Maximum supply problem

Hello, validators are needed for the system to be trusted and decentralized. But what reason will encourage people to be verifiers when the maximum supply is reached. Is this a problem and threatens the security of the system?

The avalanche blockchain has a burning mechanism to increase scarcity of AVAX which helps not reaching the maximum supply (I found this note on recap post of last year link at the bottom). All transaction fees of transferring tokens, calling smart contracts, … are paid in AVAX and are directly burned.

But still, I agree, this does not mean that the Max supply will not be reached, and I agree with you this would be a clear problem since there would be no token to mint for validators and thereby no monetary incentive to be a validator. This would reduce the number of validator (why would I lock my coin if I don’t get reward) and therefore less validator less security.

There are two extreme cases I see :

  • the number of validators is much bigger than the fees generated by the activity on the network. In this case the max supply could be reached
  • the number of validators is very small and there is a gigantic activity on the network. In this case the scarcity of AVAX could become problematic as well. If there is more burning than creation, I guess the price of AVAX could increase a lot (by a combination of hard to get AVAX but AVAX is super popular). This increase would make the price of doing transaction prohibitif and the number of transaction would reduce. But this is not what we want for the sanity of the network.

We are clearly not yet there (still 360 Millions coins to burn and 831 validators https://avascan.info/staking/statistics). Two things is clear though, we can not force people to become validators, it is also not possible to force people to use the platform. Those are parameters having a strong impact on the tokenomics of AVAX but cannot be directly controlled. Fortunately there are at least two parameters (maybe more ?) that can be tuned at the protocol level to control the amount of AVAX

  • the basic fee price of a transaction on the different chains (correctly if I am wrong but I think the current AVAX transaction fee is 0.01 AVAX).
  • the transaction price of calling smart contract on the c-chain (the current price value is set to 470Gwei but can be changed)

It would be very interesting to do some simulation of AVAX supply’s dynamics based on different scenarios to better understand the effect of those parameters in the long run and choose them in the best interest of the community.

Link : https://medium.com/avalanche-hub/why-avalanche-avax-has-the-potential-to-be-an-incredible-store-of-value-8ef6e68cbb60 (section Burning of AVAX tokens)

i guess the idea is by following a no slashing policy other the opp cost not being able to sell them during staking period there is no cost to stake. When and if max supply is reached, the system will rely on honest stakers with a lot to lose if network becomes insecure (think DeFi application founders, exchanges, big avax investors, ava labs etc. ).

Also there will always be extractable value for validators to benefit from such as dropping profit making txs and replacing with their own