Edit: These details about crowdsale are outdated, supply is now 50 Million and inflation rate per doubling 10% (5 million)
Because the endorsement coin is permanently consumed when it used as an endorsement, the coin supply cannot be static, or else the coin would go extinct at some point. Some time ago I wrote about how SAFE alt-coins can be mined to have a flexible supply while still constraining inflation. This is an excerpt of that post that explains how this “mining” differs from blockchain mining:
If you have questions concerning that process, please read the entire post.
Also, please note that the numbers below may be subject to change.
100 million coins will be pre-mined and sold in the crowdsale. They will be divided proportionally over the crowdsale participants to the contributions of each . The crowdsale will last 5 weeks. In the first week contributions will get a 20% loyalty bonus, in the second week a 15% bonus, in the third 10%, in the fourth 5% and in the last week there won’t be a loyalty bonus.
At the end of the crowdsale it will be calculated how much was paid for every sold coin (total income dividided by 100 million), which is then multipled by 10, and from that number a base mining difficulty will be derived. This base mining difficulty will be put in the mining algorithm in such a way that the first minable coin (coin number 100,000,001) will have that difficulty. The algorithm will increase the mining difficulty for every coin so that for every 20 million coins mined, the difficulty doubles:
Formula: 2^(0.00000005*(x-100000000))
The idea behind multiplying the price of the pre-sold coin by 10 is to make sure that there won’t be any significant inflation from mining until either market price has increased by a factor of 10, or many years have passed and computer power has become cheaper.
Deriving the base difficulty from that number will be done using BTC mining data. From this chart it becomes clear that nowadays about 1,100,000,000 GigaHash per second is generated in competition for a reward of 25 BTC about every 10 minutes. 25 BTC is currently worth 10,400 USD. We divide this number by 10 (minutes) * 60 (seconds in a minute) to get the USD value per second: 10,400 / 600 = 17.33 USD per second.
Now we can hold that circa 63.5 billion GH has a value of about 1 USD. So if the presale coins were sold for say, 0.001 USD each, the base difficulty is set to 635 million GigaHash (0.01 USD).
This base difficulty doubles every 20,000,000 coins, to off-set the effect of Moore’s law. Right now computing power doubles about every 2.5 years, so all other factors being equal, the mining inflation rate should be about 20% per 2.5 years.
Of course, factors won’t be equal, and the main factor that influences the mining rate will be the price of the coin. If the coin goes up in price, then mining profit margins increase so there’ll be more inflation. If the coin goes down in price, mining profit margins decrease and there’ll be less or even no inflation at all until the price has recovered.
Also, the coin is consumed when it’s used as an endorsement, so that contracts the supply. I envision that the coin will tend towards a price point where the contraction of the supply due to consumption roughly matches the inflation due to mining. Then there’s no netto expansion of the supply, until the coin price leaves it’s equilibrium and goes up significantly.
Because the base mining difficulty is set to about 10 times higher than the pre-sale value, the supply will likely only contract at first. When serious mining starts, the coins of the crowdsale partipants may already be up to 10 times up in value.