Emissions
Emissions control how new TAO and subnet tokens (ALPHA) enter circulation through automated distribution.
What are Emissions?
REFERING TO SUBNET TOKENS AS ALPHA
Each subnet has its own token (ALPHA for subnet 1, BETA for subnet 2, etc.). For simplicity, we refer to all subnet tokens as "ALPHA".
How TAO Emissions Work
Each subnet's share of TAO's block emission depends on the EMA price of a subnet compared to all other EMA prices. The higher a subnet's EMA price compared to the other subnets, the larger share of emissions it receives. The block emission of TAO depends on its current supply. Pre-halving the block emission of TAO is 1.
The formula for the TAO emission (by default) is:
Example (Sum of all EMA prices: 1.0 - Assuming 1 TAO as the block emission):
- Subnet 1 receives: (0.5 ÷ 1.0) × 1 = 0.50 TAO
- Subnet 2 receives: (0.2 ÷ 1.0) × 1 = 0.20 TAO
- Subnet 3 receives: (0.3 ÷ 1.0) × 1 = 0.30 TAO
How ALPHA Emissions Work
Subnets receive ALPHA emissions independently, with up to 2 ALPHA created per block for each subnet. While the ALPHA block emission matches TAO's default (1 per block), the ALPHA is being emitted two times to accommodate distribution between two components:
- Pool Reserve (ALPHA in): Directed to the subnet's pool
- Participants (ALPHA out): Distributions to miners , validators , and subnet owners
The ALPHA allocation to the pool is calculated using the formula:
This formula creates a dynamic balance between TAO emission and ALPHA price. As the price of ALPHA significantly exceeds the subnet's current TAO emission, less ALPHA flows into the pool.
The ALPHA going to the participants is on the opposite always set to the block emission of ALPHA. This mechanism ensures that when less ALPHA flows to the pool the total inflation of ALPHA is lower, as less than the potential maximum of 2 ALPHA is being emitted.
The only conditions in which a subnet would emit 2 ALPHA, is when the price of it's ALPHA is equal or lower than the subnet's TAO emission (which would trigger the ALPHA emission to be downscaled).
Emission Downscaling
When the price of ALPHA falls below its current TAO emission, a special mechanism prevents excessive ALPHA, where 'ALPHA in' is larger or equal to the block emission to ALPHA.
Example (without downscaling):
- TAO Emission = 0.50
- Price of ALPHA = 0.30
- ALPHA to Pool = 1.67
To prevent this excessive inflation of ALPHA, the ALPHA emissions get downscaled, to limit excessive ALPHA inflation.
After downscaling, the distribution of ALPHA is set to the block emission of ALPHA in both components:
- Pool Reserve (ALPHA in): 1 ALPHA
- Participants (ALPHA out): 1 ALPHA
This limits the possibility for more ALPHA to flow into the liquidity of the pool, than to the subnet participants.