A recent proposal from HOT Protocol, a decentralized group operating on the NEAR Protocol, has put forward a plan to reduce the inflation rate of the AI crypto project’s token. The proposal aims to decrease NEAR’s annual inflation rate from 5% to 2.5% in order to improve the long-term sustainability of the project’s token and realign incentives within the network.
The current inflation rate of 5% has been identified as a hindrance to NEAR’s competitiveness, as it results in unnecessary token supply growth and dilution. According to the proposal, the initial assumption that fee burns from high transaction volumes would offset supply growth has not materialized, with only 0.1% of the token supply being burned in the past year. This has led to an annual inflation rate inflating the circulating supply by over 60 million NEAR, surpassing actual network growth and user activity.
To address this issue, the proposal suggests reducing the staking yield from 9% to 4.5%. This adjustment could potentially make NEAR-based DeFi offerings more competitive in the market. While some validators may choose to exit as a result, it also creates opportunities for new demand-generating features such as transaction fee revenue from Intent-based models.
The importance of reducing NEAR’s inflation rate was emphasized by the DAO, stating that every additional month of the current status quo results in millions of new NEAR entering circulation, which is not only dilutive but also unsustainable in the absence of high usage.
The proposal has received significant support from the NEAR ecosystem, with industry players endorsing the plan. Illia Polosukhin, co-founder of NEAR Protocol, believes that the proposal positions NEAR as a potential store of value in AI-focused environments and reduces reliance on staking as the primary yield source, opening up opportunities for DeFi innovation on the platform.
Avichal Garg, co-founder of Electric Capital, also expressed support for the proposal, highlighting the importance of lower emissions, revenue generation for token holders, and rewarding long-term holders.
Currently, the proposal is undergoing a validator vote and requires a two-thirds majority to pass. Implementation is expected by Q3 2025, pending a smooth technical rollout and community validation. If approved, the reduced inflation rate could have a significant impact on NEAR’s long-term sustainability and competitiveness in the crypto market.