How Do Staking Rewards and Inflation Dilute or Enhance the "Cash Flow" in a DCF Model? ▴ Learn

How Do Staking Rewards and Inflation Dilute or Enhance the “Cash Flow” in a DCF Model?

Staking rewards are a form of distribution, enhancing the token's cash flow for stakers, but they are often paid from new token issuance (inflation). This inflation dilutes the value of all tokens, effectively reducing the per-token cash flow.

In a DCF model, the cash flow should be the net value: the gross rewards minus the value lost to inflation and dilution. A sustainable staking yield, where rewards are primarily sourced from protocol fees rather than inflation, enhances the intrinsic value.

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