In today's world, the word "inflation" sparks fear wherever it is mentioned.
It is felt on supermarket shelves, in transportation, energy and gas bills, in the consumption and acquisition of services and properties, in life expectancy, and even in birth rates. Inflation is part of our daily lives due to a variety of national and international factors. It has reshaped our routines and the way we work.
Inflation is the sustained and widespread increase in the prices of goods and services within an economy over time.
This means that, as time goes by, the purchasing power of money decreases, as more money is required to buy the same products or services.
When we bring inflation into the blockchain world, it becomes a topic of interest and concern for users.
Blockchains are designed for different purposes, and understanding the specific use case of the blockchain we intend to use is essential for the project, business, or service we want to build on it. When we talk about inflation in the context of blockchain, we are usually referring to whether the protocol can generate new tokens—potentially increasing the supply—or whether there are mechanisms in place that may result in a certain level of inflation.
Take Bitcoin as an example.
Initially introduced as a peer-to-peer electronic payment system, it has evolved into a store of value for many of its users. Observing the market, Bitcoin’s price behavior, and its most common use cases, we can conclude that users have largely chosen to treat it as an investment asset due to its non-inflationary nature. There will only ever be 21 million bitcoins, and some of these will be permanently inaccessible due to lost private keys or forgotten passwords. For many, this effectively makes Bitcoin deflationary.
Xahau, on the other hand, is currently inflationary.
This feature was deliberately included in the blockchain’s design from the outset, and this article aims to explain why.
Xahau excels as a robust payment system—it is extremely fast, efficient, and highly cost-effective.
It also features a decentralized exchange at its core, allowing users to trade assets with each other in real time. The technology behind Xahau has been tested in real-world environments for over a decade, which reinforces its reliability.
What and Why was Xahau created?
Xahau is an evolution of the XRP Ledger, enhanced with smart logic features known as Hooks. Hooks are programmable rules that can be attached to user accounts, enabling anything from simple to highly complex automated processes—similar to what other networks refer to as smart contracts. Hooks open up new possibilities on Xahau, allowing users to accept or reject incoming or outgoing transactions, automate tasks, and help enforce regulations and laws across multiple jurisdictions.
Most simple actions on Xahau consume (or temporarily reserve) XAH, the network’s native token.
These fees and reserves are typically negligible and barely noticeable in users' balances. This mechanism gives value to the requested transactions and the computational resources required to execute them, while also protecting the network from high-frequency transaction attacks. However, when it comes to Hooks, transactions can become significantly more complex. They may generate additional transactions, queue processes, store data on-chain, and require more processing power. Therefore, it is reasonable for these more complex Hooks to carry a higher cost.
This brings us back to the question of inflation on Xahau.
To make the execution of more sophisticated processes sustainable, Xahau allows users to claim a monthly balance adjustment (always positive), currently amounting to approximately 4% annually. This balance adjustment provides users with additional XAH to continue their ongoing processes and execute complex logic on the network, without the risk of depleting their balance due to Hook-related fees—while still upholding the principle that everything comes at a cost.
This mild inflation also influences other aspects of Xahau beyond Hooks.
Users are encouraged to actively use their XAH instead of letting it sit idle—unlike in many other blockchains. For example, Bitcoin could be described as a value network where users are incentivized to hold rather than spend, undermining its original purpose as a payment system. Similarly, on the XRP Ledger, the average user often prefers to hold XRP in hopes of appreciation, rather than using it for transactions or services. This limits overall network activity. Xahau, by contrast, is a system built for active use, where network participation is incentivized. Its mild inflation encourages users to make continuous use of their balance, as it will gradually lose value if left untouched. This mechanism is a brilliant part of Xahau’s design, ensuring steady engagement and avoiding the network becoming dormant during off-peak periods.
It would not be fair to discuss inflation on Xahau without mentioning the deflationary mechanisms that introduce scarcity.
Some actions in Xahau require users to reserve or lock portions of their XAH, which are excluded from inflation adjustments. Examples of such deflationary actions include the creation of URITokens (NFTs), setting up trustlines, configuring multi-signature lists, placing offers on the decentralized exchange, issuing checks, creating escrows, and other protocol features currently available or to be introduced in the future.
Deflationary pressure doesn’t come only from the protocol itself.
Users developing their own applications and businesses within or based on Xahau also contribute to deflation, at varying rates and scales. Some processes or services may consume more XAH than is gained through inflation, whether continuously or sporadically. This dynamic can have a positive impact on the valuation of XAH: as the circulating supply decreases, the value of each unit may increase, enabling more transactions with fewer tokens.
In conclusion, Xahau’s inflation mechanism is an intelligent way to encourage network engagement and the creation of complex logic using Hooks—without users fearing that their balances will be exhausted too quickly.
At the same time, it incentivizes making these processes as efficient as possible to avoid excessive fees. If poorly optimized, Hooks could consume users’ balances too rapidly, rendering the inflationary support insufficient and preventing abuse of the mechanism.
How do I claim the balance adjustment to receive my monthly XAH?
To claim the XAH corresponding to your account, you must first opt in with a ClaimReward transaction of type Opt-In: https://docs.xahau.network/technical/protocol-reference/transactions/transaction-types/claimreward. You will be able to claim your XAH every 30 days, 2 hours, and 13 minutes by calling this type of transaction again.
If you're not comfortable managing the transaction yourself, you can always use the Balance Adjustment xApp from Xaman by following this tutorial: https://help.xaman.app/app/all-about-xapps/xahau-xapps/balance-adjustment.
Learning Xahau Articles
Learning Xahau: The importance of building your own business layer
Learning Xahau: What is Xahau?
Learning Xahau: Inflation and Deflation as Core Elements of Its Design
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