Total supply, circulating supply, and staked ICP
For a crypto community to understand the governance and tokenomics of the IC, understanding the supply of ICP is important.
Before we get into the discussion of Total Supply and Circulating Supply, it is important to understand a bit about the Tokenomics of ICP. ICP is the utility token of the Internet Computer blockchain. The following are the core use cases that outline how the ICP token helps in the functioning of the Internet Computer blockchain.
1. Node Provider Rewards: The node providers that offer compute/storage infrastructure to the Internet Computer blockchain receive ICP rewards. Each node receives a flat monthly reward calculated in fiat and paid in the form of ICP tokens. This model ensures that the cost that the network bears for running a node is always constant in fiat terms. The reward varies slightly based on the geographical location of the node to ensure the IC is able to achieve a wider geographical distribution of nodes. Each node provider continues to receive rewards as long as they guarantee the right quality of service. The rewards are paid by minting new ICP tokens, causing inflation.
2. Governance: ICP token holder can stake (lock) their tokens to create Neurons. Holding neurons enables them to secure voting rights via the IC’s on-chain open governance system, the Network Nervous System (NNS). The NNS enables the neuron holders (people staking ICP) to vote on proposals related to aspects like upgrading the IC protocol and software running on node machines, onboarding new node providers, adding node machines into the blockchain network, and creating new subnet blockchains to increase capacity. The NNS implements liquid democracy: neurons can follow other neurons a delegate voting power. The neuron holders receive rewards from the IC protocol for participating in the voting process and helping with the governance. These voting rewards are also paid by minting new ICP tokens, causing inflation.
3. Fuel for Computation/Storage: Canister smart contract computations running on the Internet Computer blockchain are fueled by “cycles”. These cycles are derived by burning ICP tokens. The cycles play a similar role to “gas” on Ethereum. There are several major differences, however. One of the most fundamental differences is that Ethereum leverages “user pays” while the Internet Computer has “smart contract pays” model (sometimes called “reverse gas”) model. Whereas the Ethereum blockchain requires end-users to send payments for the gas that smart contracts consume with every transaction, on the Internet Computer, Canister smart contracts are pre-charged with cycles, such that contracts effectively pay for their own computation - freeing users from the responsibility. Cycles are generated by burning ICP utility tokens, causing deflation.
4. Transaction/Proposal Fees: When any ICP holder transfers their ICP from one wallet to another they incur a small transaction fee paid in ICP. Additionally, ICP holders pay a small fee while submitting new proposals to the NNS. These fees are burnt as a part of the transaction, causing deflation.
To summarize, ICP inflation happens for rewarding node providers and governance participants while deflation happens when ICP is burnt for computation or for transaction/proposal submission fees.
With that concept under our belt let's dive deeper into understanding the ICP token supply. Understanding the supply of a token is important to many people in the crypto community.
The total supply of ICP is variable, with both minting (inflationary) and burning (deflationary) mechanisms. The circulating supply of ICP is also variable, and in addition to being affected by minting and burning, it's also affected by the unlocking of neurons from early contributors (e.g., neurons of seed round donors are on a multi-year unlocking schedule).
Background: the design intent
The design intent of the tokenomics of the IC is to create a self-sustaining ecosystem that can balance the following goals and constraints:
- Developers pay very low storage and compute costs.
- Node provider rewards are high enough to incentivize node providers to be part of the network.
- Voting rewards are high enough to encourage staking and governance participation (but not too high).
Since this is a dynamic system, it is up to the community to keep an eye on the system and adjust its levers accordingly, evolving and optimizing the IC's tokenomics via NNS proposals.
Total supply is the sum of all tokens currently in the system (whether they are locked/staked or not).
The total supply changes over time due to inflation and deflation. Its current value can be seen on the IC Circulation page of the IC dashboard.
The circulating supply is the difference between the total supply and the non-circulating supply. The non-circulating supply is the sum of all funds in accounts and neurons controlled by the DFINITY Foundation, plus the funds in the seed-round and ECT neurons. The seed-round and ECT neurons are on vesting schedules with more neurons potentially entering the dissolved state every month. Regardless of the actions of the seed-round and ECT neuron controllers (for example, they may decide to increase the dissolve delay or stop dissolving), the funds that could theoretically be disbursed based on the vesting schedule enter the circulating supply. At the end of the vesting schedule, all seed-round and ECT funds will be part of the circulating supply.
The current circulating supply can be seen on the IC Circulation page of the IC dashboard.
Staked ICP supply is the sum of all the tokens that are locked or dissolving in neurons at any given time that are earning rewards. At this time, there is a minimum lockup period of 6 months to accrue voting rewards.
The total amount of staked ICP changes over time. Its current value can be seen on the Neurons page of the IC dashboard.
At network Genesis
May 10, 2021:
- Total supply: 469 million
- Circulating supply: 123 million
As of February 28, 2022:
- Total supply: 477 million
- Circulating supply: 207 million (43.5% of total supply)
- Staked ICP: 275 million (57.7% of total supply).
- 77% of ICP staked is staked with more than a 1-year dissolve
- 38.5% of ICP staked is staked for an 8-year dissolve
- One can see the breakdown of staked ICP by dissolve delays in IC neuron dashboard.
- As outlined in the section above Circulating supply represents ICP that was ever liquid. A subset of the circulating supply is locked in neurons as staked ICP.
The NNS mints ICP tokens for two reasons:
- For voting rewards (Governance).
- For node provider rewards.
The amount of ICP minted since Genesis can be seen in the "Total Rewards" chart on the IC dashboard.
Paying staking rewards
Voting rewards are generated by minting ICP, although this minting only happens at the moment rewards are spawned, maturity is merged, or the neuron is disbursed.
The voting rewards rate schedule is designed with the goal that 90% of the token supply is staked in neurons. With this goal in mind, in the first year, the NNS allocates 10% of the total supply to generate voting rewards. Note the term "allocates" rather than "mints", because rewards are not minted (increasing the total supply) until they are spawned, merged, or the neuron is disbursed.
As the network becomes more stable over time, this allocation rate drops quadratically until it reaches 5% by year 8. See chart below from the IC Circulation page on the IC dashboard.:
Like all parameters in the NNS, this rate schedule can be changed via NNS proposals.
See more in Staking, voting and rewards.
Node provider rewards
Node providers are rewarded for running the node machines that power the Internet Computer.
The NNS burns ICP tokens for three reasons:
- To mint cycles, used to pay for compute and storage.
- For transaction fees.
- For failed NNS proposal fees.
The amount of ICP burned since Genesis can be seen in the "Total ICP Burned" chart on the IC dashboard.
Paying for compute and storage
Dapp and smart contract developers pay computation and storage costs with cycles. Cycles are acquired from the NNS by converting ICP to cycles, which burns the converted ICP.
The cycles costs for IC computation and storage can be seen at Computation and Storage Costs.
Transferring ICP across accounts incurs a transaction fee of 0.0001 ICP, which is burned.
Failed NNS proposals
It costs 10 ICP to submit a proposal. If the proposal passes, the 10 ICP is returned to the proposer. If the proposal is rejected, the 10 ICP is burned. Note that this only happens at disbursement or merging of neurons, so accumulated failed proposal fees can persist for a while before finally contributing to deflation.
Historical factors affecting circulating supply
The Internet Computer blockchain is a result of several years of unyielding R&D. By Genesis, the DFINITY foundation, a major contributor to the Internet Computer was over 200 full-time members. Over the past several years the foundation raised financing in three main rounds and also allocated ICP tokens to the community in the form of an airdrop event.
For a breakdown of the different rounds and vesting schedules, see Messari's report "Introduction to ICP". The unlocking of neurons has been the largest contributing factor to circulating supply since Genesis, so it's important to understand the context.
1. Seed Round, Feb-2017: This round was advertised by a tweet and open to the public by downloading a web extension. DFINITY raised CHF3.9 million (US$3.9 million) from 370 participants, at a valuation of $16 million, or a price of $0.03 per token. It held a portion of these funds in ETH and BTC during the 2017 crypto bull run. Seed round participants received all of their tokens at genesis but are staked inside 49 neurons. Each neuron has a different dissolve delay counting from 0 to 49 months. So this is practically equivalent to a 49-month "vesting schedule" see How to Access ‘Seed’ and ‘Airdrop’ ICP Tokens and Participate in the Internet Computer Network.
2. Strategic Round, Jan-2018: DFINITY raised $20.54 million for 7.00% of the initial supply (the number has been revised from the previously cited 6.84%). This allocation will vest monthly over three years starting from mainnet launch (May 2021). Participants include Polychain Capital, Andreessen Horowitz, CoinFund, Multicoin Capital, and Greycroft Partners. This round marks the first token a16z invested in. Polychain and DFINITY later collaborated to create the "DFINITY Ecosystem Venture Fund" (later renamed "Beacon Fund") of an undisclosed size. The goal is to fund new projects that would grow the IC's application ecosystem. The media reported that DFINITY raised a much larger amount of $61 million.
3. Private Sale, Aug-2018: 110 participants contributed $97 million for 4.96% of the initial supply, sold at 4 CHF (around $4 at the time) per ICP token. This number has been revised from 4.75% previously reported. This allocation came with a monthly vesting schedule of one year from mainnet launch. Vesting began one month after the initial token distribution event on May 10, 2021. Participants in this round include Andreessen Horowitz, Polychain Capital, SV Angel, Aspect Ventures, Electric Capital, ZeroEx, Scalar Capital, and Multicoin Capital.
4. Airdrop, May-2018: $35 million worth of ICP tokens (formerly DFN), or 0.80% of the initial supply, was airdropped to early supporters by being part of their mailing list, forums, and community. At this time, valuations reached $1.89 billion. Airdrop participants received the IOU version of their ICP tokens in September 2020. This allocation came with a monthly distribution schedule of one year from mainnet launch, which began on May 10, 2021.
Ultimately, the NNS is controlled by the community so it can vote to change any of the parameters. The parameters and mechanisms described are the current ones.
The ICP token has a Total Supply of 477.6MM, Circulating Supply of 207.6MM as of February 28, 2022 477.6MM ICP (43.4 of total supply) is staked by token holders in the form of neurons with over 77% locked for over 1 year.
The number of tokens is constantly changing. The rewards paid out to the node providers and governance participants contribute to the inflation in token supply while factors like compute/storage fees and transaction fees cause deflation in the total supply.