Morpher uses it's own ERC-20 token (MPH) to power it's protocol and platform. At the original token creation event[ 1 Billion MPH tokens were created, and distributed](/en/article/tokenomics-1djond1/).

This supply of MPH is not fixed, it changes over time proportionally to the collective investment success/failure of Morpher’s users. There are two more influences on the token supply: tokens burned through bid/ask spreads and tokens minted for operator rewards.

The three key factors that affect token supply:
Collective investment success of Morpher traders
Market Spreads
Operating Rewards

Investment Success

Every Virtual Future is created and settled in MPH token. If a user’s prediction is correct, the smart contract creates new token. If it is incorrect, the smart contract destroys token permanently. If the collective investment success of all traders on Morpher is positive, newly minted token are added to the supply. If it is negative, the tokens get destroyed reducing the overall supply.

The collective investment success on Morpher can only be estimated at this point, as there is no empirical data yet. But it can reasonably be assumed that

Expectations about the markets among traders are diverse. This implies that some traders expect rising prices of a market and open long positions, while others expect falling prices of the same market and create short positions. Simultaneous long and short positions on the same market cancel each other out, so the only contribution to a change of the overall token supply is the net exposure, or the difference between long and short positions. Simply put: long and short positions will partially cancel each other out.

Morpher’s traders are on average equally successful as traders on other platforms. Trading is a zero-sum game for options, derivatives, and forex. One side loses what the other side gains. It can be argued that stocks and cryptocurrencies do create value and trading them is not a zero-sum game. Regardless of the asset class however, traders do not outperform the market on average. Consequently, the systematic impact of successful trading on inflation can be estimated with the average market return.

Under (1) and (2) an inflation rate of more than 10% annually resulting from successful trading seems unlikely.

Runaway Inflation
Should the inflation rate exceed 10% per year, e.g. because assumption (2) does not hold and the Morpher community consistently outperforms the market, a new opportunity arises: the collective positions of the community could be traded on traditional markets. The resulting profits can be used to buy back and burn token, keeping the community incentivized while sharing profits and mitigating the impact of inflation at the same time.

The spread is the difference between the bid and the ask price. Spreads introduce a small cost to buying and selling and thus mitigate token inflation from predatory trading strategies like scalping. Spreads implicitly burn token with every transaction, effectively reducing the total supply. By adjusting the width of the spread, Morpher can control the overall inflation rate of the token economy and reach any desired target inflation rate. Simply put: Morpher can reduce the inflation rate by widening spreads dynamically. Learn more about spreads here.

Operating Rewards
As a reward for operating the protocol, Morpher receives 0.015% of the total token supply in newly minted token every day. That compounds to about 5.6% newly minted token per year and is comparable with the inflation rate of Ethereum between May 2019 and May 2020 (~4.6% per annum).
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