The minting mechanism was designed to:
- allow for a flexible inflation rate determined by market demand targeting a particular bonded-stake ratio
- effect a balance between market liquidity and staked supply
In order to best determine the appropriate market rate for inflation rewards, a moving change rate is used. The moving change rate mechanism ensures that if the % bonded is either over or under the goal %-bonded, the inflation rate will adjust to further incentivize or disincentivize being bonded, respectively. Setting the goal %-bonded at less than 100% encourages the network to maintain some non-staked tokens which should help provide some liquidity.
It can be broken down in the following way:
- If the inflation rate is below the goal %-bonded the inflation rate will increase until a maximum value is reached
- If the goal % bonded (67% in BitSong) is maintained, then the inflation rate will stay constant
- If the inflation rate is above the goal %-bonded the inflation rate will decrease until a minimum value is reached