Tokenomics
Horizon Protocol Supply and Inflation Policy
Originally published here as a Medium article.
Summary:
  • The Horizon Protocol inflation policy incentivizes collateral providers, liquidity providers, and synthetic asset onramps.
  • Purpose is to stimulate early growth and overall health of the protocol.
  • The policy is front-loaded to reward early adopters.
  • Rewards are calculated and distributed weekly.

Introduction

The Horizon Protocol inflation policy incentivizes collateral providers, liquidity providers, and synthetic assets onramps. The Horizon Protocol functions around collateral to back synthetic assets (zAssets) linked to real world assets using price oracles. There is a 0.3% transaction fee when trading zAssets that translates directly into rewards for those staking HZN and providing liquidity in LPs. We project that the incentive at early stages will be insufficient for users to perform this critical action required by the protocol. Therefore, we will have an inflation policy designed to stimulate growth at early stages by increasing the incentive to provide collateral and liquidity for the protocol as well as synthetic asset onramps.

Horizon Protocol supply and inflation policy

An initial launch supply of 100,000,000 HZN will be minted upon launch of Horizon Protocol on mainnet.
  • 10% (10,000,000 HZN) will be reserved for the IFO on PancakeSwap.
  • 30% (30,000,000 HZN) will be reserved for Liquidity Mining (PHB, HZN, HZN-BNB LP) purposes.
  • 60% (60,000,000 HZN) will be reserved for the Ecosystem & Community Fund.
Initially, only the 10% IFO allocation will be circulating in the market, followed by the Liquidity Mining allocation, expected to be released over the course of a year. The Ecosystem & Community Fund will NOT be initially circulating and will be used to support the protocol and community via stabilization of synthetic asset collateralization, market making for synthetic assets, protocol grants, bounties, partnerships, marketing and other community incentives. There is no team or investor allocation.
The inflation policy will take place over an approximate four and a half year period (the time needed for the starting inflation rate to reach terminal inflation) increasing the initial supply of HZN from 100m to approximately ~260m. Inflation will be calculated and distributed weekly. The first 40 weeks are front loaded at a rate of 75m per year distributed weekly (~1.44m/week). The inflation rate will begin smoothly reducing at a weekly rate of 1.25% until week 235 where the policy ends when the terminal inflation rate of 2.5% per year is reached.
The following timeline outlines key events from the initial launch to the end of the inflation policy when terminal inflation is reached.
  • Initial launch phase begins with 100m HZN tokens minted. HZN will be distributed through community mined staking, liquidity pools, partnerships, grants, bounties and other rewards.
  • Inflation policy begins when Horizon Genesis is released.
  • 40 week front-loaded inflation begins to reward early adopters and drive growth at a rate of 75m per year distributed weekly i.e. ~1.44m HZN per week for the first 40 weeks.
  • Weekly reduction of the inflation rate at 1.25% begins at week 40.
  • On week 235: the inflation policy will end having reached the terminal inflation rate.
  • After week 235: the change to a terminal inflation rate of 2.5% per year distributed weekly.
The following tables and graphs show a summary of the total and increase in supply of HZN starting from the initial launch.
Table 1. Period/Year and Total Supply — All HZN will be distributed to collateral providers, liquidity providers, and synthetic asset onramps.
Graph 1. Total HZN supply after the inflation policy starts.
Graph 2. Weekly inflation displayed over 7 years after the inflation policy begins.

Distribution

Rewards from the inflationary policy are distributed to stakers and the Earn: Liquidity Pools. To learn more about the liquidity pools, you can go here.
For HZN stakers, note that the Staking Rewards (in HZN) from your claimed rewards are locked for one year from the date that the rewards are claimed.

Conclusion

Horizon Protocol’s inflation policy will stimulate early growth, and the overall system health by rewarding users that provide collateral and liquidity to the system as well as to encourage synthetic asset onramps. It will also promote a positive feedback loop by utilizing HZN as it was designed for. The additional HZN rewards for users staking HZN as collateral will also automatically increase their collateralization ratio making Horizon Protocol more secure. The policy adds value at an early stage by strengthening the protocol’s core functions where the compounding nature of growth is critical to success.
As always, the team at Horizon Protocol want to thank the community, whose continued support and feedback make all of this possible.
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Introduction
Horizon Protocol supply and inflation policy
Distribution
Conclusion