Proposal: Revision of POL Tokenomics – Elimination of 2% Inflation and Introduction of Treasury Buyback/Burn Policy

Polygon Improvement Proposals Proposal Ideas
1

Author: @VentureFounder
Created: 2025-10-05
Status: Draft (Under Discussion)
Type: Tokenomics / Economic Policy
Category: Governance / Protocol Parameter

1. Abstract

This proposal seeks to revise the tokenomics of the POL token, specifically:

  1. Eliminate the current 2% annual inflation schedule, which is creating continuous sell-side pressure on the market; and

  2. Establish a transparent token burn or buyback policy funded by Polygon Treasury surplus or ecosystem revenues, to restore long-term holder confidence and price stability.

These changes are intended to align the supply dynamics of POL with its current technological and strategic reality, reinforce investor confidence, and prevent further token devaluation and network stagnation.

2. Motivation

Since 2022, the POL/MATIC token has severely underperformed relative to peers and the broader crypto market. Despite significant ecosystem development and innovation, token price has dropped over 90% from all-time highs and 46% year-over-year, underperforming virtually every comparable Layer-2 or ecosystem token.

This underperformance undermines community confidence and threatens Polygon’s position as a top-tier blockchain platform. While the technology stack remains world-class, token value is a key incentive mechanism for validators, stakers, developers, and community members — and therefore a critical component of the protocol’s success.

The 2% annual inflation currently introduces approximately 200 million new POL tokens per year, adding hundreds of millions of dollars in annual sell pressure. In the absence of offsetting demand growth or buyback mechanisms, this structural dilution perpetuates a downward spiral in token valuation, deterring new participants and diminishing on-chain economic activity.

The original rationale for inflation (validator incentives and network security) was based on the 2023 tokenomics whitepaper, which pre-dated major architectural shifts such as AggLayer. The context has since changed materially, rendering the original inflation model outdated and misaligned with current ecosystem dynamics.

3. Specification

This PIP proposes the following:

3.1. Policy Change: Inflation Adjustment

  • Option A (Preferred): Set annual POL inflation to 0% (fixed supply) effective upon next protocol upgrade.

  • Option B: Implement a tapering schedule reducing inflation by 0.5% per quarter over four quarters until 0%.

  • Polygon Labs to publish updated token emission schedule and supply cap details on official documentation.

3.2. Policy Addition: Treasury Buyback/Burn Program

  • Mandate that the Polygon Treasury allocate at least 20% of quarterly net cash inflows (from transaction fees, partnerships, or foundation revenues) to repurchase or burn POL tokens.

  • Buybacks should be executed transparently through on-chain contracts, with reports published quarterly.

  • Treasury must cease any discretionary market sales of POL tokens until the price stabilizes and ecosystem confidence recovers.

3.3. Governance Transparency & Communication

  • Polygon Labs to release quarterly tokenomics reports, including:

    • Total supply, circulating supply, burned tokens, new issuance

    • Treasury holdings and on-chain transactions

    • Planned emissions and validator reward policies

  • Introduce a public dashboard tracking these metrics in real time.

4. Rationale

The health of any decentralized ecosystem depends not only on technology but on economic trust.
A deflationary or neutral-supply model, combined with buyback mechanisms, has proven successful in protocols like BNB, AVAX, and ETH post-EIP-1559, where transparent token economics directly improved investor sentiment and long-term sustainability.

The POL inflation model no longer serves its intended purpose:

  • Validator incentives are increasingly funded by fees and treasury reserves, not token issuance.

  • Excess emissions dilute holders while failing to materially increase network activity.

  • Inflationary tokens in persistent downtrends lose both speculative and functional value.

By removing inflation and introducing buybacks, Polygon can realign tokenholder and ecosystem interests — catalyzing renewed demand, improving exchange rankings, and restoring Polygon’s standing as a top-10 project.

5. Economic Impact Analysis

Metric Current Proposed Effect
Annual Inflation 2% (200M POL) 0% Removes $200M/year sell pressure
Treasury Sales Opaque Halted Stops further downward price impact
Buyback Allocation None 20% of treasury inflows Creates sustained demand
Expected Confidence Low High Restores long-term holder trust

Simulations suggest that reducing inflation to 0% could materially improve price equilibrium. Assuming historical elasticity of demand, the price equilibrium could shift upward by 2.5×–3× under similar demand conditions, consistent with historical recoveries seen in deflationary tokens post-reform.

6. Security and Network Considerations

  • Validator Rewards: Short-term adjustments may require treasury-funded validator compensation to offset lost emissions.

  • Network Stability: No consensus-layer modification is required; only policy and documentation updates.

  • Governance Attack Risk: Reducing inflation limits opportunistic exploitation by speculative actors relying on future emissions.

7. Implementation Plan

Phase Timeline Description
Phase 1 Q4 2025 Community discussion, economic simulations, treasury audit
Phase 2 Q1 2026 On-chain governance vote and formal PIP ratification
Phase 3 Q2 2026 Protocol parameter update to 0% inflation
Phase 4 Q3 2026 onward Launch of transparent on-chain buyback/burn program and reporting dashboard

8. Backward Compatibility

This proposal does not affect existing token contracts or validator mechanisms beyond inflation parameters.
POL remains ERC-20 compatible; no migration is required.

9. References

10. Copyright

This document is licensed under the CC0 1.0 Universal License.

6 Likes
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Thanks for the proposal @venturefounder, certainly a topic worth discussing. I think there are a couple of things that need clarification here:

This is not the case as the majority of validator rewards come from direct POL emissions in the form of checkpoint rewards which have tapered off to 1% annual inflation.

More info here.

Assuming validator incentives/staking dynamics stay as they are, how would you suggest to provide ongoing incentives to support the validator network?

2 Likes
3

Let’s reduce issuance to 1% until the AggLayer is connected up and functioning.

If the AggLayer revenues are sufficient then reduce POL issuance to 0%.

3 Likes
4

I have been vocal against the inflation of $POL in the past and across various channels. Im not sure if this inflation is whats causing POL to loose ground marketcap wise, and if this is whats holding back POL under current more and more positive market conditions.

I would not risk the validators not getting paid if the network can’t provide on its own (yet?). I would like to see the other 1% removed on short term. Im unaware of what this 1% has brought us until date and if these are necessary investments.

I do understand the frustration that many token holders have about the performance of Polygon past years, myself included. I would love to read some feedback from the team about all this.

5 Likes
5

I am very glad to see this conversation happening. Looking forward to seeing this make it through to some kind of vote - regardless of what the decision is. The community and bag holders NEED to have a say in this.

4 Likes
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I fully support this proposal! . I believe the team should also be focused on the token’s performance, not only on technology development. I also support leaving the name POL(ex. MATIC) behind — the asset should be consistently presented as Polygon (POL) on all major platforms (CoinGecko, CoinMarketCap). At the same time, we should fight for stronger mentions and actively promote our flagship project, Polymarket, while clearly and consistently communicating what Polygon truly is.

3 Likes
7

I’m an investor, not a technician, but I’m happy to support this proposal.

Clearly, there is a disconnect in how the market perceives Polygon’s value, assuming, of course, that the leadership’s claim is true: that the product is excellent but undervalued.

I’m not certain if this proposal is fully feasible, but there is definitely a need for solutions, and the team should explore all possible options ASAP, bull run won’t wait for us.

4 Likes
8

I support this discussion, but above all, I would like to hear Polygon’s thoughts on tokenomics and the current situation. Was this the vision for Agglayer and POL utility, including token price expectations? Or are we still using tokenomics from an old Polygon 2.0 paper that doesn’t even mention Agglayer, meaning we now have to start over by reopening this discussion?

I don’t mind the 2% inflation — in my opinion, it’s appropriate for the current phase of gaining market share and scaling. Validators also need to be compensated.

I believe transparency around the Foundation’s treasury, revenue, and other finances is essential. I used to love Polygon for this transparency — I even remember an Excel sheet being shared with every Foundation transaction. I understand there may be reasons not to share that anymore, but some level of transparency is still necessary. How long is our runway at this point?

4 Likes
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First of all, I’d like to thank you for this discussion. The arguments presented were strong and accurately addressed a major issue: the decline in token price, which has been pushing many investors away.

I also want to highlight that, beyond scaring off investors, this ongoing devaluation is hurting POL’s image. In almost every post by or about Polygon, we see countless comments from people frustrated with the continuous drop and lack of recovery in the token’s value. This weakens our community — and we need to grow stronger.

To give an example: if I were a new investor entering the crypto space for the first time today, I would likely choose a well-established coin like BTC or ETH. Why? Because they are leading the market and inspire trust. In my view, increasing the token’s value should be one of POL’s top priorities — we need to attract more people who can help strengthen the ecosystem.

For any investor, big or small, the ultimate goal is returns. Without that, there’s no real reason to invest. But beyond profit, we also need the confidence that we’re investing in something meaningful and with long-term potential.

I remember when I first started investing in POL — I had strong confidence that this ecosystem would be among the top 5 cryptocurrencies. And I still believe that. This project has the capacity and is clearly working hard on multiple fronts. The daily updates and posts are great, but they don’t change the fact that what matters most — especially to new investors — is the token’s growth and the public image we’re creating.

It’s discouraging to see so many negative comments from people who’ve given up or are now discouraging others from believing in POL. That’s why I truly appreciate Polygon’s team for opening up this space for dialogue. I also want to thank the author of this initiative — you did an amazing job highlighting so many important points. Congratulations!

To wrap up, I want to say I fully support a 0% inflation policy, as well as a token buyback program. I also suggest launching a strong marketing campaign to show the market that we are still alive, active, and ready to take off. Let’s fasten our seatbelts — this initiative can take us far!

POL will reach the place it deserves: among the best and most recognized cryptocurrencies on the planet!

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I am in favor the proposal Proposal: Revision of POL Tokenomics – Elimination of 2% Inflation and Introduction of Treasury Buyback/Burn Policy