Telos: The Zero-Inflation Era

Permanent Simplification, Lean Governance, and AI-Native Economics

Telos has demonstrated that it can operate sustainably with zero net inflation over the last 8 months. The Telos Foundation has built meaningful reserves, while advances in AI-driven tooling have dramatically reduced the cost of development, coordination, and contribution.

This proposal formalizes a permanent simplification of Telos’ economic model by removing standing allocations that are no longer necessary and proportionally reducing Block Producer rewards to reflect a smaller, more efficient validator set.

The result is a cleaner, more credible issuance model aligned with modern, AI-native contribution patterns.

Why This Change

Years of operating Telos in production have made several truths clear:

• General staking rewards do not materially improve network outcomes. At best they are net neutral; at worst they introduce inflation, complexity, upstream pressure, and distorted incentives.
• The Telos Foundation has proven fiscal discipline, meaningfully reducing costs while building substantial reserves over the past eight months.
• Trust in tokenomics is critical. Simple, predictable, and credibly restrained systems outperform flexible but opaque ones. Value over rewards.

At the same time, the underlying economics of building and coordinating software have changed fundamentally.

What Has Changed

The AI Age Has Collapsed Costs

AI has transformed how infrastructure is built and maintained:

• Tasks that once required teams and months can now be completed by individuals in days
• Coordination, specification, and iteration costs have fallen by an order of magnitude
• Small, focused efforts now accomplish what large, continuous funding programs once required

The network no longer needs large, always-on issuance streams to ensure progress.

Contribution Is Now Broadly Permissionless

Historically, Telos relied on standing allocations to ensure execution.

Today:

• “Vibe coding” enables rapid, low-cost contribution
• Tooling allows nearly anyone to make meaningful improvements
• The primary constraint is focus and prioritization, not funding

An economic model built around permanent allocations is no longer aligned with this reality.

Why Standing Allocations Are No Longer Needed

Existing Foundation Reserves Are Sufficient

The Telos Foundation has accumulated meaningful TLOS reserves that:

• Cover foreseeable operational and ecosystem needs
• Allow funding to be deployed deliberately and efficiently
• Remove the need for ongoing protocol-level issuance

Low issuance should be the default assumption—not perpetual allocations.

Continuous Grant Pipelines Are Obsolete

Programs like Ignite were built for a world where:

• Building was expensive
• Coordination was slow
• Potential contributors were scarce

Those assumptions no longer hold. Most work today can be scoped narrowly, executed quickly, and funded selectively without embedding inflation into the protocol.

Credible Restraint Builds Confidence

Builders, users, and markets value clarity and predictability.

A permanently simplified issuance structure:

• Improves inflation transparency
• Reinforces fiscal discipline
• Increases confidence in long-term fairness

The Mechanics

1. Staking Rewards

600,000 TLOS per month → 0 TLOS per month

• Eliminates inflation tied to passive holding
• Simplifies tokenomics and circulation narratives
• Avoids negative impacts on privacy pool depth
• Insulates chain from being seen as security like

Network security is preserved through Block Producer self-staking and ranking incentives without generalized staking inflation.

2. Ignite Grants

250,000 TLOS per month → 0 TLOS per month

Ignite is no longer required as a standing issuance mechanism.

• AI-driven development has structurally reduced build costs
• Existing Foundation reserves are sufficient for high-value work
• Ongoing protocol issuance is no longer justified

3. Telos Core Development (TCD)

400,000 TLOS per month → 0 TLOS per month

• TCD no longer exists as a separate entity
• Development will be coordinated by the Telos Foundation
• Contributions will combine community efforts and targeted sponsorships

4. Block Validation Rewards

315,000 TLOS per month → ~144,000 TLOS per month

This reduction reflects a proportional adjustment to Block Producer compensation following a reduction in the validator set.

• Before: 21 Active + 14 Standby = 35 Block Producers
• After: 12 Active + 4 Standby = 16 Block Producers

The revised reward level represents approximately 45.7% of prior issuance, maintaining roughly equivalent per-producer incentives while removing excess issuance tied to redundant capacity.

Over time, block validation rewards are expected to be fully replaced by a percentage of transaction fees and node count will increase linearly with avg tx volume needs.

5. Telos Foundation Allocation

400,000 TLOS per month → 0 TLOS per month

• The Telos Foundation already holds sufficient reserves (Over 40m TLOS today)
• Ongoing protocol-level issuance is no longer required

Resulting Issuance Profile

Estimated steady-state issuance rate: ~0.4–0.5% annually

Net inflation: 0% — the Telos Foundation will continue to fully offset protocol issuance using existing reserves through at least 2030, and potentially longer. In the future the community may decide via vote to allocate a % of fees to the foundation.

Resulting Issuance Profile

Net inflation:
0% (offset by Foundation reserves through at least 2030).

Directionally, This Achieves

• A permanently cleaner and more credible economic model
• Alignment with AI-native contribution patterns
• Stronger trust through predictability and restraint
• Continued focus on privacy-first infrastructure
• Significant deflation potential as privacy and AI agent adoption increases.

The proposal:
https://app.telos.net/trails/ballot/teloszeroinf/1770927529120

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Update — 12 March 2026: Zero Inflation is Live

Since the publication of this proposal, the majority of the Zero-Inflation changes have now been implemented.

Several standing issuance allocations have been removed, reducing total protocol issuance by approximately 84%.

Annual issuance has fallen from roughly 23.6M TLOS (~5.26% of supply) to 3.78M TLOS (~0.84%). Because the Telos Foundation offsets this remaining issuance using existing reserves, net inflation is effectively zero.

The final step is a Block Producer reward adjustment, currently being refined with community feedback ahead of an amendment proposal and vote. When implemented, issuance would fall further.