Apps built on @dfinity's Internet Computer do not pay for computing with $ICP directly. They run on cycles, a form of prepaid credit. Developers convert ICP into cycles, and the ICP used in t
Apps built on @dfinity's Internet Computer do not pay for computing with $ICP directly. They run on cycles, a form of prepaid credit. Developers convert ICP into cycles, and the ICP used in that conversion is burned, permanently removing it from supply.
The mechanism links network usage to the supply of Internet Computer (ICP), while keeping costs for developers predictable.
According to the Internet Computer documentation, cycles are obtained by converting ICP through the Cycles Minting Canister, a system canister that mints the equivalent value in cycles at the current exchange rate. Once created, cycles can only be consumed by canisters, never converted back to ICP.
Cycles carry a fixed price. One trillion cycles equal 1 XDR, the currency code for the Special Drawing Right, a basket of currencies maintained by the International Monetary Fund. The network economics documentation says this keeps developer infrastructure costs stable in fiat terms even as the market price of ICP changes. The documentation puts 1 XDR at roughly $1.30 to $1.40.
The network describes this as a reverse gas model. Developers pre-fund their apps with cycles, so end users generally do not pay a separate fee for each interaction, as DFINITY's learning resources explain.
Burning is only one side of the supply equation. New ICP is minted through two channels, according to a paper by DFINITY founder Dominic Williams: voting rewards for people who stake ICP in neurons and take part in Network Nervous System governance, and payments to node providers who operate the network's physical infrastructure.
Node provider rewards are specified in XDR and converted into ICP using a 30-day average exchange rate, so providers receive stable real-world compensation regardless of price swings. Staked ICP gives holders voting power on network proposals, and longer lockups increase that power.
The net effect on supply depends on activity. The documentation says that when cycle demand is high, more ICP is burned, while higher governance participation means more ICP is minted. The Williams paper says the long-term path of ICP supply is set by the balance between these minting streams and the burn generated by platform usage. It also notes that the cycle burn rate has grown by roughly a factor of three per year since the network's May 2021 genesis.
Internet Computer docs: Network economicsInternet Computer docs: CyclesMission 70 and Accelerating the Internet Computer Economy (Dominic Williams)
