coreum

Prop 37: Increase Security Inflation to 10%

Summary

This proposal increases the staking module inflation to provide meaningful compensation to validators. The current "low inflation" policy is marketed as fiscal discipline, but it is irrelevant next to PSE, which adds 14% of total supply per year, making staking inflation negligible in terms of supply impact. Increasing it to 10% would bring validator compensation closer to sustainable levels.

Why Validators Matter

The TX Vision Paper (v1.10, February 2026) describes validators as playing a "critical role in maintaining the integrity and scalability of the protocol" (Section 6.1). It also states that staking and validator rewards should be "a sustainable incentive for securing and decentralizing the network" (Section 6.2). One of the stated goals of PSE is to "ensure ongoing secure operation of the network" (Section 6.2), yet validators who actually secure the network receive 0% of PSE distributions.

Validators produce blocks, validate transactions, vote on governance, and coordinate upgrades. Without them there is no chain and no PSE distributions. Beyond infrastructure, many validators also build tooling, run relayers, develop dApps, and contribute to ecosystem growth. Validators that cannot cover their costs will eventually shut down, which means fewer nodes securing the network and fewer teams building on it. The active set is already not full: 61 out of 64 max validator slots are filled. Current rewards are not enough to attract new validators, and continued underpayment risks losing existing ones.

Current Validator Income

The staking module currently mints 94 million TX per year at 0.092% inflation. With 61 active validators averaging 8.1% commission:

  • Total validator commission: 7.6M TX/year
  • Per validator: about 125,000 TX/year, about 10,400 TX/month
  • More than 75% of validators earn less than $64 per month

PSE Supply Expansion

PSE distributes 1.19 billion TX every month. That is 14.3 billion TX per year, 14% of total supply. 152 times larger than staking inflation.

  • Community (stakers): 476M/month, 5.71B/year (40%)
  • Foundation: 357M/month, 4.29B/year (30%)
  • Alliance: 238M/month, 2.86B/year (20%)
  • Investors: 60M/month, 714M/year (5%)
  • Partnership: 36M/month, 429M/year (3%)
  • Team: 24M/month, 286M/year (2%)
  • Total: 1.19B/month, 14.29B/year

60% of PSE, 714 million TX per month, goes to non-community allocations (Foundation, Alliance, Investors, Partnership, Team).

Validators receive 0% of PSE. The community's 40% goes to delegators based on a staking score, not to validators.

Staking Inflation in Context

Proposal 30 (passed March 1, 2026, implemented via v6.1.0 upgrade) reduced inflation parameters:

  • inflation_max: 20.0% -> 2.0%
  • inflation_rate_change: 13.0% -> 0.5%
  • inflation_min: 0.0% -> 0.0%
  • Effective inflation: 10% (at launch) -> 0.092% (current)

The actual supply numbers:

  • Staking inflation: 94M TX/year (0.09% of supply)
  • PSE: 14.3B TX/year (14% of supply)
  • PSE accounts for 99.3% of supply growth, staking inflation for 0.7%

Reducing staking inflation to near-zero had minimal impact on total supply growth but significantly reduced validator income. Staking inflation at 10% would still be smaller than PSE emissions.

Proposed Parameter Changes

Message type: /cosmos.mint.v1beta1.MsgUpdateParams

  • inflation_max: 2.0% -> 10.0%
  • inflation_rate_change: 0.5% -> 50.0%
  • inflation_min: 0.0% -> 0.0% (unchanged)

inflation_rate_change must be increased. At 0.5%/year, changing inflation_max alone has no practical effect. It would take 20 years for the rate to reach the new maximum.

Expected Impact

  • Current inflation: 94M TX/year (0.09% of supply)
  • Proposed inflation: 10.2B TX/year (10% of supply)
  • PSE (for reference): 14.3B TX/year (14% of supply)

Even at 10%, staking inflation is still smaller than what PSE already distributes every year.

The average validator commission is about 10,400 TX/month (about $129), but inflation rewards are proportional to voting power. The median validator (#31, 0.66% VP, 5% commission) earns about 2,602 TX per month, or $32 at current TX price of $0.01237.

A note on community PSE auto-staking

Community PSE (40%) is automatically delegated to validators on behalf of stakers. This increases the bonded pool over time but does not increase total validator income. Inflation minting is a percentage of total supply, not bonded tokens. The total commission pool (commission_rate * total_minted) stays the same regardless of how much is staked. Auto-staking only spreads the same pool across more tokens.

A Foundation Delegation Program has been discussed for years. If and when it materializes, it would increase individual validator delegations, but the total commission pool remains fixed under current inflation. Neither auto-staking nor the delegation program solves the validator income problem without higher inflation.

The proposed delegation program would also distribute delegations proportionally to existing voting power. For example, in a delegation program sharing 1 billion TX without excluding any validators, 170M would go to the top validator with 17% voting power, and only 3.3M to the validator ranked at number 50 with 0.33% voting power. This does nothing to close the gap between large and small validators and further concentrates voting power at the top.

There is also no guarantee that community PSE recipients will keep their tokens staked. Recipients can unstake and sell at any time, which would reduce the bonded pool and weaken network security. Validator income from inflation should not depend on the assumption that PSE recipients remain staked.

Future adjustment

These parameters can be adjusted back down by governance at any time. If the bonded pool grows substantially and the community decides validators are adequately compensated, a future proposal can reduce inflation_max and inflation_rate_change accordingly.

Supply-Neutral Offset (not part of this proposal)

This proposal only changes mint module inflation parameters. No PSE changes are included.

However, the inflation increase could be offset by a separate MsgUpdateDistributionSchedule proposal to adjust the non-community PSE allocations. The 60% going to non-community allocations totals 8.57B TX per year, which could absorb the majority of the additional inflation. The community's 40% staker distribution would stay untouched.

The PSE Foundation allocation (30%) receives 357M TX per month, or 4.29B TX per year. According to the TX MiCA White Paper (v1.10, Section D.9), this includes "foundation reserves for grants and development", and the supply is used to support "ecosystem development grants" (Section D.10). An earlier version of the whitepaper listed the Foundation Reserve (30%) purpose as "Network and ecosystem grants", which was removed from the current Vision Paper. In practice, since the merge, ecosystem grants have been funded from the community pool instead:

Proposal #31: Cruise Control (passed March 3, 2026)

  • Message type: /cosmos.distribution.v1beta1.MsgCommunityPoolSpend
  • Amount: 3,000,000 TX ($120K at $0.04)
  • Recipient: core1he45sc3arcxtzztlq9733g26acej2ltat5f2jj

Proposal #35: Bidds Lendore (passed March 14, 2026)

  • Message type: /cosmos.distribution.v1beta1.MsgCommunityPoolSpend
  • Amount: 4,750,000 TX ($95K at $0.02)
  • Recipient: core14g8v6h6pwu46kyvsljlgx0rqka57thm9a2c8su

These two proposals allocated 7,750,000 TX from the community pool, about 41% of its balance at the time (~18.8M TX). Both passed with community support, and the founder publicly endorsed at least one of them. Builder teams cited the existing grant program as non-functional, which was part of their reasoning for applying to the community pool directly.

The Foundation allocation alone receives 357M TX per month, which is 46x the total amount both grants requested, every single month. If ecosystem funding is coming from the community pool instead, then the Foundation allocation may not be fully utilized for its stated purpose. Redirecting a portion of non-community PSE allocations toward validator inflation would keep total supply growth the same while ensuring the network's security infrastructure is properly funded.

This is outlined here as a possible path for a follow-up proposal. If submitted and passed, total supply growth would remain identical, with the only change being who receives the tokens.

What This Proposal Does NOT Change

  • PSE community distributions (40% to stakers)
  • PSE distribution timeline (84 months)
  • Governance mechanics
  • Validator commission structure

Conclusion

PSE expands supply at 14% per year. Staking inflation at 0.09% adds less than 1% of what PSE adds, making it negligible in terms of supply impact. Increasing validator compensation through inflation does not meaningfully change supply dynamics but does ensure the network remains properly secured.

This proposal sets inflation parameters that reflect the actual economics of the network. A follow-up PSE schedule adjustment could further offset the supply impact to zero.