Inflation Correction and Unstaking Subsidy Plan

Initia Governance
1

Background

On May 20th, Initia Chain Upgrade Proposal 1 was submitted to the Initia Forum alongside an on-chain vote (Proposal 39). This proposal contained multiple upgrades to the Initia L1, including a parameter update to correct the staking inflation rate that was incorrectly configured at genesis. As outlined in both Initia’s documentation and published tokenomics, staking inflation was intended to be 5% of the staking supply (25% of total supply) per year—equivalent to 1.25% of the total supply per year. However, at genesis, this parameter was incorrectly set to 5% of the total supply per year.

This means since Genesis on April 24th, 2025, users have been receiving nearly 4x the intended inflation rate for staking INIT and providing USDC-INIT liquidity in Enshrined Liquidity. While the additional yield is attractive, it is unsustainable and a net negative to Initia in the long term. Initia has always believed in pushing focus and attention to the Interwoven Economy. High staking rates are the death of chains as the L1 competes directly with use cases in the economy. It is important that opportunities to use the native token within applications are abundant and competitive with staking on a relative basis. This is the core reason for focusing on VIP rather than staking (cf. here).

This proposal quickly received significant feedback from the community that focuses on two main points:

  • the proposal was immediately submitted onchain, leaving little time for notice or discussion amongst the community
  • the proposal contained a sudden reduction in inflation, without considering a smoother transition on the inflation reduction

Subsequent discussions have trended towards agreeing with the contents of the original proposal. An incorrect parameter should be corrected, inflation was unsustainably high, and this is the correct action to take for the long-term success of Initia. However, the Initia Foundation acknowledges the community’s concerns and agrees that this mistake should be addressed with users’ interests in mind. We recognize that users need time to plan their actions, especially considering the 21-day unbonding period where no staking rewards are earned.

Given these reasons, the Foundation has held discussions about potential next steps with key governance participants, including validators and community members. We urge users and validators to vote No on Proposal 39, even though it is passing at the time of writing. This will help ensure the community’s confidence in the proposal’s rejection and allow us to focus on next steps laid out below in this proposal.

Additionally, there is a need need for a robust governance process to provide consistent structure and clarity for core governance votes and forum proposals. This framework is currently in development and will be introduced in the coming weeks.

The Initia Foundation extends sincere thanks to the community members who continue to make their voices heard in Initia’s on-chain governance. Without your thoughtful contributions, the growth of Initia and the Interwoven Economy would not be possible. Initia remains committed to fostering open discussion, acknowledging issues, and developing fair solutions for improvement.

Based on the received feedback, Proposal 39 has now been split and resubmitted as two independent proposals:

  • ICUP 1.5: focuses solely on the technical L1 upgrade to chain version 1.1 (to be posted)
  • Inflation Correction and Unstaking Subsidy Plan (this proposal)

Given Initia is currently emitting one months worth of expected inflation each week, this change is highly urgent. Additionally, much of the contents of this proposal has already been discussed in the context of Proposal 39.

Thus, this proposal will be open for discussion and feedback on the Forum for 72 hours before proceeding to an onchain vote on Monday, May 26th at 6:00AM UTC.

The full timeline is provided at the end of this proposal.

Proposal

This proposal is to enact and approve the following:

  1. Reduction of inflation to the correct rate of (5% of staking supply)/yr or 1.25% of the total INIT supply/yr, ie. (250,000,000 INIT x 5% per annum = 12,500,000 INIT per annum)

  2. Initia Foundation’s Unstaking Subsidy Plan (described below)

1. Inflation Reduction Parameters

Parameter Current Parameter Value New Parameter Value
release_rate 0.05 0.0125

2. Unstaking Subsidy Plan

For avoidance of doubt, all unstaking subsidies will come from the Initia Foundation’s treasury.

Part A

If a user

  1. unstaked their tokens between when Proposal 39 was posted on the forum (May 20th, 11:00AM UTC) and when this forum proposal was posted (May 23rd, 6:00AM UTC),
  2. cancels their unstaking before the inflation reduction is executed (Estimated: June 2nd, 6:00AM UTC),
  3. remains staked after cancellation when the inflation reduction is executed (Estimated: June 2nd, 6:00AM UTC),

the Initia Foundation will subsidize the staking rewards missed from the unstaking period as a result of the confusion from Proposal 39. Note that the user must satisfy ALL three of the above requirements.

Example

If a user:

  • initially unbonds their stake on May 21st
  • proceeds to cancel their unbonding on May 24th
  • remains staked until after June 2nd

they will receive a subsidy equal to 3 days of rewards at the current increased staking APR.

Part B

Additionally, if a user has any unstaking position with an unbonding period that overlaps or falls within the window of June 2, 6:00AM UTC to June 23, 6:00AM UTC (21 days after the inflation reduction is executed), the Initia Foundation will subsidize the missed staking rewards to the user. These rewards will be equivalent to 25% of the new nominal staking APR for the duration of the window. The nominal staking APR will be calculated as the daily average APR over the corresponding unstaking period that falls within the window.

Example

If a user:

  • Unbonds their stake on May 26th,
  • Remains in unbonding status for 16 days during the 21-day window after the inflation reduction is executed,

they will receive INIT equivalent to 16 days of rewards at 25% of the new average staking APR.

Subsidy Claim Process

If eligible, users will be able to claim their Unstaking Subsidies on the Initia App before July 7th, 2025. There will be no lock or vest of any kind and Unstaking Subsidy claims will remain open for 30 days after the claims go live.

Subsidy Rationale

The Foundation is open to providing the subsidy described above based on the following rationale:

  • Part A seeks to subsize the users who were affected by Proposal 39 due to the confusion arising from proposal communications. Specifically, users who saw Proposal 39 and immediately decided to unstake missed out on staking rewards (stake in the unbonding period do not receive staking rewards). To address this, the Foundation will cover the missed rewards for the duration between the start of a user’s unbonding period and the moment they cancel the unbonding. The user must cancel the unbonding before the execution of this proposal and remain staked until the execution of this proposal to prevent interference with the execution of the subsidy. Users who choose to proceed with unstaking will not be eligible for the subsidy Part A, as tokens in unbonding are, by default, not entitled to staking rewards.
  • Part B aims to subsidize users who staked their tokens with the expectation of high APRs but were misled due to an incorrect inflation rate and now wish to exit. Users have the option to remain staked and receive the full benefits of the newly adjusted APR once the proposal is implemented, or to initiate unstaking. If a user chooses to unstake, the Foundation will provide a subsidy equivalent to 25% of the adjusted APR during the unstaking period that falls within the defined window. This subsidy is intended to offset the opportunity cost incurred during the unstaking period which traditionally grants no staking yield.

Timeline

  • Forum Proposal: May 23rd, 6:00AM UTC
  • Onchain Vote begins: May 26th, 6:00AM UTC
  • Onchain Vote ends and proposal is executed or rejected: June 2nd, 6:00AM UTC

Voting

  • YES – You support the proposed inflation correction parameter change and unstaking subsidy plan.
  • NO – You oppose implementing the proposed changes.
  • NO WITH VETO – This vote signals strong objection. It is used when the proposal is considered:
    1. Spam or irrelevant to Initia,
    2. Harmful to minority stakeholders, or
    3. In violation of Initia’s governance principles or encourages such violations.If more than one-third of total votes are cast as “No with Veto,” the proposal will be rejected and any deposits will be forfeited (burned).
  • ABSTAIN – You choose not to take a stance on the proposal but want your vote counted toward the quorum.
4 Likes
2

Xangle supports the newly proposed plan from the foundation.

We believe this plan addresses the procedural issues of Proposal #39 and reflects the foundation’s sincere efforts to minimize damage by subsidizing stakers. It substantially resolves the concerns that led us to vote “No with Veto” on Proposal #39.

We appreciate the team for actively listening to the community and quickly introducing a revised proposal. We believe this will ultimately strengthen the Initia community and further build trust in the foundation.

3 Likes
3

I sincerely commend Initia for its bold and community-first decision.

As our team members and I outlined in below article, the core issue surrounding Initia’s Governance Proposal #39 was more about the lack of adequate communication with the community. https://x.com/FourPillarsFP/status/1925118733246238780

Initia’s tokenomics were initially designed with a careful balance—ensuring that the native token would be actively used in real applications, not just locked in staking. However, during execution, the plan deviated from this vision, and efforts to correct it led to understandable confusion within the community. Through this new proposal from Initia, the team has shown its genuine willingness to listen. They’ve openly acknowledged both the lack of a structured governance framework and the fact that the root cause of the situation was their own mistake. More importantly, they’ve gone a step further: not only committing to restoring the intended economic structure, but also compensating community members for the opportunity cost incurred during the transition using “Foundation-held” tokens. No system is perfect from the beginning. And the more diverse the stakeholders, the more complex it becomes to maintain balance. Even so, the Initia team has once again demonstrated the ability to make rational decisions for the long-term growth of the ecosystem—while reaffirming its deep commitment to putting the community first. As a validator and member of the Initia community, we at Four Pillars strongly align with this ethos and remain committed to actively contributing, collaborating, and amplifying the values that drive Initia forward.

4 Likes
4

this upgrade proposal dont solve any problem of initia

  1. optimistic bridge withdrawal time: there is not enough information on the voting page on how long the period will be reduced

  2. Fix ibc problem in inertia why I should need to wait 9d for sinit
    Its not about security its just a usertrap

salt initia token = withdrawable 30s in inertia to init 1 or base
Sinit = 9d + 21d unlock

when we made an inertia deposit, we did not know that our money would wait for 9 days when we would make a withdrawal to init l1

teams (initia + inertia) should also compensate their loss for not giving these people enough information also users should be warned with a warning text when sending init tokens from l1 to roolups that do not support ibc

  1. If I will withdraw money in stake I missing 1.5 vip epoch, down undelegate time 21d > 14 (1 vip epoch)

  2. Problem of high deductions when withdrawing money from some roolups with ibc bridge

  3. Echelon breaks vip epoch and every time team will give vote all roolups

Because you’re accepted vip program and they gave %75 vip rewards to usdc suppliers and borrowers
adjust : %20 supply usdc %20 borrow usdc and set %30 init %30 init borrowing (because usdc = 0 risk)

  1. Initia App :
    Zapped positions can be staked with validators to earn staking rewards (currently ~150% APR) and trading fees (24-hour trading volume of $13.19 million on capital of $33.27 million, equal to ~144% APR).

users were manipulated by pretending that the rate was correct in this vote and the team should also apologize to users for their manipulation.

  1. Also open another proposal and down min validator commision %5 > %1 (this is almost the same as the drop rate of staking rewards)

staking > unbounding time 21d > 14d
staking > min validator commision %5 > %1
reward > 0.05 > 0.0125

I will vote yes if the conditions met

3 Likes
5

We just want to say that we’re really proud of how the Initia team has handled things lately. Yes, there were missteps, but the Foundation responded well by pausing the proposal, listening to feedback, and coming back with a more balanced plan. That’s exactly the kind of responsibility and openness we like to see.

As validators, our job isn’t just running infra; it’s also to be a point of connection between the chain and the people who believe in it. That means being open, helpful, and doing what we can to support the long-term health of the ecosystem.

That said, we at F5 Nodes really appreciate how the Foundation responded to the community, and we’re 100% behind a clearer and more thoughtful plan.

https://x.com/f5nodes/status/1925910664268202215

gwoven :knot:

3 Likes
6

A41 would like to thank the Initia team for listening to the community and thoughtfully working toward the right solution.

In line with the position we shared on X(Twitter), A41 has voted No with Veto on Proposal 39.

Regarding the two newly separated proposals:

  • For ICUP 1.5, we plan to vote Yes without reservations.
  • For the Inflation Correction and Unstaking Subsidy Plan, A41 agrees that the misconfigured inflation rate should be corrected and supports the proposed subsidy. We will share this forum post with our community and carefully gather feedback before casting our final vote.

We sincerely appreciate Initia’s willingness to listen and take decisive action, and we look forward to contributing together toward a more sustainable network.

gwoven :knot:

2 Likes
7

Hey @Shine.init — answering some of the Qs from your post to the best of my knowledge.

  1. optimistic bridge withdrawal time: there is not enough information on the voting page on how long the period will be reduced

From the comms, I infer the team intends to uniformly reduce the withdrawal period to 3 days for all the rollups.

  1. Fix ibc problem in inertia why I should need to wait 9d for sinit
    Its not about security its just a usertrap

Rollups have the choice whether they want to use the OP Bridge or IBC to bridge assets to their appchain. It very much is a question of security, not just a user trap. IBC has trust assumptions where a rogue rollup operator can technically seize your assets. The security guarantees of the OP Bridge are simply superior. Plus, OP Bridge can bridge assets 1:1, whereas with IBC you might run into some slippage.

when we made an inertia deposit, we did not know that our money would wait for 9 days when we would make a withdrawal to init l1

When you bridge to Inertia, the Bridge page specifically states that it takes 9 days to withdraw your assets back to Initia. But I agree, the Inertia team should do better to make this fact extremely apparent to the users.

they gave %75 vip rewards to usdc suppliers and borrowers
adjust : %20 supply usdc %20 borrow usdc and set %30 init %30 init borrowing (because usdc = 0 risk)

This is upto the Echelon team and I recommend you take it up with them. L2 teams are going to incentivise actions they think add more value to their app, it’s their decision. As to shed light on Echelon’s possible motivation to incentivise USDC deposits & borrows—

  1. Deep USDC liquidity to borrow against INIT.
  2. Decent supply APR on USDC as users borrow more USDC.

These lead to healthier markets.

users were manipulated by pretending that the rate was correct in this vote and the team should also apologize to users for their manipulation.

I don’t think the users were manipulated. The docs and comms have always mentioned the staking inflation to be 1.25% per annum vs 5% per annum. The Initia App mentions the “current APR” without making promises of future APR staying the same.

For any confusion caused by the team, Initia Foundation is offering compensation to the users as detailed in the proposal, which in my opinion are more than generous.

Hope you come around to voting YES on the proposal. Cheers!

2 Likes
9

B-Harvest first voted No with Veto on Proposal 39, but changed it to just No because the Initia Foundation made the final decision.

Web3 works by giving people incentives to act in certain ways. In this system, we think the foundation has the right and responsibility to help shape these incentives, and it should have the freedom to do that unless that freedom limits the community’s ability to respond due to a lack of information or time.

  • For ICUP 1.5, we plan to vote Yes.
  • For the Inflation Correction and Unstaking Subsidy Plan, we respect the team’s autonomy and think they’ve given holders enough information now, so we respect their decision.

B-Harvest will actively participate in Initia’s governance — both on technical and policy matters — to help shape a sound and sustainable ecosystem.

10

One critical case appears to have been overlooked in the current proposal:

Participants who deposited into esINIT-USDC LP positions with a 1-year lock-up period via the VIP system.

Many of these users chose the long-term lock-up option based on the high APR offered at the time. However, under the new proposal, the APR is set to be significantly reduced — and these users have no means of responding to this change, as their positions are irrevocably locked for at least 26 weeks.

In summary:

  • There exist LP positions locked through VIP with a minimum duration of 26 weeks.
  • Users committed to long-term lock-up based on the previously promised APR and reward model.
  • The APR has now been significantly reduced, yet these users have no flexibility to react, being bound to their lock-up terms.
  • Thus, the reward structure has changed without recourse or optionality for these users.

Therefore, we believe it would be appropriate to consider additional measures for these users, such as:

  • Calculating and issuing compensation for the APR delta during the lock-up period.
  • Alternatively, allowing for partial early unlocking of their locked LP positions to restore a degree of optionality.

Addressing this will not only ensure fairness across participant groups, but also maintain long-term trust in the VIP and staking mechanisms.

1 Like