• The IOTA Foundation announced a substantial token minting initiative through a hard fork, which will increase the total supply of IOTA tokens by about 60% over four years.
• The gradual token release and their intended use to drive the growth of the IOTA ecosystem could potentially offset negative impacts on token value.

In a significant move, the IOTA Foundation announced its decision to mint new IOTA tokens through a hard fork in September 2023. This action shall result in a total supply increase of approximately 60% over the next four years, equating to roughly 12% inflation annually.

Furthermore, the allocation of these newly minted tokens will be primarily to the IOTA Foundation and its affiliated entities in Switzerland and the United Arabian Emirates, accounting for around 75% of the new tokens. IOTA shall assign the remaining tokens to undisclosed contributors and Assembly-stakers. However, all of these tokens will be held in time-locked UTXOs and will be released gradually in small portions every two weeks.

The Background and Implications

IOTA initially gained prominence for its lack of pre-mined tokens and the absence of insider token allocations at the project’s inception. All tokens were publicly sold, including those owned by the founders themselves. However, this approach left the IOTA Foundation without a substantial reserve of tokens to compete effectively in the crypto space. It hampered their ability to form significant partnerships, employ market-makers, and access certain exchanges that often required a specific token supply threshold for listings.

Furthermore, the limited resources also constrained the IOTA Foundation’s capacity to attract and retain large teams of highly skilled developers who could drive various aspects of IOTA’s development, from core protocols to wallets and smart contracts.

IOTA and Token Inflation

IOTA’s decision to introduce substantial token inflation through this hard fork is an attempt to address these challenges. It provides the IOTA Foundation with the means to allocate tokens to key partners, support development teams, and bolster their market presence.

Nevertheless, this strategy is not without potential drawbacks, as it may erode trust in the project and its token. This, in turn, could deter new investors and lead to hesitant investments or profit-taking, affecting the value of the newly minted tokens.

On the surface, token holders may appear to lose out as the total token supply increases, reducing their relative ownership. However, several factors should be considered. Firstly, IOTA will release the new tokens gradually, mitigating immediate sell-pressure.

Secondly, these tokens shall fuel growth within the IOTA ecosystem and establish critical partnerships, potentially offsetting any negative effects on token value. The key question is whether the newly minted tokens will enhance the IOTA ecosystem enough to drive a token price increase of more than 12% annually, in which case token holders would benefit.

Attract Investors and Partners

The hard fork and token inflation could present attractive entry conditions for potential partners, market makers, and investors who previously found it challenging to participate in the IOTA ecosystem. The availability of additional tokens might make it easier to join the IOTA market and contribute to its growth. However, it could also pose challenges when selling the project’s vision and potential to new audiences.

The strategy of slowly falling in market capitalization rankings might have hampered IOTA’s progress. Consequently, the decision to increase the token supply is viewed as a means to expedite development and partnerships in the IOTA ecosystem.

While community participation is critical, such a crucial decision may have been too time-consuming if subjected to a lengthy governance process. Nevertheless, the hope is that these newly minted tokens will invigorate the IOTA ecosystem, attracting new partners and accelerating development across all fronts. If successful, the entire ecosystem is likely to benefit.