# Inflation and Fee Model

## Token Supply Inflation

Token inflation plays a pivotal role in <mark style="color:green;">**securing the sustainable economic health of LAOS**</mark>. The designed mechanism allows the parachain to maintain a predictable and sustainable inflation rate that <mark style="color:green;">**incentivizes network participation**</mark> while allowing for the <mark style="color:green;">**preservation of token value**</mark>.&#x20;

For the first two years after the Token Generation Event (TGE), the token supply will be fixed to 1Bn tokens, with rewards to collators being provided from the Community Incentives pool, at a rate of 75M  LAOS tokens (<mark style="color:green;">**7.5%**</mark> of the total supply) per year.

Inflation is planned to begin at the start of the third year, with the system aiming for a <mark style="color:green;">**yearly inflation rate capped at 10%,**</mark> and voted by governance annually. After inflation is initiated, on-chain governance will approve the allocation ratio for collator rewards and any potential distribution to the community treasury.

Inflationary token emissions might fluctuate over time, influenced by shifts in parachain block times, network conditions, differences in relay chain performance, runtime bugs, and various other factors. To adapt to changing circumstances, future adjustments of token inflation can be decided through the token governance mechanism

## Fee Model&#x20;

Transaction fees serve multiple purposes in the Polkadot Parachain ecosystem. From <mark style="color:green;">**preventing network spam to compensating validators and managing congestion**</mark>, they are indispensable.&#x20;

Within the LAOS ecosystem,  transaction fees will be <mark style="color:green;">**allocated to the collators.**</mark> Eventually, on-chain governance will decide whether a fraction should be <mark style="color:green;">**directed to the on-chain treasury**</mark>, where they can be distributed through on-chain governance to projects and initiatives that promote adoption and engagement with the network.

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