SMP-4: Tokenomics 2.0 Governance Proposal

Motivation/Purpose

Current Challenges

The SubQuery Network currently operates under an inflationary tokenomics model that presents several significant challenges to long-term sustainability and value accrual:

Key Issues with Current Model:

• Excessive Inflation: 1% annual inflation rate with compound effect results in 100M+ new SQT tokens minted annually
• Undistributed Inflation: Significant portion of inflation remains undistributed, creating unnecessary token dilution
• Value Dilution: Continuous token printing pressure undermines token value and holder interests
• Unsustainable Economics: Network rewards disconnected from actual usage and revenue generation

Purpose

This proposal aims to establish a sustainable, non-inflationary tokenomics model that:

• Eliminates token inflation and fixes total supply
• Absorb network usage risks via the foundation
• Enhances community ownership and decentralization
• Creates long-term value appreciation potential for SQT holders

Description

Core Strategy

Transition from an inflationary reward system to a revenue-backed model through immediate implementation of the following key changes:

Primary Changes:

1. Zero Inflation: Reduce network inflation to 0% immediately
2. Fixed Supply: Lock total supply at 10.2 Billion SQT tokens
3. Foundation Backed Rewards: Replace rewards source from inflation to foundation. Foundation will use its revenue to buyback to maintain the account balance.
4. Enhanced Community Ownership: Increase community control over network economics

Reward Source Transformation:

• From: Network inflation (token printing)
• To: Phased transition to multi-source approach:
• Phase 1 (Initial): Foundation treasury reserves primarily fund rewards using existing token balances
• Phase 2 (Transition): Gradual integration of protocol revenue (fees, premium services, enterprise tiers)
• Phase 3 (Mature): Full protocol revenue backing with Foundation reserves as supplemental buffer

Community Ownership Enhancement: This transformation directly increases community ownership percentage because:

• Foundation tokens are distributed as rewards instead of being held
• As Foundation reserves decrease through reward payments, community token ownership proportionally increases
• Foundation ownership percentage naturally declines while community ownership rises
• Creates true decentralization through economic incentive alignment

Economic Principles

• Sustainability: Rewards scale with network adoption and usage
• Value Accrual: Token value tied to network success and revenue generation
• True Decentralization: Community-driven network growth and governance
• Market Efficiency: Rewards based on economic contribution rather than token printing

Network Benefits

Enhanced Decentralization:

• True decentralization through reduced Foundation control
• Network rewards tied to actual usage, not artificial inflation
• Community-driven governance and decision-making

Sustainable Economics:

• Rewards scale with network adoption and usage growth
• Long-term economic stability through revenue generation
• Reduced token dilution and value appreciation potential

Value Accrual:

• Token value directly correlated with network success
• Revenue sharing creates positive feedback loop
• Buyback programs support token price stability

Implementation(Post Snapshot Vote)

Implementation Steps

Step 1: Disable Token Minting

• Foundation admin multisig will update Ethereum mainnet SQT contract minter to zero address (0x0000000000000000000000000000000000000000)
• This immediately halts all new token minting and inflation
• Total supply becomes fixed at current level (10.19 Billion SQT)

Step 2: Treasury Wallet Management

• Foundation team implements automated monitoring for treasury wallet balance
• Maintain treasury wallet balance above 30M SQT threshold
• Foundation wallet will automatically supplement to maintain reward stability
• Ensures uninterrupted reward payments during revenue transition

This implementation plan ensures a smooth transition to a sustainable, community-owned network while protecting current operator interests and positioning SubQuery for long-term success and growth.