The Accumulation of Maturity will be Something to Keep an Eye On

There's a lot of maturity accumulating on the NNS...

The Internet Computer utility token has 2 sources of inflation: node rewards and governance rewards.  Node rewards are newly minted ICP to pay node operators to maintain the Internet Computer network.  So far, a little over 1 million ICP has been minted for node rewards in the past 6 months since Genesis, much of which was to reimburse node operators for their participation in the network prior to Genesis.  It’s likely that moving forward we should expect between 50k – 100k ICP minted each month for node rewards.  However, more significantly for inflation is the fact that governance rewards for the first year post-Genesis will be approximately 10% of supply, roughly 46M ICP.  That equates to approximately 120k per day in newly minted ICP for governance rewards.

On 16NOV21, we were 190 days post-Genesis.  This would imply a total of 23,800,000 ICP should have been minted at this point (22.8M for governance rewards, 1M for node rewards).  However, only 5.5M ICP has been minted since Genesis (data from ic.rocks).  So what’s going on with the difference?

The 18.3M missing ICP (23.8M – 5.5M) is maturity that is accumulating in various neurons.  It seems that the majority of neuron holders are choosing not to merge their maturity or spawn their maturity into a new neuron.  This could be for many reasons (taxes, security concerns, governance rules, unclaimed neurons, etc.) but the net result is the ICP token is not seeing nearly the inflation rate that one might expect.  In fact, over 6 months post-Genesis, only 20% of earned maturity was converted over to minted ICP.  It’s important to watch this percentage because if it remains constant then it means not only is the inflation rate of ICP is much less than thought but the accumulation of maturity could become significant compared to total ICP supply (it’s currently at 3.8%).

My personal opinion is that there are 3 significant causes of the maturity building up:

1.       Tax purposes and timing.  Neuron holders who accumulate maturity for tax purposes will eventually convert their maturity to ICP.

2.       Unclaimed neurons.  Currently 102 neurons are unclaimed with 35M ICP.  Some or most of this will remain unclaimed and therefore their maturity will never be converted to ICP.

3.       Governance rules – Almost a third of voting power (and, thus, governance rewards) is owned by unknown genesis neurons and the ICA.  The unknown genesis accounts represent neurons for key partnerships, airdrops and employment incentives at the dfinity foundation.  It is possible that governance rules of various partners, dfinity and the ICA prevent these organizations from converting their maturity to ICP.  See below for a breakdown of voting power by genesis type.

One interesting note – no Early Contributor neuron has added ICP to their neuron, either through “topping up” maturity or through adding additional ICP from another source.  It could be that the user-interface for these neuron holders doesn’t allow for the conversion of maturity to ICP, or at least not through the merge maturity function.

Given the accumulation of maturity on the NNS, keeping an eye on the future behavior of significant maturity holders could help you understand future price action of the ICP token.