Aptos Inflation Governance Dilemma: AIP-119 Proposal Sparks Controversy, Ecological Prosperity as a Possible Solution

Author: Frank, PANews

Inflation governance has always been a core proposition of public chain economic models and ecological development. Recently, the Aptos community has been embroiled in intense debate over a proposal to reduce staking rewards, AIP-119. Supporters view it as a necessary measure to curb inflation and activate ecological liquidity, while opponents warn that it may undermine the decentralized foundation of the network and even lead to capital outflows.

When the game of throttling and opening up collides with the redistribution of validator interests, this reform in Aptos not only concerns the future of the APT token economy but also reflects the deep-seated contradictions in PoS public chain governance. PANews explores how Aptos can find a breakthrough between high inflation and low activity by analyzing the proposal controversy and comparing mainstream public chain models.

The Debate Over Inflation "Surgery": Curing the Disease or Harming the Foundation?

AIP-119 was proposed by community member moonshiesty on April 17, 2025, on the Aptos Foundation's GitHub. The specific suggestion of the proposal is to reduce Aptos's base staking reward rate by 1% each month over the next three months, with the ultimate goal of lowering the annual percentage rate (APR) from about 7% (or 6.8%) at that time to 3.79%. In terms of content, the proposal itself is not complex; it simply aims to alleviate APT inflation by lowering staking rewards, which is beneficial for the long-term health of the ecosystem but touches on the core interests of large staking nodes accustomed to passive income, thus sparking considerable debate within the community.

The mainstream supportive viewpoint believes that this proposal, in addition to quickly reducing APT inflation, can also incentivize token holders to transfer funds to other DeFi activities on-chain rather than relying solely on passive staking.

However, from the community discussions, the controversy surrounding this proposal is not limited to the opposition from large holders; many members have also raised concerns from the perspective of small validators and the entire community about the potential negative implications of this proposal.

Some opponents argue that significantly reducing staking rewards will have a greater impact on small validators. Many validators' profit margins will be compressed, potentially making it impossible to cover the operational costs of running a validator (approximately $30,000 per year), forcing them to exit the network. This could indirectly weaken the decentralization of the Aptos network, ultimately concentrating power and resources among large validators.

Eric Amnis, co-founder of Amnis Finance, specifically calculated in the forum that a validator holding 1 million APT incurs annual server costs between $72,000 and $96,000 (though this figure differs significantly from the $35,000 proposed by the proposer). If the yield is reduced to 3.9%, the final income may only be $13,000, leading to a situation where expenses exceed income. Only those holding over 10 million APT can barely turn a profit, which will directly eliminate small validators.

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

The Common Challenge of PoS Governance: Balancing Rewards and Inflation

In fact, this proposal is similar to the previously proposed and ultimately rejected SIMD-0228 proposal on Solana, both attempting to curb network inflation by lowering validator yields, reflecting the dilemma of interest games in public chain governance. This governance challenge is particularly pronounced in PoS consensus mechanisms.

Therefore, regarding whether this proposal for Aptos is reasonable, the best approach is to compare how several similar mechanism public chains balance this issue and the effects produced.

Currently, Aptos's token inflation model issues 7% annually. According to the AIP-30 proposal, this maximum reward rate is planned to decrease by 1.5% each year (relative to the previous year's value) until it reaches a lower limit of 3.25% in over 50 years. As of April, the staking rate of APT reached 76%, maintaining a relatively high ratio among public chains. In terms of fee burning, all transaction fees on Aptos are currently burned; however, since Aptos's on-chain fees are only a few thousand dollars per day, this burning is merely a drop in the bucket in resisting inflation.

From the performance of the token over the past year, Solana is one of the more successful public chains in the PoS mechanism. Unlike Aptos's current fixed issuance ratio, Solana's inflation model is a gradually decreasing pattern, starting at 8% and decreasing by 15% each year, currently around 4.58%. Therefore, this dynamic inflation model seems to be the expected goal after the Aptos proposal reform. However, for Solana, this inflation is still considered too high by the community, which led to the emergence of the 0228 proposal. In terms of staking ratio, Solana's current staking ratio is about 65%, lower than Aptos's 76%.

In terms of fee burning, previously, 50% of Solana's transaction fees were burned, but after the passage of the 0096 proposal, this 50% burning was canceled and rewarded to validators, thus exacerbating Solana's inflation. However, due to the high activity level of the Solana network, it seems to have been less affected by inflation.

Additionally, another MOVE-based public chain, Sui, is often compared with Aptos. In terms of staking yield, Sui's yield is relatively low, only between 2.3% and 2.5%. Moreover, the SUI token has a hard cap of 10 billion SUI, fundamentally controlling the possibility of unlimited issuance. In terms of staking rate, SUI's staking rate is about 76.73%, close to APT. However, in terms of fee burning, Sui's network chooses to use it as rewards and does not have a burning mechanism. Relatively speaking, Sui's hard cap model seems to reduce the community's inflation anxiety, resulting in a more favorable price performance.

Furthermore, Cosmos's staking yield is quite typical, reaching 14.26%, and from the circulation of tokens, it also shows a continuous upward trend. Currently, Cosmos's staking rate is about 59%, and this inflation will continue until it reaches 67%. However, although the staking yield is high, the price trend of the ATOM token has been continuously declining, dropping from a high of $44 to a low of $3.81, a decrease of 91%.

Aptos's Choice: Throttling or Opening Up?

Overall, among the major POS public chains, none have perfectly solved the balance between inflation rates and network participation. In addressing these games, one must control the inflation rate to maintain the healthy development of the token economic model while also attracting validators to participate in network governance through reasonable staking rewards. Ethereum has achieved deflation through its transition to PoS and base fee burning, but ETH has not seen a price increase due to solving inflation issues. In contrast, Solana's recent proposal is about increasing inflation, while the deflationary 0028 proposal was rejected by the community. However, this does not seem to have significantly affected Solana's token price. Ultimately, this is because Solana's network activity remains among the highest across public chains.

Curbing inflation is like throttling, while enhancing network activity is akin to opening up. For an active network, balancing throttling and opening is naturally important; however, for a currently less vibrant network, how to enhance activity is the real key to boosting the network's token. Looking at the issues currently faced by Aptos, its TVL is only $1.1 billion, ranking 11th among public chains. Overall data is not particularly impressive, and the current number of validators in the entire network is 149, with 495 full nodes, which is also not very high. If many validators exit due to reduced yields, there is indeed a risk of significant damage.

Therefore, for Aptos, while considering "throttling" through AIP-119, it may be more prudent to reflect on its potential impact on the validator ecosystem and network decentralization. Rather than aggressively cutting rewards, a more urgent choice at this stage may be how to "open up"—that is, enhance network activity and attract 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.