FAQs: What is inflation funding? How does it work?
Inflation funding is a mechanism that the Tezos protocol can use to fund the development of the core protocol and other public goods. Essentially how it works is simple – if an upgrade is approved via the Tezos governance process, the protocol itself mints new Tezos tokens (XTZ) and issues them to the developer(s) behind the upgrade. This process increases the total supply of XTZ and is designed to solve the free rider problem that open-source projects are particularly prone to. Inflation funding presents a sustainable source of funding that is not reliant on token price appreciation or private investment.