Internet Computer (ICP) tokenomics

The Internet Computer (IC) utilizes its native utility token, ICP, to facilitate a decentralized, algorithmic governance system and a unique "Reverse Gas Model" for computation. The network is governed by the Network Nervous System (NNS), which manages the token's supply, rewards, and protocol upgrades.

Issuance Mechanism

The Internet Computer employs an inflationary issuance model to reward network participants. As of May 2024, the total supply of ICP has grown to approximately 518.98 million tokens from its initial genesis supply.

• Voting Rewards: The primary source of inflation is the distribution of rewards to neuron holders who participate in governance. The estimated annual inflation rate for these rewards was approximately 6.91% in May 2024. This rate is designed to decrease over time, following a quadratic formula that targets a floor of 5.00% eight years after Genesis.
• Node Provider Rewards: The NNS mints new ICP every month (approximately every 2,629,700 seconds) to remunerate Node Providers. Because node operating costs are typically in fiat, the reward amount is calculated based on a 30-day moving average price of ICP against Special Drawing Rights (XDR).
• Deflationary Pressure: To balance inflation, ICP is burned when converted into Cycles (used for computation) and when transaction fees (0.0001 ICP) or rejected governance proposal fees (10.00 ICP) are paid.

Allocation Mechanism

The initial allocation of ICP was distributed among several key stakeholder groups to ensure long-term development and community involvement:

Usage and Incentive Mechanism

The ICP token serves four primary functions within the ecosystem:

1. Governance: Tokenholders stake ICP to create "neurons," allowing them to vote on proposals. In return, they earn "maturity," which represents unclaimed accumulated ICP voting rewards.
2. Gas (Cycles): ICP can be burned and converted into Cycles. Cycles are used to pay for computation, memory, and bandwidth. Under the exchange mechanism, burning one XDR worth of ICP always creates one trillion cycles.
3. Node Remuneration: ICP is used to pay the independent node providers who host the hardware that runs the network.
4. Medium of Exchange: ICP is used for peer-to-peer transfers, participating in decentralization swaps for new DAOs (SNS), and purchasing goods or services like NFTs.

Locking Mechanism

To participate in governance, ICP must be locked in a Neuron. The locking mechanism is defined by several key parameters that determine a user's Voting Power:

• Dissolve Delay: This is the minimum notice period required to unlock tokens. It can be set between six months and eight years.
  • A 6-month delay provides a 1.06x bonus.
  • An 8-year delay provides a 2x bonus.
• Age: The time elapsed since the neuron was last set to "non-dissolving" status. A maximum 1.25x Age Bonus is achieved after four years of aging.
• Staked Amount: The total ICP and maturity held within the neuron.

Neuron States:

• Non-Dissolving: The dissolve delay timer is paused, and the neuron gains "age."
• Dissolving: The timer counts down toward zero. The neuron no longer gains age, and once the timer hits zero, the tokens can be "disbursed."

Unlocking Time and Schedule

The unlocking of ICP tokens is a continuous process driven by the dissolve delays set by individual neuron holders. For early participants, such as those from the Seed Round and Airdrops, tokens were distributed via neurons with staggered dissolve delays to prevent market shocks.

Based on recent data, the network continues to see significant monthly unlock events. The following table outlines upcoming projected unlock amounts:

These monthly distributions typically represent the vesting of early contributor neurons and the conclusion of various dissolve delay periods.