The token economy of KILT Protocol is designed for low inflation; therefore, it was planned that delegators would only receive rewards for the first two years (measured in block time). As the projected level of inflation hasn't been reached since the network went live, it is proposed to extend rewards for delegators at 5.1% for the third block year to align more closely with the token economy design.

Background

KILT Protocol has collators that collect transactions, build blocks of data, and hold the data of the KILT blockchain, and delegators – KILT Coin holders who use their coins to back collators that they trust. KILT uses a Limited Delegated Proof of Stake (LDPoS) consensus mechanism that limits the number of delegators and the number of collators to whom they can delegate their stake. The token economy of KILT Protocol was mathematically designed with initial inflation of around 5% per annum, dropping to 1% per annum within the first six years, and then slowly moving towards 0%. This facilitates the sustainable and long-term growth of the network.

Current Status

Inflation didn’t reach the anticipated level to date as it was calculated based on a maximum of 75 collators, all staking the maximum (200,000 KILT Coins). However, the actual number of collators is just 35, and not all stake the maximum. Having less than the maximum number of collators and rewarding them for less than the calculated stake resulted in lower than expected inflation. Therefore, in the first 18 block-months after the network started,a significant amount of KILT Coins had not been minted as expected. If we assume that in the next 18 block months (6 months of the second block year plus 12 months of the third block year) the number of collators will stay at 35 and all collators will stake the maximum, then this will result in another high amount of coins not minted based on the original design, which will leave the network well below the anticipated inflation level.

A possible way to align inflation with the original design is to distribute the amount of tokens not minted for the collators by adding one more year of delegator rewards. The level of 5.1% has been calculated based on the expected total number of non-minted coins. It is proposed that the new reward level of 5.1% for delegators would start at the beginning of the third block year, around December 2023 (depending on block time). The rewards for collators would remain as outlined in the KILT Coin Metrics document (August 2022).