
ICP tokens are designed to be inflationary, with a maximum supply of 10 billion tokens. The inflation rate is set to decrease over time, from 10% in the first year to 1% in the fifth year.
This gradual decrease in inflation rate is intended to balance the need for new tokens to be created with the need to maintain the token's value. As the inflation rate decreases, the value of each token is expected to increase.
The ICP token economy is designed to be self-sustaining, with a built-in mechanism for token holders to vote on proposals and participate in the decision-making process. This ensures that the token is not controlled by a single entity or group.
Check this out: Coin Market Cap Icp
Tokenomics Basics
Tokenomics is a fundamental aspect of ICP, and it's essential to understand how it works. ICP has two inflationary mechanisms and two deflationary mechanisms.
ICP's inflationary mechanisms include governance rewards and node rewards. Governance rewards grant neuron maturity to investors who vote on network proposals, which can be used to mint new ICP. Node rewards immediately mint new ICP to pay network infrastructure providers.
For more insights, see: Manta Network Tokenomics

Deflationary mechanisms, on the other hand, include converting ICP into cycles to burn and running software canisters, and staking ICP, which can take coins out of circulation for many years.
Here are the main goals of tokenomics in a decentralized system:
- Utility: To provide access to features, services, and benefits in the decentralized application.
- Governance Model: To enable holders to participate in dApp's development and growth decision-making.
- Economic Models (Staking and Rewards): To earn rewards by staking your token to support the dApp ecosystem.
- Incentive Model: To serve as incentives for rewarding good behavior.
Introduction to Tokenomics
Tokenomics is a crucial aspect of decentralized systems, and it's essential to understand how it functions. Tokens are used to facilitate various functionalities and economic interactions in apps.
Tokens can have different goals, including providing access to features and services, enabling governance, and creating economic models for staking and rewards. For example, Ethereum's economic model requires people to stake 32ETH to be block validators, and in return, they get rewarded for supporting the network.
In a decentralized system, tokens can be used as incentives for rewarding good behavior, such as staking tokens to support the dApp ecosystem and earning a percentage of your stake as a reward. This fosters user engagement and provides liquidity for the ecosystem.
Related reading: Ether Proof of Stake Date

Decentralized governance models can also be implemented using tokens, where token holders can vote on decisions and influence the direction of project development. For example, the DeAI platform uses a token-weighted voting system, where token holders can vote on AI projects and decide on punishments for unethical behavior.
The IC has both inflationary and deflationary mechanisms, with governance participants and node providers receiving rewards in the form of newly minted ICP tokens. On the other hand, ICP is converted to cycles (i.e., burned) in order to pay for computation and storage.
Here's a breakdown of the different types of tokens and their goals:
- Utility tokens: provide access to features, services, and benefits
- Governance tokens: enable holders to participate in dApp development and growth decision-making
- Economic tokens: create models for staking and rewards, such as Ethereum's economic model
- Incentive tokens: reward good behavior, such as staking tokens to support the dApp ecosystem
Is Inflationary or Deflationary?
Inflationary or deflationary, that's a crucial question when it comes to tokenomics. The Internet Computer's ICP token is designed to adapt to community needs through its democratic governance function, the NNS.
ICP's inflation rate is calculated using a descending curve applied to the total ICP supply. This formula is based on proposal type, principal amount, age, and dissolve delay.

The governance rewards are distributed proportionately across all voting neurons based on these factors. You can check the current estimated annualized governance rewards rate on the Internet Computer Dashboard.
Node rewards are determined by the location of the node and its hardware specifications. This ensures that node providers are compensated fairly for their hosting costs.
Rewards are technically specified in XDR, but are converted into ICP based on the average exchange rate over the last 30 days. This helps to stabilize the value of ICP.
The Internet Computer's network expansion is expected to outpace inflationary mechanisms, keeping the value of ICP stable.
On a similar theme: World Bank Governance Index
Token Inflation/Deflation
The Internet Computer's tokenomics is built around the ICP token, which has several uses. The ICP token is used for governance, resource payment, node renumeration, and token swaps.
ICP holders can participate in governance by staking their ICP and voting on proposals, earning rewards in the process. Governance rewards are calculated based on a descending curve applied to the total ICP supply.
For more insights, see: Fund Governance

Node providers are rewarded in XDR, which is converted to ICP based on the average exchange rate over the last 30 days. This reward is determined by the node's location and hardware specifications.
The Internet Computer's network expansion rate can outpace inflationary mechanisms, keeping the value of ICP stable. The democratic governance function of the NNS allows the community to adapt ICP tokenomics as needed.
ICP tokens can be converted into cycles to pay for Internet Computer resources. Once converted, the ICP tokens are gone, and the cycles are used to run computations on canister owners' machines.
Token Utility and Governance
The ICP token has several utility functions that make it a crucial part of the Internet Computer protocol. It can be used to participate in governance by staking ICP and voting on proposals, earning voting rewards in the process.
ICP can be transformed into cycles, the native currency of the Internet Computer, to pay for resources and services. This is a key feature that enables developers to build and deploy applications on the network. ICP is also used to renumerate node providers who operate node machines running the Internet Computer protocol.

The ICP token is used in various ways to govern the Internet Computer, including voting on proposals and earning voting rewards. The voting power of neurons, which hold ICP, is proportional to the number of ICP staked and the staking duration.
Here are the four protocol use cases for ICP:
- Participating in governance by staking ICP and voting on proposals
- Transforming ICP into cycles to pay for resources and services
- Renumertating node providers who operate node machines
- Participating in token swaps of decentralized autonomous organizations (DAOs) on the IC
To participate in governance, you need to stake ICP in neurons, which can vote on proposals and earn voting rewards. The voting power of neurons increases as they mature, and they can be configured to vote automatically by following the votes of other neurons.
The voting rewards schedule is designed to incentivize early adoption, with a higher reward amount for neurons that stake ICP for longer periods. The reward amount is distributed in proportion to the voting power and ratio of proposals voted on.
Here's a summary of the voting rewards schedule:
The ICP token is used to facilitate governance and decision-making on the Internet Computer. By staking ICP and voting on proposals, you can participate in the governance of the network and earn voting rewards.
Broaden your view: Crypto Asset Governance Alliance
Token Rewards and Incentives

The ICP token is used to renumerate node providers, which are entities that own and operate the computing nodes that run the Internet Computer protocol.
ICP tokens are used to pay for Internet Computer resources, which can be transformed from ICP tokens.
Node provider rewards are paid via newly minted ICP tokens, and the renumeration they receive is fixed per node.
The renumeration for node providers depends on two parameters: the location of the node, as hosting prices differ between locations, and the type of node, including its hardware and connectivity specifications.
Node provider rewards are specified in XDR and are converted into ICP based on the average exchange rate over the last 30 days.
ICP tokens can be used to earn voting rewards by staking ICP and voting on or submitting governance proposals.
Investing in the IC Ecosystem
Investing in the IC ecosystem is a straightforward process that offers a plug & play solution for developers to transfer control of their dapps over to a Decentralized Autonomous Organization (DAO).

Developers can specify a time period and minimum & maximum funding target of ICP to be collected, which determines when the sale is over.
Investments via decentralization swaps in DAOs act like rocket fuel for the IC ecosystem, providing easy and transparent access to exciting Web3 projects.
The ICP funds raised by the decentralization swap are retained within the reserves of the fully autonomous DAO, rather than being forwarded to the original developers of the dapp or service.
These funds can be used to pay for future computation needs of the dapp and also to pay code bounties for future dapp enhancements.
Users can commit some ICP to a new DAO as part of a decentralization swap, and in return, they will receive tokens of the DAO with everyone paying the same price.
On a similar theme: Atomic Swap
Token Sale and Features
The ICP token sale was a groundbreaking event that raised $125 million in 13.4 seconds, setting a new record for the fastest token sale ever.

ICP tokens are designed to be used as a medium of exchange within the Internet Computer blockchain, enabling fast and secure transactions.
The token sale was conducted through a Dutch auction, where the price of ICP tokens was determined by a descending price curve.
ICP tokens are capped at 5 billion units, ensuring that the token supply will never exceed this amount.
The ICP token sale was led by DFINITY, a Swiss-based non-profit organization that aims to create a decentralized and open-source internet.
A total of 71 million ICP tokens were sold during the token sale, which accounted for about 1.4% of the total token supply.
Sources
- https://www.mariblock.com/icp-token-analysis-how-dfinity-icp-powering-future-decentralized-web-2/
- https://medium.com/infinityswap/understanding-inflation-and-deflation-in-icps-tokenomics-5f91d83153f0
- https://internetcomputer.org/how-it-works/tokenomics/
- https://hackernoon.com/tokenomics-and-ai-incentivicing-ethical-ai-development-on-icp
- https://www.coincarp.com/currencies/dfinity/project-info/
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