The Aptos ecosystem faces inflation governance challenges: AIP-119 proposal sparks controversy

Inflation management has always been a core issue in the economic model and ecological development of public chains. Recently, the Aptos community has engaged in heated discussions around a proposal AIP-119 aimed at reducing staking rewards. Supporters believe this is a necessary measure to curb inflation and activate ecological liquidity, while opponents worry it may undermine the network's decentralization foundation and even lead to capital outflows.

When the trade-off between throttling and open sourcing meets the redistribution of validators' interests, Aptos's reform not only concerns the future of the APT token economy but also reflects the deep contradictions in PoS public chain governance. By analyzing proposal controversies and comparing mainstream public chain models, we can explore how Aptos seeks breakthroughs between high inflation and low activity.

The "Surgery" of Inflation Sparks Controversy

The AIP-119 proposal was submitted by community members on the Aptos Foundation's GitHub on April 17, 2025. The proposal suggests reducing Aptos’s base staking reward rate by 1% each month for the next three months, with the ultimate goal of lowering the annual percentage rate (APR) from about 7% to 3.79%. This seemingly simple proposal aims to mitigate APT inflation by reducing staking rewards, but it touches on the core interests of large staking nodes that rely on passive income, thus sparking widespread debate within the community.

Supporters believe that the proposal can not only quickly reduce the inflation of APT but also encourage token holders to shift their funds to other DeFi activities on the chain, rather than just relying on passive staking.

However, opponents point out that a significant reduction in staking rewards may have a greater impact on small validators. The profit margins of many validators could be compressed to a level that cannot cover operational costs (approximately $30,000 per year), forcing them to exit the network. This could indirectly weaken the decentralization of the Aptos network, leading to a concentration of power and resources among large validators.

A co-founder of a financial platform analyzed the cost-benefit of validators in detail during a forum. Currently, validators holding 1 million APT face annual server costs ranging from $72,000 to $96,000. However, if the yield drops to 3.9%, the final profit may only be $13,000, leading to a situation where expenses exceed income. Only by holding more than 10 million APT can one barely make a profit, which will directly eliminate small validators.

In addition, some comments suggest that the reduced staking yield (3.79%) lacks competitiveness compared to other chains that offer higher returns (such as Cosmos at about 15%), which may lead large investors and institutions seeking high yields to transfer their funds to other networks, reducing Aptos's TVL and liquidity, and creating a risk of capital outflow. The lower staking yield may also decrease the attractiveness of Aptos DeFi protocols for liquidity providers, affecting the growth of the protocols and user participation.

Common Problem of PoS Governance: Balancing Rewards and Inflation

This proposal is similar to those previously proposed on other public chains, all attempting to suppress network inflation by reducing validator yield, reflecting the problem of interest game in public chain governance. This governance dilemma is particularly prominent in the POS consensus mechanism.

To evaluate the rationality of the Aptos proposal, we can compare how several similar mechanism public chains balance this issue and the effects produced.

Currently, Aptos's token inflation model issues an annual increase of 7%. According to previous proposals, this maximum reward rate is planned to decrease by 1.5% each year (relative to the previous year) until it reaches an annualized lower limit of 3.25% after more than 50 years. As of April, the staking rate of APT has reached 76%, maintaining a high ratio among public chains. In terms of fee burning, currently all transaction fees on Aptos are burned, but due to on-chain fees being only a few thousand dollars per day, this burning has a negligible effect on resisting inflation.

A well-known public chain has adopted a yearly declining inflation model, initially set at 8%, decreasing by 15% each year, and currently around 4.58%. This dynamic inflation model seems to align with the expected goals after the Aptos proposal reform. However, for this public chain, this inflation rate is still considered too high by the community. In terms of staking ratio, the current staking ratio of this public chain is about 65%, lower than Aptos's 76%.

The staking yield of another MOVE-based public chain is relatively low, only between 2.3% and 2.5%. Moreover, its token has a hard cap limit of 10 billion, fundamentally controlling the possibility of unlimited issuance. In terms of staking rate, this public chain is approximately 76.73%, which is close to APT. Regarding fee processing, this network chooses to use the fees as rewards, with no destruction mechanism. Relatively speaking, the hard cap model seems to reduce the community's inflation anxiety, thus also performing relatively well in terms of price.

The staking yield of a certain public chain reaches as high as 14.26%, and the circulating supply of its tokens shows a continuous growth trend. Currently, the staking rate of this public chain is about 59%. This inflation will continue until it reaches 67%. However, despite the high staking yield, the price of its tokens has been continuously declining, dropping from a peak of 44 dollars to a low of 3.81 dollars, a decrease of 91%.

Aptos's Choice: Throttling or Open Source?

Overall, among the major POS public chains, there is currently no perfect case that resolves the balance between inflation rate and network participation. In addressing these games, on one hand, it is necessary to control the inflation rate to maintain a healthy development of the token economic model, while on the other hand, it is essential to attract validators to participate in network governance through reasonable staking rewards.

For Aptos, while considering "throttling" through AIP-119, it may be more prudent to thoroughly contemplate its potential impact on the validator ecosystem and network decentralization. Compared to aggressively cutting rewards, the more urgent choice at this stage may be how to "open source" — that is, enhancing network activity and attracting more quality projects to settle in, thereby building a truly prosperous and sustainable ecosystem. This may be the key to supporting the long-term value of APT.

Currently, Aptos's TVL is only $1.1 billion, ranking 11th among public chains. Overall data is not impressive, and there are currently 149 validators and 495 full nodes in the entire network, which is also not very high. If a large number of validators exit due to reduced yields, there is indeed a possibility of significant damage.

Therefore, Aptos needs to be more cautious when balancing inflation control and network activity. While considering the reduction of staking rewards, more attention should be paid to how to attract more developers and users to enhance the overall value of the ecosystem. Only on the foundation of a thriving ecosystem can economic model issues such as inflation be better addressed.