
inflation parameters and systems, such that we can be sure the pallet is flexible enough in
|
|
possibly fulfilling them without an extensive amount of work needed. Given the high flexibility of
|
|
the pallet design as it stands, this is very unlikely.</li>
|
|
</ul>
|
|
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