CIP to reduce issuance

[cmwaters]

Proposes changes to the protocol that would halve issuance from 5% in v4 to 2.5% in v5 and double minimum commission from 5% to 10%

For editors

• assign CIP number, rename file
• add to README.md - to include on homepage
• add to SUMMARY.md - to render on site

[gemini-code-assist]

Summary of Changes

Hello @cmwaters, I'm Gemini Code Assist¹! I'm currently reviewing this pull request and will post my feedback shortly. In the meantime, here's a summary to help you and other reviewers quickly get up to speed!

This pull request introduces a new Celestia Improvement Proposal (CIP) aimed at significantly adjusting the network's economic parameters. The core objective is to reduce the overall issuance of TIA tokens by halving the inflation rate, while simultaneously increasing the minimum commission for validators. These changes are designed to enhance TIA's suitability for financial applications by lowering the opportunity cost of holding the token, ensuring validator sustainability, and maintaining the network's long-term disinflationary trajectory.

Highlights

• Inflation Rate Reduction: The proposal halves the Celestia network's inflation rate from 5% to 2.5%, effective in the upcoming v5 major upgrade. This aims to make TIA more suitable for financial applications by reducing the opportunity cost of using it as collateral or in DeFi protocols.
• Minimum Validator Commission Increase: The minimum commission rate for validators is proposed to double from 5% to 10%. This change is intended to balance the reduced overall issuance and ensure validators remain adequately compensated for their services, maintaining their revenue at current levels.
• Economic Impact Analysis: The CIP includes detailed tables analyzing the impact of these proposed changes on Total Staking APR, Delegator APR, and Validator APR across various bonding ratios, providing a clear picture of the expected yield shifts.
• Security Considerations: The proposal addresses potential security implications, specifically concerning validator incentives and the possible impact of lower staking yields on the network's bonded ratio, which could affect network security if it falls below safe thresholds.

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[gemini-code-assist]

Code Review

This pull request introduces a Celestia Improvement Proposal (CIP) to reduce the network's inflation rate and increase the minimum validator commission. The proposal is well-structured and provides a clear rationale and analysis of the impacts. My review focuses on improving the clarity, correctness, and completeness of the proposal document. Key suggestions include clarifying the timeline in the inflation schedule, fixing typos, and adding important details to the specification regarding validator commission adjustments.

[rootulp]

[optional] CIP-29 has this table:

CIPs/cips/cip-029.md

Lines 45 to 66 in ab63f71

	| Year | Original Inflation | New Adjusted Inflation | Notes |
	| -------: | -----------------: | ---------------------: | :--------------------------------------------------------------------------------------------------------------------------------- |
	| **0** | 8.00 | 8.00 | Genesis year, no change. |
	| **1** | 7.20 | 7.20 | |
	| **1.75** | 7.20 | 5.00088 | Reduce year 0 inflation by 33% and additionally apply 6.7% disinflation, lowering the inflation rate to 5.00088% |
	| **2** | 6.48 | 4.66582 | Regular annual disinflation applied (6.7%). |
	| **3** | 5.83 | 4.35321 | Regular annual disinflation applied (6.7%). |
	| **4** | 5.25 | 4.06155 | Regular annual disinflation applied (6.7%). |
	| **5** | 4.72 | 3.78942 | Regular annual disinflation applied (6.7%). |
	| **6** | 4.25 | 3.53553 | Regular annual disinflation applied (6.7%). |
	| **7** | 3.83 | 3.29865 | Regular annual disinflation applied (6.7%). |
	| **8** | 3.44 | 3.07764 | Regular annual disinflation applied (6.7%). |
	| **9** | 3.10 | 2.87144 | Regular annual disinflation applied (6.7%). |
	| **10** | 2.79 | 2.67905 | Regular annual disinflation applied (6.7%). |
	| **11** | 2.51 | 2.49956 | Regular annual disinflation applied (6.7%). |
	| **12** | 2.26 | 2.33209 | Regular annual disinflation applied (6.7%). |
	| **13** | 2.03 | 2.17584 | Regular annual disinflation applied (6.7%). |
	| **14** | 1.83 | 2.03005 | Regular annual disinflation applied (6.7%). |
	| **15** | 1.65 | 1.89404 | Regular annual disinflation applied (6.7%). |
	| **16** | 1.50 | 1.76714 | Regular annual disinflation applied (6.7%). |
	| **17** | 1.50 | 1.64874 | Regular annual disinflation applied (6.7%). |
	| **18** | 1.50 | 1.53828 | Regular annual disinflation applied (6.7%). |

1. Can the table in this PR expand to 18 or 20 years?
2. [optional] is it worth expanding the decimal places so that the current inflation in this table matches the proposed inflation from the previous table?

[jcstein]

I think it should extend, too. 20 seems safe.

[jcstein]

I think extending decimals also makes sense

[cmwaters]

But nothing else happens after year 9. There's no new information to convey when target inflation is reached

[jcstein]

oh, true..good on that front. wdyt about decimals?

[rootulp]

Oh wow, good point. Reducing the initial inflation by 50% means it takes like ~10 fewer years to reach the target inflation of 1.5%

[jcstein]

LGTM, aside from open comment on tables

[NRDLabs]

Is this CIP meant to finish off the remaining validators?
Perhaps you should first calculate the actual infrastructure costs, salaries, and operational expenses. Even under current conditions, many validators are barely breaking even. After this so-called “improvement,” running a validator would become outright unprofitable.

[NRDLabs]

Currently, a validator earns approximately $4,108 per month with a 10% commission, 3 million TIA delegated, a token price of $1.6, and an APR of 10.27%. We are aware that in the coming month, 43.5 million TIA purchased from Polychain will return to staking, which will increase the staking ratio to ~51.4% and reduce the APR to ~9.72%, bringing validator earnings down to approximately $3,888 per month.

Validators must cover the costs of bare-metal servers, monitoring systems, IBC relayers, backup nodes, alerting systems, key management, and security infrastructure. To maintain decentralization, many operators choose to run infrastructure in geographically diverse and less common data centers, which significantly increases expenses. At current levels, profitability is already near the margin.

If the inflation is reduced to 2.5%, with the same staking ratio, the APR would drop to ~4.86%, resulting in validator income of only ~$1,944 per month — half the current level. In such conditions, many validators will be forced to abandon high-quality infrastructure in favor of cheaper cloud setups, which could compromise the reliability and decentralization of the network.

Furthermore, in the recent forum discussion Proof of Governance as the endgame for LSTs, Adlerjohn emphasizes the importance of maintaining validator incentives, as a key factor in ensuring network security. Sustaining adequate validator income is not just an economic issue — it’s fundamental to the security and robustness of consensus.

Reducing inflation month after month is not a sustainable strategy. It might make sense under different market conditions, but certainly not right now, when the network is still growing and infrastructure costs remain high. We believe this proposal does not represent an improvement and that changes to inflation must be considered more cautiously, with long-term validator sustainability in mind.