PIP-41: Deflationary Mechanics

What PIP-41 Is — In One Sentence

For every 100 POKT burned when applications consume data, only 97.5 POKT is minted back as rewards. The remaining 2.5% is never created — permanently reducing total supply with every relay served.

The Problem It Solved

When Shannon launched in June 2025, it introduced the mint-equals-burn model: applications burn POKT to access data, and an equal amount is minted back to reward Suppliers, Validators, and other participants. This was a massive improvement over Morse’s unchecked inflation, but the total supply neither grew nor shrank.

The DAO recognized that a sustainable protocol should tie supply contraction to actual usage. If demand for Pocket’s data services grows, the token supply should shrink — creating scarcity that reflects real economic activity, not arbitrary halvings or treasury burns.

PIP-41 makes this happen. It is not a special event or one-time action — it is a permanent change to the protocol’s fundamental mechanics.

How It Works

The Burn-and-Mint Cycle

  1. An application sends relays through the network
  2. POKT is burned proportional to the compute units consumed
  3. The protocol mints back 97.5% of the burned amount as rewards
  4. The remaining 2.5% is never created — permanently removed from circulation

The Auto-Stabilizer

Pocket’s relay pricing is pegged to USD: 1 billion Compute Units = $1. The exchange rate between POKT and CUs (the CUTTM) adjusts automatically. This creates a self-reinforcing relationship:

  • If POKT price rises: Each POKT buys more CUs → fewer POKT burned per relay → slower deflation (natural brake)
  • If POKT price falls: Each POKT buys fewer CUs → more POKT burned per relay → faster deflation (natural support)

This differentiates PIP-41 from other deflation mechanisms: it’s not a scheduled event or committee decision — it’s a mathematical property that operates continuously and automatically.

What It Means for Each Actor

ActorImpact
Token holdersTotal supply decreases over time with relay growth. Same number of tokens represents a growing share of total supply.
SuppliersRewards per relay are 2.5% less than under mint-equals-burn. But fewer total tokens minted means each token is scarcer.
ApplicationsNo change to cost. Relay pricing is USD-denominated — the deflation mechanics are transparent to consumers.
GovernanceThe 97.5% ratio is a governance parameter. The DAO can adjust it via a PUP (Parameter Update Proposal) at any time.

A Starting Point, Not a Permanent Setting

The 97.5% mint ratio is deliberately conservative. The DAO has the authority to adjust this parameter at any time. The Foundation has modeled deflationary scenarios all the way to 50% mint ratios as relay volume scales. Future changes require a governance vote — this parameter cannot be changed unilaterally by PNF or any other actor.

Verifying PIP-41 On-Chain

You can verify the current settings directly on POKTscan:

  • Current mint ratio: poktscan.com/params → Tokenomics Parameters → mint_ratio (should show 0.975)
  • Reward distribution: Tokenomics Parameters → mint_equals_burn_claim_distribution
  • Supply evolution: poktscan.com → Home → Supply Evolution chart