Internet Computer Announces Inflation-Cutting Measures to Stabilize ICP Supply

The Internet Computer (ICP) token's supply is influenced by minting from staking rewards and node provider payouts, and burning through cycle conversions for onchain operations.

DFINITY Foundation published a whitepaper aiming to cut ICP inflation from 9.72% to 2.92% by 2026, with 44% of the reduction attributed to supply-side measures like lowered voting rewards and node provider payouts.

Increased network activity and computational fees are expected to drive deflationary pressure on ICP, supported by on-chain data showing reduced exchange balances and high transaction volumes.

The ICP token is central to the Internet Computer's governance and infrastructure. New ICP is minted through staking rewards for participants in the Network Nervous System (NNS) and through remuneration paid to node providers who operate the network. ICP is burned when it is converted into cycles, which are used to pay for compute, storage, and bandwidth on the platform. . These dynamics determine the long-term evolution of ICP supply.

DFINITY's MISSION70 whitepaper outlines a dual strategy to reduce inflation by targeting both the supply and demand sides. Supply-side measures include reducing voting rewards and node provider payouts, which are currently higher than necessary for network security. The whitepaper also proposes capping reward pools and simplifying mechanisms to improve efficiency. These measures are expected to account for 44% of the inflation reduction.

The demand-side strategy involves increasing network usage through AI-powered on-chain applications and new cloud engine products. As computational fees are collected, more ICP will be burned, creating deflationary pressure. On-chain metrics already show a decline in ICP exchange balances and a surge in network activity, with Chainspect reporting over 90 million transactions in a single day.

What Are the Key Supply-Side Reforms in the MISSION70 Strategy?

The MISSION70 strategy includes several targeted supply-side reforms. Voting rewards for participants in the NNS will be reduced, ensuring that incentives remain aligned without overcompensating. Node provider payouts will also be adjusted to reflect actual infrastructure costs, making the network more efficient. Reward pools will be capped to prevent excessive inflation from governance mechanisms.

Simplification of maturity modulation mechanisms is another reform. These mechanisms currently control how rewards are distributed over time, and their complexity has contributed to unnecessary inflation. By streamlining these processes, DFINITY aims to . create a more predictable and stable supply of ICP.

How Does Increased Network Activity Help Stabilize ICP Supply?

Increasing network activity is a critical component of the MISSION70 strategy. More transactions on the Internet Computer mean more cycles are consumed, leading to more ICP being burned. As cycles are used for compute, storage, and bandwidth, each transaction contributes to reducing the overall supply of ICP.

DFINITY plans to drive increased network usage through the development of AI-powered applications and cloud engine products. These initiatives are expected to attract developers and users to the platform, creating a virtuous cycle of growth and deflationary pressure. The success of this strategy will depend on the adoption of these new tools and the resulting increase in transaction volume.

What Do On-Chain Metrics Reveal About ICP Holder Sentiment?

On-chain data provides insights into ICP holder sentiment. A significant decline in ICP exchange balances over the past 24 hours suggests that holders are moving their tokens to long-term wallets. This trend is typically associated with reduced selling pressure and increased confidence in the asset's future value.

Network activity is also a strong indicator of holder sentiment. With over 90 million transactions recorded in a single day, the Internet Computer is experiencing its highest level of usage in over a month. This increased activity not only supports the network's growth but also reinforces the effectiveness of DFINITY's inflation-cutting measures.

Taken together, these metrics suggest that the ICP community is aligning with DFINITY's long-term goals. The combination of reduced inflation and increased network utility is expected to create a more stable and attractive environment for investors and developers alike.