Proposal for the Monetary Committee: Adjusting the Inflation Coefficient (c) to Support Sustainable Staking Participation

[Manor]

Proposal for the Monetary Committee: Adjusting the Inflation Coefficient (c) to Support Sustainable Staking Participation

Hey everyone

This is a draft proposal to adjust the inflation coefficient (c) to better support staking participation in the coming months.
It’s an initial suggestion meant to spark an open community discussion before submitting a formal proposal to the Monetary Committee.

We’d love to hear your thoughts, suggestions, and ideas. Please feel free to jump in and share your perspective!

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Executive Summary

Arguments and assumptions

1. The current staking levels are too low — only ~4% of STRK is staked. While the ideal level can be debated, it’s widely accepted that 10% is a reasonable minimum threshold for maintaining protocol health.

2. Staking participation is growing and is expected to continue increasing as long as APR levels remain attractive.

3. By the end of the year, STRK staking is expected(!) to reach 600M–1B STRKs. If BTC staking launches successfully, it may be expected(!) to reach a comparable scale, roughly $70M–$120M

4. The Inflation Coefficient (c) is designed to evolve during Starknet’s early stages. As more STRK is staked, rewards naturally decline unless c is adjusted. Without an increase in c, yields may drop too soon, potentially discouraging participation before the network reaches its desired minimum staking levels.

5. Target APR and Inflation Ranges
   Given Starknet’s current phase and broader market conditions, we believe that during the upcoming months (Staking v2), it is appropriate to aim for: 10–15% APR for STRK and 2–6% APR for BTC, while keeping annual inflation within the 0.4–1.5% range. These targets are considered healthy and sustainable under present circumstances.

6. Raising the inflation coefficient c to around 3% would help maintain staking yields within the desired range, while keeping annual inflation at a sustainable level that serves the network’s long-term health. This holds true both before and after BTC staking goes live. (See examples in the tables below, and explore additional scenarios using the interactive spreadsheet.)

Recommendation

Based on these assumptions and current conditions, we recommend raising c to 3 in the near term, even ahead of the BTC staking launch.

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Introduction

This post introduces a proposal to adjust the monetary parameter in Starknet’s protocol - the inflation coefficient (c), the maximum theoretical inflation percentage. The goal is to increase staking participation while maintaining healthy economic conditions for the network’s long-term sustainability.

This is an early-stage proposal intended to spark a thoughtful community discussion, considering the wide range of impacts on different participants and the network as a whole. Through open dialogue, we aim to refine the proposal and then submit it to the Monetary Committee for review before the end of July.

We propose updating the inflation coefficient from its current value of 1.6 to approximately 3. This change is designed to better reflect current and anticipated staking levels, maintain attractive rewards for both STRK and BTC staking, and provide sufficient incentives to encourage participation, while keeping annual inflation at a sustainable level that supports the network’s future growth.

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Background

Professor Noam Nisan’s original proposal for Starknet’s monetary design included an inflation coefficient set at c = 4, assuming the full 10B STRK supply would already be circulating. However, recognizing that both the technical infrastructure and community participation would develop gradually, the protocol introduced a bootstrapping mechanism, allowing dynamic adjustment of incentives during the early phases by tuning the monetary parameter c.

In line with this design and based on the Staking v1 vote, the Monetary Committee has the authority to adjust the inflation cap (up to 4) to ensure monetary policy remains responsive to network conditions as they evolve. For the initial rollout, the value of c is proposed to be set at 1.6, subject to review as adoption progresses.

Previous proposals, including the StarkWare Delegation Program and the Bitcoin Staking proposal (SNIP-31), have noted the need to update c. This post builds on that shared understanding and initiates a focused discussion on updating c in light of the expected evolutions.

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Why is it necessary to adjust c?

Staking is a core component of Starknet’s long-term security and decentralization. Today, only about 4% of STRK is currently staked. While the ideal level can be debated, there is broad agreement that a minimum of 10% participation is important for the protocol’s health and resilience.

To support an increase in staking participation, it’s important to act across several fronts — including broader awareness efforts, improved UX, and, of course, the incentive structure itself: ensuring that rewards remain sufficiently attractive and competitive.

Staking rewards are directly influenced by the inflation coefficient, c. As more STRK is staked, the annual yield (APR) naturally decreases - unless c is adjusted. This is a built-in feature of the protocol, designed to support gradual decentralization over time. During the early bootstrapping phase of the network, it’s especially important to ensure that rewards remain sufficiently attractive. If c is not adjusted in step with participation growth, rewards may decline and potentially discourage further engagement before the network reaches a healthy baseline level of decentralization.

In the following sections, we’ll outline what we believe to be healthy target ranges for APR and inflation at this stage of Starknet’s development. We’ll also share examples based on projected participation levels for both STRK and BTC staking that illustrate how updating c (e.g., to 3) can help incentives while keeping inflation well within a sustainable range.

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What is the recommended adjustment for the upcoming months?

Key factors to consider

To converge on a recommended value for c, a few key factors should be considered:

1. Projected staking participation - namely, how much STRK and BTC is expected to be staked in the coming months.
   We estimate that by year’s end, both STRK and BTC staking (in STRK terms) are expected to reach 600M–1 B. This assumption is used as the basis for the comparison tables presented below.

2. Target APR ranges - What level of annual return best supports the network at this stage of growth and market conditions?
   At this stage, an APR of 10–15% for STRK and 2–6% for BTC seems to reasonably support the network’s needs, given its current phase and overall market conditions.

3. Target inflation range - What level of inflation best serves the network at this stage, given current internal dynamics and external market conditions?
   We believe that maintaining annual inflation in the 0.4%–1.5% range is a healthy and sustainable target under current circumstances.

Comparative Outcomes: Current vs Proposed c

To better understand the implications of adjusting c, we present three scenarios, each comparing outcomes under the current value and the proposed adjustment.

Note - These are just three examples. To get a fuller picture of different scenarios, it’s recommended to to experiment with this interactive table.

Assumptions and Clarifications for the Comparison Tables:

• BTCstaking is assumed to be active. (We will later examine the scenario before BTC staking is implemented.)
• For all the following examples, Alpha is set to 0.25, meaning Bitcoin staking represents 25% of the total staking power.
• Bitcoin staking amounts are expressed in STRK-equivalent units to focus on protocol mechanics and avoid fluctuations related to STRK/BTC exchange rates.

To sharpen your memory regarding the Effective Inflation Coefficient and Alpha, please review the detailed explanation within the Bitcoin Staking proposal (SNIP-31).

Scenario 1
Participation: 600M STRK + 600M BTC (in STRK equivalent)

c Value	Effective c (c^\hat{c}c^)	Inflation (%)	STRK APR (%)	BTC APR (%)
Current (1.2)	1.60%	0.39%	4.89%	1.63%
Proposed (3.0)	4.00%	0.98%	12.25%	4.08%

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Scenario 2
Participation: 800M STRK + 800M BTC

c Value	Effective c (c^\hat{c}c^)	Inflation (%)	STRK APR (%)	BTC APR (%)
Current (1.2)	1.60%	0.45%	4.24%	1.41%
Proposed (3.0)	4.00%	1.13%	10.60%	3.53%

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Scenario 3
Participation: 600M STRK + 1,000M BTC

c Value	Effective c (c^\hat{c}c^)	Inflation (%)	STRK APR (%)	BTC APR (%)
Current (1.2)	1.60%	0.39%	4.89%	0.98%
Proposed (3.0)	4.00%	0.98%	12.25%	2.45%

These examples illustrate how increasing c to 3, given certain participation assumptions, can help maintain the desired range of annual returns while also keeping inflation within acceptable bounds.

What is the correct timing?

Is it advantageous to raise c prior to the launch of BTC staking (Sep - Oct)?
To examine this, we evaluate the scenario with α = 0, where all staking rewards are exclusively allocated to STRK participants.
Our analysis considers projected STRK staking amounts of 400 million, 600 million, and 800 million tokens.

Impact of Raising c Before BTC Staking (α = 0)

STRK Staked	Scenario	c	Effective Inflation Coefficient (𝑐̂)	Inflation	STRK APR
400M	Current	1.6	1.6	0.32%	8%
	Proposed	3.0	3.0	0.60%	15%
600M	Current	1.6	1.6	0.39%	6.5%
	Proposed	3.0	3.0	0.73%	12.2%
800M	Current	1.6	1.6	0.45%	5.6%
	Proposed	3.0	3.0	0.84%	10.6%

These examples illustrate that, given the assumed participation levels prior to the launch of BTC staking, raising c at this stage can help maintain the desired reward and inflation ranges. Since this period is critical for building momentum, and considering that projects like BTC staking can face delays, it seems prudent, in our view, to implement the adjustment before the launch.

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Recommendation

Based on these assumptions and current conditions, we recommend raising c to 3 in the near term, even ahead of the Bitcoin staking launch. We believe this adjustment will optimally support the network’s long-term health.

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Looking Ahead

It’s possible that by the end of the year, actual participation rates may differ significantly from our current projections. If this occurs, a more substantial adjustment than the one proposed here may be required to support the same long-term goals.
In such a case, we suggest restarting the community discussion and, if the recommended change exceeds the Monetary Committee’s mandate, initiating a broader community vote.

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Your feedback is important!

This proposal touches on a key aspect of the network’s monetary policy during the bootstrapping phase of the staking mechanism. We’re eager to hear your thoughts, ideas, and perspectives, so we can shape the proposal in the best possible way for the months ahead.

It’s important for us to consider this proposal from various perspectives - users, validators, delegators, developers, and others across the community.

Thanks!

[saniksin]

Before adjusting inflation (C), I believe we need to address a deeper issue in Starknet’s design: users are forced to choose between staking and governance.

Currently, vSTRK tokens used for voting cannot be staked with validators. This breaks alignment — in most well-designed PoS networks, the same tokens are used for both staking and governance.

Proposal: Allow vSTRK tokens to be staked (delegated), or create a unified mechanism so that users can vote and stake without splitting their assets.

Without this, we’re fragmenting participation and losing both validator capital and governance engagement.

Please correct me if I’m wrong - I might be missing some technical constraints behind the current design, but from a user’s perspective, unifying staking and governance seems like a crucial improvement.

[Manor]

Hey : )

Thanks for the feedback!

Community discussions like this play a meaningful role in shaping the network and you’re raising a really important point

The good news is: this is actually already the case!
STRK tokens that are in the staking pool do count for voting power. (here)

The fact that you brought this up shows it’s not widely known yet - I’ve flagged this to the relevant folks so we can communicate it more clearly to the community.

Thanks again!