SCCP-294: Pause Decrease in SNX Base Inflation

Simple Summary

This SCCP proposes pausing the ongoing decay in the baseInflation of the SNX token until further notice.

Abstract

Throughout late 2021 and 2022, various SIPs and SCCPs were implemented with the intention of optimizing the protocol staking ratio by increasing/decreasing inflation and then incrementally reducing that inflation rate when the target ratio was met (SIP-202, SCCP-208 and SCCP-211). Currently, the staking ratio has achieved relative stability across both Ethereum and Optimism at around 70% This is a level that, in combination with wrappers, is providing an acceptable debt pool size and maitaining SNX token liquidity on DEX and CEX markets. With the target staking ratio now achieved an maintained, inflation decay has been gradually winding down emissions for a prolonged period. The intention of this SCCP is to maintain stability during the migration to V3 by halting the decay function and holding emissions at their current level for as long as the staking ration remains within an acceptable 'buffer'.

Proposed settings:

• Target Staking Ratio: 70%
• Buffer: 12%
• Positive adjustment: 10%
• Negative adjustment: 10%
• Decay rate: 0%

The inflation rate will thus be monitored with the following responses to staking ratio changes occuring:

1. If staking ratio is >82% => lower inflation by 10%
2. If staking ratio is between 58% and 82% => no change
3. If staking ratio is <58% => increase inflation by 10%

Motivation

Halting inflation (assuming no drastic change in the staking ratio occurs) and inflation decay at current levels will provide greater consistency in protocol rewards as we move to begin migration to Synthetix V3. While the decay function has worked as intended in optimizing SNX emissions and liquidity provision, maintaining it on an ongoing basis adds a degree of complexity and incosistency to SNX inflations. Furthermore, doing so also risks rendering the protocol less attractive to new and old stakers as we prepare to scale within a competitive market. This SCCP maintains the ability to respond to strong movement in the staking ratio that pushes it outside of a generous buffer, yet halts any reduction applied through "success" in achieving stability.

Copyright

Copyright and related rights waived via CC0.