NNS Metrics: Tracking the Internet Computer’s Token Economics
A review of Network Nervous System metrics regarding ICP inflation, staking, and liquidity.
The Network Nervous System (NNS) is the permissionless on-chain DAO that allows the Internet Computer blockchain to be governed in an open, decentralized, and secure manner. The NNS has complete control over all aspects of the network, allowing it to be efficiently upgraded and expanded.
ICP utility token holders from around the world can stake their tokens within neurons in the NNS to engage in network governance and vote on whether to adopt or reject network proposals, while earning voting rewards for their participation. Anyone who stakes a neuron within the NNS can also submit a proposal to suggest changes, giving the ICP community the power to guide the blockchain’s evolution and optimize it for developers, entrepreneurs, and users.
This article summarizes activities regarding NNS token economics and the ICP token from January 2022 through August 2022, reviewing metrics regarding inflation, NNS staking, and liquidity.
Inflation
ICP token inflation is caused by the minting of ICP to reward node providers and to reward NNS governance participants. The annualized inflation rate for ICP from January through August 2022 has been 4%, which is well below the targeted inflation rate for governance rewards of 8–9% annualized. This is because many NNS participants have been accumulating their rewards as “maturity” (i.e., the accrual of rewards in a neuron from voting on proposals) instead of converting them into ICP tokens. As of the end of August, accumulated maturity in the NNS was worth roughly 40.7M ICP.
The inflation rate of ICP can vary from month to month, mostly driven by whether NNS participants are converting maturity into ICP. The chart below shows the annualized inflation rate for each month so far in 2022. Note that the larger inflation rate for August was primarily due to the DFINITY Foundation “merging” some of its accumulated maturity, which has the effect of minting the neuron’s maturity and adding that minted amount back into the neuron’s stake.
NNS participants can choose to convert their rewards from maturity to ICP by either spawning a new neuron (which allows the owner to receive the ICP in 7 days) or to merge the ICP back into their existing neuron (which keeps the ICP locked in the neuron). The following chart shows that NNS participants have been predominantly merging their ICP rewards back into their neurons, resulting in the majority of ICP inflation remaining locked on the NNS. (Note: heuristics were used to determine if a mint event was spawning or merging maturity.)
NNS Staking
One noteworthy NNS measure is the growth of the number of ICP tokens staked on it. This can be represented as the difference between the number of ICP that is newly staked on the NNS minus the number of ICP that is dissolved off the NNS. These data are illustrated in the chart below, with the dark bars representing the net change in ICP on the NNS. We see that the number of ICP being dissolved has decreased significantly since April, while new staking on the NNS has been flat for most of the year. The net result is that the past four months saw 0.7M ICP come off the NNS, a significant decline from the 9.1M decline in the first 4 months of the year.
Of the ICP tokens staked so far in 2022, 67.7% remain in the locked state and 45.6% are locked for 4 years or longer, including 36.4% staked for 8 years.
The metrics show a combination of early ICP neurons completing their dissolves and a preference among new participants for long-term staking. The chart below shows the state of the NNS as of August 31, reflecting the number of ICP tokens that are locked and dissolving by the length of their dissolve delays. One interesting metric is that 24.5% of the total ICP supply (and 48.8% of the total ICP on the NNS) is currently locked for 8 years.
Liquid ICP Tokens
Liquid tokens are ICP tokens that are not staked on the NNS and are presumed to be free to be moved from their owners’ wallets. Liquid ICP can be calculated as total ICP supply minus NNS staked supply. A healthy ecosystem should have enough liquid tokens to support all of the liquidity needs of the ecosystem and provide sufficient supply stability for the token to retain value. In the case of ICP, the liquid coin supply was 221.1M at the end of August, an increase of 21.2M since the end of January. The majority of this increase occurred in March and April as a result of the dissolving of large neurons off the NNS, as discussed above.
Conclusion
The ICP token has experienced moderate annualized inflation for 2022. This is partly because of deferred inflation due to accumulating maturity, but the majority of realized inflation remains locked on the NNS through merged maturity, which is a sign of long-term commitment from NNS participants.
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