DFINITY Performs "Economic Surgery" on ICP: Aiming to Cut 70% Inflation Rate, How to Break the "Heaven's Curse"?

Article: Jae, PANews

On January 14th, the DFINITY Foundation officially released a new tokenomics white paper titled “Mission 70,” proposing an extremely aggressive deflationary plan: by the end of 2026, reduce the inflation rate of ICP by 70%.

Following the announcement, ICP’s price performed strongly, with intraday gains exceeding 30%, leading the market. This is not mere emotional speculation but a re-pricing of the Internet Computer’s fundamentals.

For DFINITY, which harbors the ambition of “rebuilding the internet,” this is not just an adjustment of the economic model but could become a turning point for ecosystem development. It attempts to execute a high-difficulty “economic surgery,” making a daring leap from “money-burning infrastructure” to “self-sustaining value engine.”

From subsidy expansion to a deflationary era, aiming to cut inflation rate by over 70%

This new white paper is personally crafted by founder Dominic Williams. It is not a typical project update but more like a “fiscal austerity bill” aimed at all token holders.

The core goal of this plan is to leverage “supply reduction” and “demand increase” to lower the net issuance of ICP tokens—i.e., the nominal inflation rate—by 70% or more by 2026, moving ICP toward deflation.

Currently, ICP’s annualized inflation rate is about 9.72%, mainly stemming from two “bleeding points” on the supply side: governance voting rewards (5.88%) and node provider incentives (3.84%). This is akin to a printing press continuously diluting the assets of early participants.

Mission 70 proposes to first “stop the bleeding” on the supply side by modifying the incentive parameters of the NNS (Network Nervous System), expecting to achieve a 44% “absolute token reduction.” The logic behind this approach is to sacrifice some nominal yield to achieve lower inflation and higher asset scarcity, thereby securing long-term token scarcity—a deep value game at its core.

The white paper states that reducing voting rewards may lower nominal yields for stakers in the short term, but by increasing token value and reducing circulating pressure, long-term holders’ risk-adjusted returns will be optimized due to decreased liquidity risk.

Additionally, cuts in node incentives are based on improved provider operational efficiency and the multiplier effect of rising ICP prices: when ICP prices increase, the amount of ICP needed to pay the same fiat value for node fees will decrease.

Relying solely on supply-side “throttling” makes it difficult to achieve a 70% total reduction. To fill the remaining 26% reduction target, DFINITY is betting on the AI track, developing a demand expansion strategy around the “Caffeine AI” platform.

Caffeine is positioned as the world’s first commercial “self-programming internet” platform. Its technical principle involves using on-chain large language models (LLMs) to realize natural language programming (NLP), allowing non-technical users to develop, deploy, and run full-stack applications directly on ICP through textual descriptions. It aims to transform internet users from mere consumers into active builders.

In the economic model, all network activities driven by Caffeine—such as computation and storage—consume “Cycles.” Cycles are the units used in the ICP ecosystem to quantify and compute storage resources, representing the cost of executing a single instruction, created by destroying ICP.

DFINITY plans to attract more AI models and enterprise cloud engines to run directly on ICP. These high-compute, high-storage applications will burn Cycles on a large scale, creating a sustainable deflationary effect on ICP.

This also means that ICP’s value capture will no longer rely on speculation but will be directly linked to the real demand for decentralized AI computing worldwide.

Related: DFINITY Foundation bets on AI, how does Caffeine drive ICP’s surge?

The underlying logic of this economic surgery is a precise judgment of DFINITY’s development stage: the subsidy expansion phase has ended, and it must now enter the value capture phase. It aims to address the most criticized issue of value dilution since ICP’s inception, shifting market focus from inflation to actual on-chain resource consumption.

Active development ranks second globally, creating three major competitive barriers

Markets are often easily misled by price fluctuations. DFINITY’s major economic reform is built on a solid technical foundation.

The activity level of the codebase is usually the most objective indicator of a project’s long-term vitality.

CryptoMiso data shows that over the past 12 months, Internet Computer has had 4,185 commits on GitHub, ranking second among all blockchain projects worldwide, ahead of established chains like Bitcoin, Ethereum, and Solana.

This high-intensity development pace mainly stems from DFINITY Foundation’s large development team. This activity is not blind accumulation but focuses on:

Subnet expansion: A series of upgrades in 2025 will increase subnet storage capacity to 2 TiB and introduce dynamic load balancing, significantly enhancing the network’s ability to handle massive data.

Wasm execution efficiency optimization: Continually pushing the performance limits of WebAssembly, enabling ICP to execute complex smart contracts at speeds close to native.

Threshold cryptography iteration: Ongoing enhancement of Chain Fusion technology, allowing ICP smart contracts to directly manage native assets of external blockchains like Bitcoin, Ethereum, and Solana without relying on risky cross-chain bridges.

The high pace of development and continuous technical delivery demonstrate that despite market volatility, ICP’s developer community has not diminished but is steadily progressing toward DFINITY Foundation’s goals.

These technological foundations are also the confidence behind DFINITY’s bold “economic surgery.”

With iterative technological architecture, Internet Computer has evolved from a simple Layer 1 to a cloud platform with sovereign computing capabilities. In fierce market competition, its competitive advantages mainly lie in three dimensions:

First, consolidating on-chain AI practical capabilities: Internet Computer is currently one of the few public chains capable of natively running AI inference models. Unlike other projects that run AI off-chain and use zero-knowledge proofs (ZKP) to transmit results, ICP can directly load neural network models. In the context of AI + Web3 explosion, this advantage is hard to replace.

End-to-end encryption and privacy: Internet Computer achieves encrypted storage of sensitive data on-chain, ensuring that even node providers cannot peek into user private data when processing AI models.

Cost-effectiveness: Running AI inference on Internet Computer reduces costs by over 20% compared to traditional SaaS giants like Palantir, giving it a strong commercial edge in the decentralized machine learning (DeML) field.

Second, building a seamless interoperability future: ICP smart contracts can serve as native addresses for other chains. In the context of frequent cross-chain bridge security incidents, Internet Computer’s “Chain Fusion” technology may represent the future direction of interoperability.

Native integration of BTC and SOL: Internet Computer has already enabled direct operations on native assets of Bitcoin (such as Ordinals, Runes) and Solana, without involving wrapped tokens or centralized custodians, greatly enhancing multi-chain asset management security.

Full-chain DeFi hub: This capability could make Internet Computer a “glue” connecting fragmented blockchain ecosystems, allowing developers to build seamless multi-chain DeFi applications.

Finally, eliminating barriers to large-scale adoption: ICP’s “reverse gas model” is a powerful weapon to attract mainstream developers. Under this model, users can use DApps without purchasing tokens or installing wallet plugins, greatly lowering the entry barrier for Web3 and providing an experience comparable to Web2. Coupled with Internet Identity 2.0, users can achieve seamless login via fingerprint or facial recognition on their mobile phones, far surpassing old public chains.

“Doom” label may deter new funds, facing ecosystem and liquidity challenges

Despite the grand technological vision, DFINITY’s path to becoming the “world computer” is fraught with difficulties, facing multiple challenges from market bias, ecosystem scale, and execution risks.

On one hand, since the mainnet launched in 2021, ICP’s token price plummeted from over $400 at peak to single digits, causing many investors to lose everything. Although DFINITY insists this was due to market manipulation, ongoing investor lawsuits and accusations of Foundation selling still linger.

Despite multiple requests for court dismissal, legal scrutiny over market manipulation remains a Damocles sword hanging over the project.

This “Doomed project” stereotype may to some extent restrict new capital participation.

On the other hand, ICP faces a mismatch between technology and application.

First, DeFi scale is lagging. Compared to Ethereum or Solana, ICP’s DeFi ecosystem remains small, with a total value locked (TVL) of only about $16 million as of January 16.

Second, liquidity depth is insufficient. Although the protocol has strong cross-chain technology, native assets like ckBTC and ckETH lack deep liquidity, risking high slippage on large trades.

Third, user base is weak. With only about 7,000 daily active addresses, ICP still lags significantly behind top ten public chains in market cap. Turning the “self-programming internet” vision into real user traffic is an urgent task.

The most uncertain aspect is the execution of the “inflation surgery.” Mission 70 is a delicate economic experiment, whose success depends on two synchronized premises: first, that reducing rewards will not cause a large exodus of node providers; second, that Caffeine AI can generate exponential growth in Cycles burning. If AI platform deployment falls short of expectations, mere reward cuts could backfire, damaging ecosystem vitality and potentially triggering a “price decline—inflation escalation” vicious cycle.

DFINITY is trying to turn the tide with a new tokenomics model. If in 2021 ICP was popular due to the “world computer” vision, by 2026, ICP aims to prove its value creation and capture ability through a precise deflationary model and real data.

For investors, the underlying logic of ICP’s price has shifted from vague ecosystem prosperity to two quantifiable, traceable hard indicators: the burning rate of Cycles and the frequency of on-chain AI inference calls.

Short-term price surges may be just emotional releases, but the actual execution of Mission 70’s new tokenomics and whether it can break the “strong tech, weak ecosystem” curse will be key to whether ICP can return to the top-tier public chain ranks.