In a new report issued by metal scales It studies the reasons for the expiration of the inflation regime for Stellar and the XLM cryptocurrency and its impact on Stellar metrics on the blockchain.

The study notes that each crypto network has a different way of dealing with inflation.

Bitcoin for example, has a maximum supply and a mining reward split, both of which are created in the Bitcoin protocol.

The version of Ethereum has been revised several times since 2017 and the reward was recently reduced from 3 ETH to 2 ETH per block.

The Stellar network had a unique inflation system until October 2019, in which XLMs were generated and distributed to XLM holders at a rate of 1% per year.

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Each premium account (having at least 0.05% of the supply) can set an “inflation target” account.

Since the Stellar Foundation (SF) controlled 80 per cent of the offering, much of the inflation issue has been transferred to SF.

When the inflation process was originally developed, it was designed to support the development and growth of the stellar ecosystem but the reality looked different.

In the blog post announcing the de-inflation process, SF stated that the new offering that was supposed to support the development and growth of the ecosystem has failed and explicitly acknowledged that the old system is not working.

As pointed out by Coinmetrics, inflation kits created to reach the 0.05% limit were claimed by people who were not actively working on planned development and development projects.

Exchanges such as Binance and Poloniex have also plunged into the process and distributed their proceeds to XLM holders.

In total, the report identified 1,087,306 titles as targets for inflation payments, which represented only 18.3% of accounts created before the end of the inflation process.

The chart above shows that only a few thousand participated in and benefited from the inflation process, as Coinmetrics wrote:

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This means that only 18.3% of the accounts were created before the end of the inflation process.

Although this is only a fraction of the accounts, it probably represents a large percentage of the supply as many large accounts have participated.

The largest amount as described above went to the Stellar Foundation (98%).

However, that was just 834,000 XLMs, which at the current price is around $41,000.

Thus, effective financing of the project was not possible.

Therefore, Coinmetrics drew the following conclusion:

Since 98% of the newly created money went to the Sustainable Development Fund even though it controls 80% of the total supply, the inflation process has exacerbated inequalities.

Stellar inflation was an interesting economic experiment.

Her analysis has parallels with current hot topics such as the Cantillon effect.

It also helps to show that each network has privacy that must be taken into account in order to better understand its activity and usage.

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After the inflationary process ended, Stellar decided to burn 55 billion XLM (out of 85 billion XLM in its possession).

This reduced the supply to 50 billion XLM, and the decision was aimed at increasing the value of the XLM token.

In late December last year, the Stellar Foundation published a funding plan for the next ten years.

A significant portion of the approximately 30 billion XLM still owned by the Foundation will be used for further development of the project and in the area of ​​investments.

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