> For the complete documentation index, see [llms.txt](https://docs.gbm.auction/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.gbm.auction/gbm-tokens/token-supply-and-distribution/inflation-model.md).

# Inflation Model

### 🔄 What Happens to Token Supply After Year 3?

After the initial three years - when the full 1 billion $GBM tokens are in circulation - the protocol will transition to a **reactive inflation model**, where new token issuance is directly tied to protocol activity.

This ensures token supply only grows when usage grows.

### ⚙️ How the Reactive Inflation Model Works

Once **Token Reward Season 3 concludes**, GBM enters a new phase — where **each month functions as a mini reward season**, with emissions adjusting dynamically based on usage.

#### **1. Measure Monthly Activity**

The protocol calculates total activity for the month, including:

* Bidding volume
* Winning points 
* Selling points 
* Referral points 

*(You can learn more about these points in the* [*Activity Score Section*](https://gbm-auctions.gitbook.io/gbm-protocol/community-program/reward-seasons/activity-scores)*)*

#### **2. Compare to Historical Average**

This month’s activity is then compared to the **cumulative average** of all prior months since inflation began.

#### **3. Adjust Inflation Rate**

Based on this comparison:

* **Higher-than-average activity** increases monthly token emissions
* **Lower-than-average activity** reduces emissions

The result: a self-regulating model where token supply expands only when ecosystem activity justifies it.

### 📊 Example: Month-by-Month Inflation

**Month 1:**

* Total activity score = 100
* This sets the baseline. A fixed emission amount is released (e.g. 1,000,000 GBM tokens)

**Month 2:**

* Total activity score = 120
* Up 20%, so inflation increases proportionally

**Month 3:**

* Total activity score = 80
* Down 20%, so inflation decreases proportionally

Each participating wallet earns rewards **based on their share of monthly activity**.

### 🔒 Controlled Supply With Long-Term Alignment

To prevent runaway inflation, the model includes an **asymptotic cap,** ensuring emissions taper over time.

* Early months may emit more to reward adoption
* Over time, emissions adjust downward as the protocol stabilises

This makes $GBM token emissions:

* **Sustainable** - no arbitrary or runaway inflation
* **Fair** - only active contributors are rewarded
* **Demand-driven** - tied to real usage and ecosystem growth