Tuesday, August 27, 2019

Nano's Inflation

OK I know Nano doesn't have mining and does not mint new coins so it technically has 0% inflation but hear me out (and see why I mention it).

Currently miners get 1800 Bitcoin per day and majority of that is flooding the market, which is why people believe halving causes sell-side supply squeeze since all of a sudden much less Bitcoin is available for sale. Considering the circulation of 18 million bitcoins every month there is an inflation of .3% if we assume all miner Bitcoins are sold on the spot, and .2% for a more reasonable estimation of 66% of them being sold immediately.

Why am I talking about this while we fully know that Nano does not operate like that? The supply is fixed and everything circulating is already available, right? Well not exactly. Think about developers' fund. Developers have to eat, have to pay for the office, have to pay for the bills, so it is inevitable that they have to sell Nano from the fund every month to survive, meaning every month there would be some Nano getting into the active market as a sell side supply, very similar to how miner minted coins in Bitcoin. We are on average seeing 125,000 Nanos sold in a period of a month for these purposes, so we are roughly seeing .1% of inflation per month. Not as much as Bitcoins but still a decent ratio.

What I am curious is that what would happen when this behavior changes. I am not here to discuss or predict prices, instead I am curious about the market movements since somehow demand/supply needs to balance. The way I see it things might change in two major events:

- Nano price changes in some direction significantly but developer bills are pegged to USD meaning they would end up selling significantly more/less coins, therefore causing a further flood or supply dry

- Developers eventually deplete the funds (probably within the next 2-3 years at this pace), making this type of inflation forever gone

I am not an economist myself, and I do not know as much about network effects as I would like to, but am curious what you think about above conditions changing the behavior of current Nano adopters.


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