NEAR Cuts Inflation Rate by Half Despite Failed Community Vote

NEAR Protocol has upgraded its network with a new update that reduces its annual token inflation rate from 5% to roughly 2.4%, even though the community vote intended to authorize the change failed to reach the required threshold.

The NEAR Protocol team announced today, Oct. 30, that it had completed the upgrade. The so-called halving upgrade curbs token dilution caused by nearly 60 million new NEAR tokens minted annually due to minimal fee burns, while also realigning incentives for on-chain participation and lowering staking yields from roughly 9% to 4.5%, assuming half of the total supply remains staked.

NEAR 24-hour price chart. Source: CoinGecko

Following the news, the price of NEAR dropped nearly 8% on the day amid a broader crypto market downturn, sliding to $2.10 at press time.

The initial community vote on the inflation cutting proposal, which concluded on Aug. 1, saw 89 validators, representing 45.06% of participants, vote in favor of reducing the token’s inflation rate. However, because the total YES votes was below the 66.67% threshold required for approval, the proposal technically failed.

NEAR Protocol inflation community vote. Source: NEAR

Despite the outcome, the NEAR core team has included the inflation reduction in the protocol upgrade on Github, triggering public criticism from some validators, even before today’s announcement.

‘Dangerous Precedent’

Chorus One, a staking provider with over $2.3 billion in assets under management across different networks, said in an X thread on Oct. 22 that moving forward with the inflation cut despite the failed vote “sets a dangerous precedent and undermines the integrity of NEAR,” adding that it creates the “impression that decisions can be unilaterally enforced by the core team, if validators aren’t careful about the changes implemented when they upgrade.”

The staking provider added that it won’t upgrade its nodes and encouraged other validators to follow suit, clarifying that its stance is less about the final inflation rate, and more about the governance presence this move sets:

In comments to The Defiant before the upgrade was completed, NEAR Protocol’s chief technology officer, Bowen Wang, noted that the proposed upgrade still “requires a supermajority of 80% of stake of block-producing validators to adopt it and will not be implemented unless the threshold is reached.”

Wang added: “Validators have 30 days to vote. This is how NEAR protocol upgrades have worked since mainnet launch over five years ago.” NEAR repeated the sentiment in its official X thread announcing the upgrade today.

As NEAR’s CTO explained to the The Defiant, the vote to halve NEAR’s inflation rate from this summer was a community-led joint proposal from HOT DAO and LiNEAR. According to Wang, this explicit vote of validators at the consensus layer “requires an even higher threshold to ensure network-wide alignment.”

He added that, going forward, NEAR’s recently launched governance system, House of Stake, will decide on “specific economic parameters for the NEAR ecosystem that core developers can then propose in code.”