There's a audio version of this blog post, hosted on YouTube:
Before I start, there’s a few names for “inflation” that people use rather interchangeably and I’m sorry for that. Other names for inflation are “issuance” or “emissions” or “distribution”, "Expanding the supply" or perhaps even “yield”. You know… tomato / 🍅 / tomayto. Inflation doesn’t sound so bad if you describe it as “a mechanism to increase distribution to more holders.” After all, If your coin doesn’t get distributed, you can’t win. Your coin needs the network effects described by Metcalfe's law to thrive. The Bitcoin halfening every 4 years is a mechanism such that “distribution” could be very high at the start and exponentially trend down to zero. Satoshi hoped this would be the best of both worlds and so far, he’s been spot on. Bitcoin started with an inflation rate of 100% and now it’s just 0.8%. Bitcoin is described as “hard money”, after only 17 years.
There’s no way to beat around the bush. VVV is highly inflationary. 14 million new VVV tokens are emitted per year. The initial supply of VVV was 100 million. The inflation rate thus started at 14%. A positive Volcano 🌋 of emissions are awarded to stakers, providing an ongoing incentive for participation in the network. Emissions also provide ongoing incentive to Venice AI to continue building the compute capacity of the inference network.
Tomorrow, 20/August/25, the Venice team is reducing the inflation rate from 14M → 10M/year. That’s a 28.6% cut! EXTREMELY significant! Tokenomics changing in fact.
Now, of course, a inflation reduction is a double-edged sword. If you’re a staker, you’ll possibly now get less yield. I say “possible” because I’m not able to reason how much less exactly because there is another relevant piece of information released by Venice. Apparently the VVV emissions up until now weren't going all to Stakers. At the moment, between 20-80% of emissions were going to stakers. I was rather shocked by finding this out to be honest. I didn’t know that. That’s rather a large range. I mean, was only 20% going to stakers? Saying it differently, up to 80% of emissions were going to Venice! It’d be nice to be told the average value rather than such a wide range. Am I cheesed off? No, the staking contact is on the blockchain, open-source and transparent. When you run the smart contract to claim your staking yield the Token Transfers clearly state how much VVV you are getting and how much VVV is going to Venice. So not calculating one's own slice compared to Venice… That’s a skill issue on my part! The data is there for all to see.
In Venice’s defense, in March they burned 33.5 million tokens! 🔥 , mostly from the unclaimed airdrop tokens but a million tokens were burned simply as a public good. You can read about this in a blog post from Venice with the great title “Venice is Burning”. Anyway, bygones by bygones, from tomorrow 80-100% of emissions will go to stakers. That’s well documented now. I LOVE it! If you are staked, (and you didn’t mint DIEM) you’ll get 100% of your slice. That’s smashing! And if you’re a DIEM Minter, you’ll forgo 20% of your slice. Venice will get that 20% slice of your potential yield which I think is good for the ecosystem. We want Venice to have an ongoing income. They can hire more Devs. They can rent more GPUs. The more that Venice wins, the more the ecosystem wins.
Zooming out a bit… I don’t know if I explicitly said it but the main reason why inflation, when paid out in yield, is bad is because it can be a constant source of sell pressure. This is why a reduction in inflation is bullish. For example, the boss of OpenAI, Sam Altman, the bootloader for ChatGPT, has a side-hussle, a blockchain project called WorldCoin, ticker $WLD. For WLD, the market cap has been going up, while the price of a token has been going down. That’s due to heavy issuance (i.e. inflation) and the sell pressure it brought about. That’s not good for HODLers.
In the fiat system inflation is a problem for you because it dilutes your share. This isn’t a problem in the Venice system. You can protect yourself from being diluted by staking. I like that Venice has a staking mechanism and a 7-day cool-off period ensuring that staking is a commitment. Staking mops up some of the emissions and reduces sell-pressure. But if I’m honest, so far, the sell-pressure has suppressed the price. The value of a bag of $VVV has been pretty constant since March IF (and that IF is doing a lot of heavy lifting) you have re-invested all your staking yield. You had to have been compounding your yield to hold value. In some ways up until now “There is no yield”. Staking is simply the counter-measure to the sell-pressure caused by the planned inflation of 14M VVV per year. If you want to maintain your share of unrestricted AI, you have had to stake your yield. The yield doesn’t even cover the sell-pressure. Only the compounding of staking over time covers it.
I’m hoping the new DIEM locking mechanism further slows sell pressure. The Venice team has said a few times the aim is for VVV to be deflationary one day. That’s interesting. Tell us more! Set out the rules. “Rules not Rulers”.
So tomorrow we have a front row seat watching the Venice team cook. For us, the DIEM Token Generation Event is as big an event as when ETH transitioned from proof-of-work to proof-of-stake? (But it only took 7 months rather than the 7 years it took Ethereum.)