Inflation Model

BFC inflation model lies in motivating participants of the Bifrost Network and expanding the network. Holding BFC without utilizing them comes with an opportunity cost under the current inflation model, leading to BFC dilution over time.

Economic research or from an economic perspective, emphasizes the importance of having an optimal inflation rate to incentivize network participants to foster growth. Lowering the inflation rate may hinder the growth, while increasing the inflation rate could disrupt the model of the token. Since inflation rate is dynamically adjusted by the codes, considering the status of the network, our inflation remains subject to change through governance, rather than permanently fixed.

BFC functions as the native currency of Bifrost and is characterized by its inflationary nature. The inflation rate within the Bifrost network is contingent upon the quantity of tokens staked. As the number of staked tokens varies, the allocation of inflationary rewards to validators and nominators is dynamically adjusted to optimize participation incentives for staking.

The inflation rate doesn’t target the token supply; instead, it targets the staked tokens.

The dynamic inflation rate can be divided into three segments: minimum, ideal, and maximum. Currently, these segments are set at 7%, 10%, and 13%, respectively. The inflation model incentivizes network participants by selecting one of the three inflation rates based on the current amount of staked tokens.

The rate selection follows the rules below:

• Minimum rate: current staked tokens ≥ expected maximum staked tokens

• Ideal rate: expected minimum staked tokens < current staked tokens < expected maximum staked tokens

• Maximum rate: current staked tokens ≤ expected minimum staked tokens

The minimum rate is applied when the staked tokens exceed expectations, thereby disincentivizing network participants with reduced staking rewards. Conversely, the maximum rate is applied when the staked tokens fall below expectations, thereby incentivizing participants with increased rewards to reach the ideal range.

Establishing an ideal inflation rate and expectations is crucial for motivating network participants and supporting network growth. Reducing the inflation rate may hinder growth, while increasing it could destabilize the token's inflation model. Therefore, the token inflation rate is not fixed indefinitely; it can be adjusted in the future through on-chain governance, depending on the Bifrost ecosystem and tokenomics.

The objective is to align the staked tokens with the ideal staked tokens, ensuring there is sufficient backing of BFC to prevent potential security compromises while maintaining the liquidity of the native token.