NEAR DAO, the governance community of Layer 1 blockchain Near, is considering a significant reduction in staking rewards to cut the inflation rate of token $NEAR . This proposal, put forward by Hot Protocol on Tuesday, aims to reduce the maximum inflation rate of the NEAR token to 2.5%.

The reasons and potential impacts of the inflation reduction

#HOTProtocol argues that reducing the inflation of the NEAR token is an "urgent priority" as the current inflation rate of 5% is generating over 60 million new NEAR tokens each year (equivalent to 128 million USD). This causes dilution and is unnecessary, especially when fees burned from transactions are low. Reducing inflation could also decrease staking yields from around 9% to 4.5%, potentially making decentralized finance (DeFi) on Near more competitive.

However, NEAR DAO members are divided on this proposal. Some are concerned that reducing staking yields could create a "death spiral of the token" when stakers panic sell, leading to price drops. They argue that cutting the issuance does not automatically lead to price increases without sufficient compensating demand.

Near is not the only blockchain facing the issue of token inflation. Recently, Celestia proposed completely eliminating staking, while $SOL voted (but unsuccessfully) on reducing staking rewards. Justin Drake of the Ethereum Foundation has also proposed capping the staking rewards of $ETH .

The proposal to reduce inflation from Near will continue to be discussed this week and is expected to be put to a vote in July. If passed, this change could be activated by the end of 2025.