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Update cips/cip-29.md
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Co-authored-by: Rootul P <rootulp@gmail.com>
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tac0turtle and rootulp authored Feb 5, 2025
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Expand Up @@ -25,7 +25,7 @@ Reasons for this CIP are:

1. Current issuance is too high, especially in dollar-terms. We want to avoid accelerated dilution of non-stakers.
2. To empower applications to compete effectively with staking yields. While it is important to maintain a high bond ratio to secure the network, we also envision a vibrant ecosystem of diverse applications emerging on Celestia-secured rollups. Using TIA as collateral onchain competes with staking yield and reducing inflation makes onchain use more attractive.
3. By reducing inflation we reduce the amount of forced selling due to taxes and other offchain liabilities. High Inflation can contribute to centralization of a network by diluting non-stakers. If a set of users are staking with high inflation their stake and inadvertently their network power increases while a non-staker would see their network power decrease. While this is a property of PoS systems, higher inflation accelerates it.
3. By reducing inflation we reduce the amount of forced selling due to taxes and other offchain liabilities. High inflation can contribute to centralization of a network by diluting non-stakers. If a set of users are staking with high inflation their stake and inadvertently their network power increases while a non-staker would see their network power decrease. While this is a property of PoS systems, higher inflation accelerates it.

At a 33% reduction the inflation rate is 4.82% in the first year of the reduction, and the APR is roughly 7.39% if the bonding ratio stays the same. This is currently around 2.2 times the APR of Ethereum staking, but Celestia is a smaller and younger network so a higher security budget is justified.

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