Is Kaspa an inflationary or deflationary currency?
Kaspa (KAS) has a unique monetary policy that has been the subject of much debate and discussion. The Chromatic phase and its quick emission schedule have led some to view Kaspa as both inflationary and deflationary. However, Kaspa states that the first step in the monetary policy was the Pre-Deflationary phase indicating that it was a phase before deflation, yet continues adding coins, inflating the circulating supply. You can see where this makes for a confusing scenario. Let’s break it down case by case with a points system.
Inflationary: 0 Deflationary: 0
The Miners Case
In the short term, the inflation rate in Kaspa is relatively high. This is due to new Kaspa coins being created and added to the existing supply through mining. In mining, powerful computers compete to solve complex mathematical problems and earn rewards in the form of newly minted Kaspa. In addition, since miners are heavily focused on Return on Investment(ROI), they tend to look short term to recoup their hashrate investment. As a result, time is money, and the circulating supply is inflating.
Inflationary: 1 Deflationary: 0
The Case of Supply and Demand
Once all ~28.7 billion Kaspa have been mined, and no new coins are added to the supply, the inflation rate will be effectively zero. At this point, the value of Kaspa will be determined purely by the market forces of supply and demand. This scarcity of supply, combined with increasing demand, could lead to an appreciation of the value of the currency and a decrease in its inflation rate, deflating the currency.
Inflationary: 1 Deflationary: 1
The Case of Mint Rate
The mining rewards are programmed to decrease over time. As a result, the inflation rate diminishes over time and will continue to do so. New Kaspa is being added to the circulating supply; however, the minting rate is reducing with every halving. As opposed to traditional fiat currencies, which are subject to continuous inflation. If we consider this trend of diminishing inflation from this moment, the mint rate of circulating supply is deflationary.
Inflationary: 1 Deflationary: 2
The Case of Longevity
It’s important to emphasize that the emission schedule is fast and that the rewards will decrease substantially within a few years. With this in mind, the sustainability of Kaspa’s technology, solving the trilemma, and a strong yet practical use case for adoption. The chances of Kaspa outliving the emission schedule are very likely, and minting will be a blip of history on the network’s potential extended timeline. Thus, Kaspa will exist as an inflationary currency for far shorter than a deflationary currency.
Inflationary: 1 Deflationary: 3
While Kaspa is considered to be both inflationary and deflationary, it is possible to view it as being inflationary in the short term and deflationary in the long term. The rate of inflation is expected to decrease over time and eventually reach zero, at which point the value of the currency will be determined purely by market forces. Considering the odds — 3:1 Kaspa is a deflationary currency.
Tip: If you missed the link above, you can view the Emission Schedule as a chart.
Feel free to comment and/or ask any questions.
You can also find me on the Kaspa discord — Bubblegum Lightning