Background

On May 20th, Initia Chain Upgrade Proposal 1 was submitted to the Initia Forum alongside an on-chain vote (Proposal 39). This proposal contained multiple upgrades to the Initia L1, including a parameter update to correct the staking inflation rate that was incorrectly configured at genesis. As outlined in both Initia's documentation and published tokenomics, staking inflation was intended to be 5% of the staking supply (25% of total supply) per year—equivalent to 1.25% of the total supply per year. However, at genesis, this parameter was incorrectly set to 5% of the total supply per year.

This means since Genesis on April 24th, 2025, users have been receiving nearly 4x the intended inflation rate for staking INIT and providing USDC-INIT liquidity in Enshrined Liquidity. While the additional yield is attractive, it is unsustainable and a net negative to Initia in the long term. Initia has always believed in pushing focus and attention to the Interwoven Economy. High staking rates are the death of chains as the L1 competes directly with use cases in the economy. It is important that opportunities to use the native token within applications are abundant and competitive with staking on a relative basis. This is the core reason for focusing on VIP rather than staking (cf. here).

This proposal quickly received significant feedback from the community that focuses on two main points:

• the proposal was immediately submitted onchain, leaving little time for notice or discussion amongst the community
• the proposal contained a sudden reduction in inflation, without considering a smoother transition on the inflation reduction

Subsequent discussions have trended towards agreeing with the contents of the original proposal. An incorrect parameter should be corrected, inflation was unsustainably high, and this is the correct action to take for the long-term success of Initia. However, the Initia Foundation acknowledges the community's concerns and agrees that this mistake should be addressed with users' interests in mind. We recognize that users need time to plan their actions, especially considering the 21-day unbonding period where no staking rewards are earned.

Given these reasons, the Foundation has held discussions about potential next steps with key governance participants, including validators and community members. We urge users and validators to vote No on Proposal 39, even though it is passing at the time of writing. This will help ensure the community's confidence in the proposal's rejection and allow us to focus on next steps laid out below in this proposal.

Additionally, there is a need need for a robust governance process to provide consistent structure and clarity for core governance votes and forum proposals. This framework is currently in development and will be introduced in the coming weeks.

The Initia Foundation extends sincere thanks to the community members who continue to make their voices heard in Initia's on-chain governance. Without your thoughtful contributions, the growth of Initia and the Interwoven Economy would not be possible. Initia remains committed to fostering open discussion, acknowledging issues, and developing fair solutions for improvement.

Based on the received feedback, Proposal 39 has now been split and resubmitted as two independent proposals:

• ICUP 1.5: focuses solely on the technical L1 upgrade to chain version 1.1 (to be posted)
• Inflation Correction and Unstaking Subsidy Plan (this proposal)

Given Initia is currently emitting one months worth of expected inflation each week, this change is highly urgent. Additionally, much of the contents of this proposal has already been discussed in the context of Proposal 39.

Thus, this proposal will be open for discussion and feedback on the Forum for 72 hours before proceeding to an onchain vote on Monday, May 26th at 6:00AM UTC.

The full timeline is provided at the end of this proposal.

Proposal

This proposal is to enact and approve the following:

1. Reduction of inflation to the correct rate of (5% of staking supply)/yr or 1.25% of the total INIT supply/yr, ie. (250,000,000 INIT x 5% per annum = 12,500,000 INIT per annum)

2. Initia Foundation's Unstaking Subsidy Plan (described below)

1. Inflation Reduction Parameters

Parameter	Current Parameter Value	New Parameter Value
release_rate	0.05	0.0125

2. Unstaking Subsidy Plan

For avoidance of doubt, all unstaking subsidies will come from the Initia Foundation's treasury.

Part A

If a user

1. unstaked their tokens between when Proposal 39 was posted on the forum (May 20th, 11:00AM UTC) and when this forum proposal was posted (May 23rd, 6:00AM UTC),
2. cancels their unstaking before the inflation reduction is executed (Estimated: June 2nd, 6:00AM UTC),
3. remains staked after cancellation when the inflation reduction is executed (Estimated: June 2nd, 6:00AM UTC),

the Initia Foundation will subsidize the staking rewards missed from the unstaking period as a result of the confusion from Proposal 39. Note that the user must satisfy ALL three of the above requirements.

Example

If a user:

• initially unbonds their stake on May 21st
• proceeds to cancel their unbonding on May 24th
• remains staked until after June 2nd

they will receive a subsidy equal to 3 days of rewards at the current increased staking APR.

Part B

Additionally, if a user has any unstaking position with an unbonding period that overlaps or falls within the window of June 2, 6:00AM UTC to June 23, 6:00AM UTC (21 days after the inflation reduction is executed), the Initia Foundation will subsidize the missed staking rewards to the user. These rewards will be equivalent to 25% of the new nominal staking APR for the duration of the window. The nominal staking APR will be calculated as the daily average APR over the corresponding unstaking period that falls within the window.

Example

If a user:

• Unbonds their stake on May 26th,
• Remains in unbonding status for 16 days during the 21-day window after the inflation reduction is executed,

they will receive INIT equivalent to 16 days of rewards at 25% of the new average staking APR.

Subsidy Claim Process

If eligible, users will be able to claim their Unstaking Subsidies on the Initia App before July 7th, 2025. There will be no lock or vest of any kind and Unstaking Subsidy claims will remain open for 30 days after the claims go live.

Subsidy Rationale

The Foundation is open to providing the subsidy described above based on the following rationale:

• Part A seeks to subsize the users who were affected by Proposal 39 due to the confusion arising from proposal communications. Specifically, users who saw Proposal 39 and immediately decided to unstake missed out on staking rewards (stake in the unbonding period do not receive staking rewards). To address this, the Foundation will cover the missed rewards for the duration between the start of a user's unbonding period and the moment they cancel the unbonding. The user must cancel the unbonding before the execution of this proposal and remain staked until the execution of this proposal to prevent interference with the execution of the subsidy. Users who choose to proceed with unstaking will not be eligible for the subsidy Part A, as tokens in unbonding are, by default, not entitled to staking rewards.
• Part B aims to subsidize users who staked their tokens with the expectation of high APRs but were misled due to an incorrect inflation rate and now wish to exit. Users have the option to remain staked and receive the full benefits of the newly adjusted APR once the proposal is implemented, or to initiate unstaking. If a user chooses to unstake, the Foundation will provide a subsidy equivalent to 25% of the adjusted APR during the unstaking period that falls within the defined window. This subsidy is intended to offset the opportunity cost incurred during the unstaking period which traditionally grants no staking yield.

Timeline

• Forum Proposal: May 23rd, 6:00AM UTC
• Onchain Vote begins: May 26th, 6:00AM UTC
• Onchain Vote ends and proposal is executed or rejected: June 2nd, 6:00AM UTC

Voting

• YES – You support the proposed inflation correction parameter change and unstaking subsidy plan.
• NO – You oppose implementing the proposed changes.
• NO WITH VETO – This vote signals strong objection. It is used when the proposal is considered:
  1. Spam or irrelevant to Initia,
  2. Harmful to minority stakeholders, or
  3. In violation of Initia's governance principles or encourages such violations.If more than one-third of total votes are cast as "No with Veto," the proposal will be rejected and any deposits will be forfeited (burned).
• ABSTAIN – You choose not to take a stance on the proposal but want your vote counted toward the quorum.