Komodo CTO on the importance of deflationary tokenomics as environmental strategy

In an interview with crypto.news, Komodo CTO Kadan Stadelmann describes the need to integrate sustainable practices and deflationary mechanisms to advance the blockchain industry while addressing environmental concerns.

Blockchain technology is at an inflection point where demand for sustainable tokenomics and environmental awareness is reshaping the industry. As the world grapples with climate change, blockchain projects are innovating to minimize their ecological footprint.

Deflationary mechanisms like token burning are not just financial tools, but part of a broader strategy to create a greener, more sustainable economic model. It helps manage token supply, create scarcity, and attract investors who prioritize long-term value and sustainability.

The industry’s focus on sustainability and efficient tokenomics is setting new standards.

Stadelmann believes that the future of blockchain technology depends on the adoption of sustainable and deflationary tokenomics.

Given the rapid evolution of tokenomic models, especially the rise of deflationary mechanisms, how are these models affecting long-term token value and investor behavior in the blockchain industry?

Tokenomic models, especially those involving deflationary mechanisms, have been effective in creating long-term value for crypto investors. On the other hand, projects with inflationary tokenomics often create an environment that favors the creators or major holders of the cryptocurrency. Smaller holders or those new to cryptocurrency are at a disadvantage as they are often unable to accumulate enough supply to impact market value. Additionally, we have seen the long-term negative effects of inflation and hyperinflation of fiat currencies in the global economy for centuries. Deflationary mechanisms such as reducing the block reward (i.e. BTC) or burning tokens (i.e. BNB) have historically led to an increase in the market value of cryptocurrencies.

Is Komodo making any moves on this issue?

Recently the Komodo community approved three suggestions; two of these will directly lead to a more deflationary tokenomic model for BMD. These include KIP0002 (burning 100% of transaction fees) and KIP0003 (reducing the block reward from 3 KMD to 1 KMD). The other approved proposal – KIP0004 – will transition the Komodo blockchain from Proof of Work (PoW) to Proof of Stake (PoS). ) either in 2025 or 2026 (the exact date is not yet clear).

What advantages does the model supporting independent blockchains for each project offer over traditional single-chain platforms in terms of scalability and operational efficiency?

The key advantage of supporting a multi-chain model rather than a single-chain model is the autonomy of crypto projects to shape their own tokenomics. For example, projects built on Ethereum do not have the opportunity to reduce base transaction fees (gas) on every transaction. Users also need to hold ETH to pay for gas, even if their transactions do not involve ETH (i.e. swapping an ERC-20 token for another ERC-20 token on a DEX). For cryptocurrencies that use their own blockchain, there is no need to charge gas fees or rely on a secondary cryptocurrency. Projects may also set a lower amount in transaction fees. Scalability is another factor. Since each cryptocurrency has its own blockchain, transaction completion times are often much shorter due to less memory intensity. Typically transaction fees are also much more consistent and cheaper.

What architectural innovations are currently leading to environmental impact minimization in the blockchain development industry? How do these technologies manage to balance scalability with energy efficiency?

From an environmental sustainability perspective, the biggest innovation is Proof of Stake. As we saw in September 2022, Ethereum’s transition to Proof of Stake (PoS) reduced energy consumption by an estimated 99.5% compared to Proof of Work (PoW). As a result, the network became even more scalable. When we look at other PoS-based blockchains, we see that they have, on average, much higher transaction per second (TPS) limits than PoW-based blockchains. Another important thing to consider is that PoS cryptocurrencies make it much easier for average, non-technical users to actively participate in the security of the network and earn block rewards. This leads to higher participation among HODLers and creates a greater incentive to hold on longer rather than sell during bad market conditions.

How do deflationary strategies such as token burning shape market dynamics and token valuation over time in the broader blockchain ecosystem?

In this case it’s all about simple economics or tokenomics. In some cases, deflationary strategies such as token burning can contribute to price stability or alleviate downward price pressure. By reducing the supply of tokens, these mechanisms help prevent inflationary pressures that could otherwise reduce the value of the token over time. This stability can increase investor confidence and attract longer-term investments. If the demand for a particular cryptocurrency remains at least the same or increases over time, deflationary tokenomics should theoretically lead to an increase in price.

What are the main architectural choices that can help blockchain platforms maintain high throughput and efficiency without compromising security or inflating costs?

There are several potential options that can help crypto projects achieve high efficiency and productivity. While Proof of Work (PoW) generally offers a high level of security (especially for large blockchains like Bitcoin), it can be resource intensive and limit throughput. Variants such as Proof of Stake (PoS) and Delegated Proof of Stake (DPoS) offer higher throughput with lower resource requirements but require careful design to ensure security. Scaling solutions such as state channels (e.g. Lightning Network) or sidechains can reduce the load on the main blockchain and increase throughput by enabling off-chain transactions. However, they require careful integration with the main chain to maintain security and interoperability.

How important is it for blockchain platforms to keep transaction fees low?

The truth is that developers are more likely to build on a blockchain that allows for cheaper transactions. As a result, users are also more likely to start using various dApps if they are affordable. Blockchains should make it easier for developers to design smart contracts that minimize computational complexity and gas consumption. This is possible through techniques such as code optimization, gas-efficient data structures, and off-chain computation. Additionally, dApp developers should consider using precompiled contracts for computationally expensive operations.

From an industry-wide perspective, when designing blockchain solutions with a focus on environmental sustainability, what are the key considerations that developers should prioritize to ensure their platforms are both efficient and minimally impactful?

As we mentioned above, the easiest method is to use PoS. However, if PoW is required, consider implementing energy-efficient mining algorithms or variations that reduce computational workload and energy consumption. Examples include Equihash (used in Zcash) or Ethash (previously used in Ethereum). Operating nodes or mining farms prioritize energy-efficient hardware and data center applications. This includes using renewable energy sources and optimizing cooling systems to reduce energy waste. Another solution is to optimize the blockchain protocol and architecture for efficiency. This includes reducing the size of blocks, optimizing data storage and retrieval, and minimizing unnecessary calculations. Efficient data structures and compression techniques can also help reduce the overall energy footprint.