DFINITY performs "economic surgery" on ICPs: aiming to cut inflation by 70%, how to break the "curse of doom"?

Author: Jae, PANews

On January 14, the DFINITY Foundation officially released a new white paper on token economics called "Mission 70", which proposed an extremely aggressive deflation plan: to reduce the inflation rate of ICP by 70% by the end of 2026.

Following the announcement, ICP prices performed strongly, with intraday gains exceeding 30% at one point, leading the market. This is not simply emotional speculation, but a repricing of the fundamentals of Internet Computers.

For DFINITY, which harbors the ambition of "reconstructing the Internet", this is not only an adjustment of the economic model, but may also become a turning point in the development of the ecosystem. It is attempting to complete a perilous leap from "money-burning infrastructure" to "self-sufficient value engine" through a highly difficult "economic operation".

Shifting from subsidy-driven expansion to an era of deflation, aiming to reduce inflation by over 70%.

This brand-new white paper, personally crafted by founder Dominic Williams, is less like a typical project update and more like a "fiscal austerity bill" for all token holders.

The core objective of this plan is to reduce the new issuance of ICP tokens, or the nominal inflation rate, by 70% or more by 2026 through the dual leverage of "reducing supply" and "increasing demand," thus moving ICP towards deflation.

ICP's current annualized inflation rate is approximately 9.72%, primarily stemming from two major "bleeding points" on the supply side: governance voting rewards (5.88%) and node provider incentives (3.84%). This is like a machine that keeps printing money, continuously diluting the asset value 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), which is expected to achieve a 44% "absolute token reduction." The logic of this model is that by sacrificing some nominal yield in exchange for lower inflation and higher asset scarcity, the long-term scarcity of the token is achieved, which is essentially a deep-seated value game.

The white paper points out that although reducing voting rewards lowers the nominal returns for stakers in the short term, the risk-adjusted returns for long-term holders will actually be optimized due to the reduction in liquidity risk by increasing token value and reducing circulating selling pressure.

In addition, the reduction in node incentives is based on the multiplier effect of improved provider operational efficiency and higher ICP prices: when ICP prices rise, the number of additional ICPs required to pay the equivalent value of fiat currency for node fees will be reduced.

Relying solely on supply-side cost-cutting is unlikely to achieve the 70% overall emission reduction target. To fill the remaining 26% emission reduction gap, DFINITY has bet on the AI sector, developing a demand expansion strategy around its "Caffeine AI" platform.

Caffeine is positioned as the world's first commercially available "self-written Internet" platform. Its technical principle lies in using on-chain large language models (LLM) to implement natural language programming (NLP), allowing non-technical users to develop, deploy, and run full-stack applications directly on the ICP through text descriptions. It is committed to transforming Internet users from mere consumers into active builders.

In the economic model, all network activities, including computing and storage, driven by Caffeine consume "Cycles". Cycles are units used in the ICP ecosystem to quantify and compute storage resources, representing the cost of executing a single instruction, and are created by destroying ICPs.

The DFINITY plan aims to attract more AI models and enterprise-grade cloud engines to run directly on the ICP, thereby burning Cycles on a large scale through these high-computing-power, high-storage-demand applications, thus generating a sustainable deflationary effect on the ICP.

This also means that the value capture of ICPs will no longer rely on speculation, but will be directly linked to the real demand for decentralized AI computing globally.

Related reading: DFINITY Foundation bets on AI, how did Caffeine drive the surge in ICP prices?

The underlying logic of this economic operation is DFINITY's accurate assessment of its own development stage: the period of subsidy expansion has ended, and it must enter a period of value capture. It attempts to solve the value dilution problem, which has been the most criticized aspect of ICP since its inception, and shift market attention from inflation to actual on-chain resource consumption.

Second in global development activity, building three major competitive barriers

Markets are often misled by price fluctuations. DFINITY's major economic reforms are built on a solid technological foundation.

The activity level of a codebase is usually the most objective and explicit indicator of a project's long-term viability.

According to CryptoMiso data, Internet Computer has made 4,185 commits on GitHub in the past 12 months, ranking second among all blockchain projects worldwide, ahead of established public chains such as Bitcoin, Ethereum, and Solana.

This high-intensity development pace primarily stems from the DFINITY Foundation's large development team. This high level of development activity is not simply a matter of blindly piling things together; key aspects include:

1. Subnet Expansion: A series of upgrades in 2025 will increase the subnet's storage capacity to 2 TiB and introduce dynamic load balancing, significantly enhancing the network's ability to process massive amounts of data.
2. Wasm execution efficiency optimization: continuously pushing the performance limits of WebAssembly, enabling ICP to execute complex smart contract calculations at near-native speeds.
3. Threshold cryptography iteration: Continuously enhance Chain Fusion technology to enable ICP contracts to directly manage native assets of external public chains such as Bitcoin, Ethereum, and Solana without going through high-risk cross-chain bridges.

The high pace of development and continuous technology delivery demonstrate that despite the volatile market cycles, the ICP's developer community has not been lost; on the contrary, it is steadily moving toward the goals set by the DFINITY Foundation.

This accumulation of technology is precisely the source of DFINITY's confidence in launching "economic surgery".

With the iteration of technical architecture, the Internet Computer has evolved from a simple L1 cache into a cloud platform with sovereign computing capabilities. In the fierce market competition, its competitive advantages are mainly reflected in three dimensions:

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

• End-to-end encryption and privacy: Internet Computer implements encrypted storage of sensitive data on the blockchain to ensure that when AI models process users' private data, even node providers cannot see the content.
• Cost-effectiveness: The overall cost of running AI inference on Internet computers is more than 20% lower than that of traditional SaaS giants such as Palantir, giving it a strong commercial advantage in the field of decentralized machine learning (DeML).

Secondly, to build a seamless interoperable future, ICP contracts can run as native addresses on other chains. Given the frequent security incidents involving cross-chain bridges, Internet Computer's "Chain Fusion" technology may represent the future direction of interoperability.

• Native integration of BTC and SOL: Internet Computer has now enabled direct operation of native Bitcoin assets (such as Ordinals and Runes) and Solana assets without involving any wrapped tokens or centralized custodians, significantly improving the security of multi-chain asset management.
• Full-chain DeFi hub: This capability may enable the Internet Computer to become the "glue" connecting fragmented public chain ecosystems, allowing developers to build seamless multi-chain deployment DeFi applications.

Finally, by eliminating the barrier to mass 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 plug-in wallets, significantly lowering the entry barrier for Web3 and providing a user experience comparable to Web2. Combined with Internet Identity 2.0, users can achieve seamless login using their phone's built-in fingerprint or facial recognition, a feature far exceeding that of established public chains.

Cryptocurrency prices plummeted by 99%, with historical issues stemming from centralized systems leading to a market trust deficit.

Despite its ambitious technological vision, DFINITY's path to becoming the "world's computer" remains fraught with challenges, currently facing multiple obstacles including market bias, ecosystem size, and execution risks.

On the one hand, since its mainnet launch in 2021, the price of the ICP token has plummeted from a peak of over $400 to single digits, leaving countless investors with nothing. Although DFINITY insists that this was due to market manipulation, long-standing investor lawsuits and allegations of the foundation dumping shares persist.

Despite DFINITY's repeated requests to the court to dismiss the relevant cases, legal scrutiny regarding market manipulation remains a Damocles' sword hanging over the project.

This stereotype of "centralized doomed projects" may, to some extent, limit the willingness of new funds to participate.

On the other hand, ICPs face a situation where technology and applications are out of sync.

First, the scale of DeFi lags behind. Compared to Ethereum or Solana, Internet Computer's DeFi ecosystem is still far behind in scale. As of January 16, its on-chain TVL was only about $16 million.

Second, there is insufficient liquidity. Although the protocol has powerful cross-chain technology, the liquidity of on-chain native assets such as ckBTC and ckETH is insufficient, and large transactions face the risk of high slippage.

Third, the user base is weak. Internet Computer has only about 7,000 daily active addresses, which is still significantly smaller than the top ten public chains by market capitalization. How to convert the vision of "self-written Internet" into real user traffic will be its top priority.

The greatest uncertainty lies in the effectiveness of the "inflation surgery." Mission 70 is a sophisticated economic experiment, and its success depends primarily on the simultaneous fulfillment of two prerequisites: first, reducing rewards will not lead to a large-scale exodus of node providers; second, Caffeine AI can generate exponential growth in Cycles burning. If the implementation of the AI platform falls short of expectations, simply reducing rewards could damage the ecosystem's vitality, or even lead to a vicious cycle of "price decline—increased inflation."

DFINITY is attempting a comeback through a new token economic model. If ICP gained popularity in 2021 with its vision of becoming a "world computer," then ICP in 2026 intends to prove its value creation and capture capabilities to the market through a sophisticated deflationary model and real-world data.

For investors, the underlying logic for judging ICP prices has changed. It is no longer about the vague prosperity of the ecosystem, but focuses on two quantifiable and traceable hard indicators: the burning rate of Cycles and the call frequency of on-chain AI inference.

The short-term price increase may just be a release of emotions, but the actual implementation effect of the new token economic model Mission 70, and whether it can break the curse of "strong technology, weak ecosystem", will be the key to determining whether ICP can return to the ranks of top public chains.