Interpreting the INJ economic model and inflation adjustment in plain language

As is well known, Injective public chain is a high-performance public chain based on the Cosmos SDK, specifically designed for high-frequency trading, Defi, RWA, and other scenarios. Its unique shared order book model provides a new way of Liquidity supply for Defi applications, while dedicated technologies such as iAssets module bring efficient on-chain channels for RWA.

In addition, due to its unique economic model and inflation adjustment mechanism, INJ has been favored by investment institutions and communities. Its latest release, INJ 3.0, is even referred to by the community as a heavyweight update comparable to Ethereum's EIP-1559. In this article, we will provide a detailed explanation of INJ's economic model, inflation adjustment mechanism, and INJ 3.0 to help everyone better understand INJ's economic model.

Basic Functions and Token Uses of INJ

As the native token of the Injective public chain, INJ has three basic functions.

First, INJ can serve as an on-chain transaction medium and fee Token, a function that is basically consistent with ETH and SOL on their respective on-chain functionalities, which will not be elaborated here.

Second, INJ is used for staking in the POS network, and participants in staking (including validators and delegators) can receive income distributed in the form of INJ. To maintain a balance between the issuance rate and the staking rate, INJ has introduced the "dynamic supply rate adjustment" mechanism, which will be described in detail later.

In addition to being used for staking, INJ holders can also participate in on-chain governance, voting on on-chain parameter adjustments, protocol upgrades, new feature proposals, etc. To encourage more people to participate in staking, Injective has launched the VIP program, where staking more INJ can earn more incentives.

Third, the INJ public chain has a unique Burn Auction mechanism, where the only bidding currency is INJ. In simple terms, the INJ public chain will allocate a portion of the transaction fees/network revenue each week, pool them together, and users can bid with INJ. The highest bidder will receive the assets in the pool, and the INJ they pay will be burned. The Burn Auction, together with the 'Dynamic Supply Rate Adjustment,' constitutes the overall inflation adjustment mechanism of INJ.

The economic model and inflation adjustment mechanism of INJ

In the previous section, we briefly mentioned that INJ's dynamic supply rate adjustment + Burn Auction constitutes an inflation adjustment mechanism, as long as the deflation rate is greater than the block reward issuance rate, the overall INJ can achieve deflation.

Issuance Mechanism: Dynamic Staking Incentives Adjustment

The Token supply mechanism of INJ is inspired by and improved upon Cosmos' inflation model, employing 'dynamic supply rate adjustment', with its core being the dynamic adjustment of staking rewards/Token issuance based on the INJ staking rate to achieve the designated 'target staking rate'.

Injective currently sets the target staking rate at 60%, and each new block will adjust the subsequent token issuance rate (staking incentives) based on the deviation between the current actual staking rate and the target staking rate.

For example, if the current actual staking ratio is lower than 60%, INJ will continuously increase the staking incentive until the limit is reached, allowing more holders to participate in staking. This approach will increase the inflation rate but will also increase the staking yield, attracting more people to stake INJ.

When the actual collateralization ratio reaches 60%, the supply rate remains unchanged, and the network is in a state of balance. If the actual collateralization ratio is higher than 60%, the principle is similar.

Here it should be noted that the higher the pledge rate is not necessarily better. Because to maintain a high pledge rate, it is necessary to provide a high pledge income, which will increase the INJ inflation rate and bring selling pressure, so a too high pledge rate is equivalent to indirectly diluting the asset value of INJ holders, essentially the pledger levying a coinage tax on the unpledged.

Currently, the supply adjustment of INJ is done block by block and takes effect in real-time, achieved through automated control. Its mathematical formula is a piecewise function that increases or decreases the current token issuance rate proportionally based on the deviation of the staking rate, but always within certain upper and lower bounds.

The current parameters of INJ's token supply are as follows:

• Supply Rate Upper and Lower Limits: The initial setting is an annual 5% ~ 10% issuance rate. In other words, regardless of the fluctuation of the staking rate, the annual inflation rate always remains within the above range. In the INJ 3.0 economic model, this range is further tightened.
• Target Staking Ratio:60%.
• Number of blocks per year: about 35.04 million (Injective block time <1 second)
• Supply Rate Adjustment Parameter: In the past, it was 10% per year**, after the INJ3.0 upgrade, it became 50%, i.e. if the deviation between the staking rate and the target is significant, the Token issuance rate can be adjusted by up to 50% annually.

Through programmed adjustments, the INJ issuance rate will stabilize around the target staking rate within a given range. The actual total amount of INJ will ultimately fluctuate with the issuance/reduction rate, which is regulated by the two mechanisms of staking incentive issuance and burn auctions. In November 2022, Injective officially burned 5 million tokens initially reserved for the team, largely offsetting inflation issuance.

Deflationary Mechanism: Burn Auction

Burn Auction is the core of the INJ deflation model. The basic idea is to redistribute the income of major DApps to the community and users, and to periodically destroy a portion of the Tokens using market mechanisms.

Injective has a core module called the Exchange Module (on-chain matching trading module), through which dApps within the ecosystem can obtain Liquidity from the shared order book pool and capture fees. After the INJ 2.0 upgrade, INJon-chain applications can contribute any proportion of income to participate in Burn Auction, and users can also voluntarily donate assets to the auction pool. Therefore, the weekly auction fund pool will accumulate a basket of various token assets from different dApps.

Afterwards, INJ will conduct an auction every week, users bid with INJ, and the highest bidder can obtain a basket of assets from the fund pool. The INJ paid by the winner will be permanently destroyed, and this operation is hosted and executed by the Auction Module, and the results can be queried on the block explorer.

Current INJ burn amount displayed on the Injective Hub

This 'weekly auction + burn' model brings clear deflationary scenarios to INJ, with the protocol 'burning' a portion of tokens every week to reward holders. As of January 2025, INJ has burned over 6.54 million tokens.

Through Burn Auction, Injective directly links network activity with Token value, forming the following deflationary loop:

INJ Contraction Loop Diagram

When the amount of destruction exceeds the issuance brought by staking incentives within a period, the total supply of INJ will net decrease (Deflation). Since 2023, Injective has experienced multiple net deflationary periods, such as at the beginning of 2023, when about 10,000 to 20,000 INJ were destroyed weekly, exceeding the inflationary issuance for that week.

In the first half of 2024, with the upgrade of INJ 2.0 opening up the revenue composition of all dApps to auction the fund pool, the weekly destruction rate of INJ surged, and the cumulative destruction amount increased by 274% in just half a year. Specific amounts and charts can be found in the following text.

In conclusion, the dynamic staking incentive adjustment + Burn Auction jointly endows INJ with the ability to adjust the total supply. The official Injective community often compares INJ with post-EIP-1559 Ethereum and fixed-supply Bitcoin.

INJ 3.0 Upgrade: Making Deflationary Effect Stronger

In April 2024, the INJ community passed the INJ 3.0 Token Economic Upgrade proposal (IIP-392), which is seen as Injective's largest economic model improvement to date, significantly enhancing the deflationary effect of INJ.

Previously, we mentioned that the dynamic adjustment of staking incentives determines the issuance rate, while the Burn Auction determines the burn rate. When the amount of burning is relatively stable, reducing the issuance rate will strengthen net deflation. Based on this, the idea of INJ3.0 is to not change the Burn Auction, but to adjust the parameters on the supply side.

On the one hand, INJ3.0 tightened the supply rate range, gradually lowering the annualized issuance rate of INJ over the next two years. According to the proposal, the issuance rate of INJ will decrease from 5-10% to 4%-7%, and will decrease by a certain extent at the end of each quarter until the first quarter of 2026 to reach the target range. See the specific table below.

INJ Supply Rate Change Table

The following figure illustrates the supply rate curve: it can be seen that after the implementation of INJ 3.0, the inflation ceiling and floor have significantly decreased, laying the foundation for long-term deflation.

On the other hand, INJ 3.0** has increased the adjustment speed of** staking yield**, increasing the adjustment range** from 10% per year to 50%. The system will** adjust the inflation rate faster** to ensure that the staking rate is brought back to the target of 60% in a shorter period of time.

With the above two changes, INJ 3.0 has strengthened the deflationary effect. According to the Injective Foundation's calculation, the overall deflationary effect of INJ will be enhanced by 4 times after the upgrade. Community voting also overwhelmingly supports (99.99% vote in favor), reflecting the high expectations of INJ holders for INJ 3.0.

From Q2 2024, the Injective network has been running with these new parameters, resulting in longer net deflationary cycles. At the same time, with the expansion of the ecosystem, the size of the weekly auction pool is also growing in sync. With these two factors at play, INJ is moving towards the goal of "accelerated deflation".

INJ Market Circulation and Inflation Data (as of Q1 2025)

As of Q1 2025, the Injective Network has cumulatively burned over 6.54 million INJ (including the one-time official burn of 5 million INJ and the cumulative weekly auction burn of approximately 1.54 million). The average weekly auction burn is about 10,000 tokens.

According to the data in mid-2024, the ratio of INJ weekly burn volume to the weekly increase in staking incentives once reached 100% or more, achieving a net deflation.

The destruction data of some key time nodes is as follows:

• November 2022: INJ official one-time burn of 500 million INJ
• August 2023: Cumulative destruction exceeds 5.7 million INJ after INJ 2.0 upgrade
• December 2024: Cumulative destruction reaches 638 million INJ
• January 2025: The 195th round of weekly auction is completed, with a total historical destruction of approximately 6.54 million INJ

It can be seen that in addition to the 5 million tokens destroyed by the official INJ team in a single time, more than 1.5 million INJ tokens have also been destroyed cumulatively in the weekly auctions. After the INJ 3.0 upgrade, the reduced inflation leads to more frequent net deflationary cycles. Taking early 2025 as an example, the monthly INJ destruction is about 40,000 tokens, while the issuance increases by about 30,000 tokens during the same period. The net supply decreases by nearly 10,000 tokens, validating the expected effects of the upgrade.

INJ recently burns more than 10,000 tokens per week

In addition, as of the end of 2024, there were a total of 236,000 delegator addresses participating in token staking on the Injective network, accounting for 42% of all active addresses. The total circulating supply of tokens is 97.72 million, with a total staking amount of 51.5 million INJ, an increase of approximately 4.8 million since the beginning of the year. The staking rate is about 52%, the staking yield APY is approximately 15.52%, and the overall annual inflation rate is stable at around 8% to 9%. It can be seen that the inflation adjustment capability of the INJ economic model is relatively robust.

In the future, as the INJ ecosystem continues to grow, the DApp that injects assets into the auction fund for destruction will steadily rise, expected to bring a strong deflationary scenario to INJ for a long time. The expansion of the ecosystem will also attract more validator nodes and stakers to join, and in the near future, the long-term net deflation of INJ may become a reality.