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 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 transaction fee ranging from 0.25% to 0.50% when trading zAssets that translates directly into rewards for those staking HZN and providing liquidity in LPs. We projected that the incentive at early stages would be insufficient for users to perform the critical action required by the protocol. Therefore, we created 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 was minted upon the launch of Horizon Protocol on mainnet.

• 10% (10,000,000 HZN) was reserved for the IFO on PancakeSwap.

• 30% (30,000,000 HZN) was reserved for Liquidity Mining (PHB, HZN, HZN-BNB LP) purposes.

• 60% (60,000,000 HZN) was reserved for the Ecosystem & Community Fund: 0x5a7e0E29A6cCFaFfc34739005002B316cD42debC

Initially, only the 10% IFO allocation circulated in the market, followed by the Liquidity Mining allocation, which was released over the course of a year. The Ecosystem & Community Fund was not part of the initial circulating supply and will continue to be used exclusively 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 was no team or investor allocation.

The inflation policy takes 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 is calculated and distributed weekly. The first 40 weeks were front loaded at a rate of 75m per year distributed weekly (~1.44m/week). The inflation rate began smoothly decreasing at a weekly rate of 1.25% and is set to continue this reduction until it reaches the terminal inflation rate of 2.5% per year, which will occur around week 235 (January 2026).

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 began with 100m HZN tokens minted. HZN continues to be distributed through community mined staking, liquidity pools, partnerships, grants, bounties and other rewards.

• Inflation policy began with the release of Horizon Genesis (now known as Stake).

• The 40-week front-loaded inflation began to reward early adopters and drive growth at a rate of 75m per year, distributed weekly, which equates to approximately 1.44m HZN per week for the initial 40 weeks.

• The weekly reduction of the inflation rate by 1.25% began at week 40.

• At week 235, the inflation policy will end after reaching the terminal inflation rate.

• After week 235, the inflation rate will transition to a terminal rate of 2.5% per year, distributed weekly.

The following tables and graphs summarize the total and supply increase of HZN 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 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 serves multiple key purposes. It stimulated early growth, and continues to enhance the overall system health by rewarding users who provide collateral and liquidity to the system while encouraging synthetic asset onramps.

Furthermore, it establishes a positive feedback loop by utilizing HZN as originally intended. Users staking HZN as collateral also benefit from additional HZN rewards, automatically increasing their collateralization ratio and bolstering Horizon Protocol's security. This policy added substantial value in the early stages, fortifying the core functions of the protocol, where the compounding growth nature is pivotal for success.

We extend our heartfelt gratitude to the Horizon Protocol community, whose unwavering support and invaluable feedback make all of this possible.