[bisq-network/proposals] Used burned BSQ to become a fee receiver (Issue #359)

[chimp1984]

@w0000000t No worry, it is understandable that those who are not too familiar with the DAO technical and some rather exotic conceptual aspects get confused by the description. I will try to give more background....

The economics of the DAO is based on an inflationary and deflationary tendency. By issuing new BSQ at compensation requests we create more BSQ, thus creating inflation as the supply of total BSQ increases and the value of each unit decreases assuming the total value of the DAO stays the same.
On the other side by burning BSQ (e.g. by paying trade fee in BSQ) we remove BSQ from the supply and create a deflationary force, which increases the value of each unit.

Beside the burning BSQ by paying trade fees (technically its "uncoloring" BSQ back to BTC and used for paying miner fees, to those BTC are not lost), there is a tool in the app called "Proof of burn". This is used by the burningman who receives the trade fee of those traders using BTC for fee payment and trade those BTC against BSQ and after receiving the BSQ burns those BSQ, thus bringing back the fees into the DAO economy. We would like to get rid of that burningman role as its not decentralized as it should be.

In the context of Bisq 2 with multiple trade protocols, including such which do not have BTC or BSQ on any side of the trade we need a new fee model.

So my suggestion here is that anyone can play that role of the burningman and burn upfront some amount of BSQ and in return receive the privilege to receive the trade fee. This can be the BTC trade fee in Bisq 1 or any crypto currency in Bisq 2, for instance for a Liquid LBTC-USDT swap there can be people who have burned BSQ and linked that to a USDT address to receive the trade fee paid in USDT, or LBTC.

We used a similar model for paying back the losses of the victims from the security incident. Those victims have in total received 50% of the BTC fee revenue. The fee payment was done by a probabilistic algorithm as splitting small amounts to multiple receivers would be inefficient from the miner fee costs. So if a victim hab 10% of the total loss they had a 10% chance (5% in reality as we allocated only 50% to the victims) to receive the trade fee in BTC. Over time that levels out statistically as there are many small payments.

Similar to that concept we can have a pool of people who have burned BSQ to have the right to receive the BTC fee.
E.g. Lets assume there are 10 people who have burned in total 10 000 BSQ for the period of one cycle. Some have burned 100 BSQ others have burned 1000 BSQ. Those with 1000 BSQ have 10x the chance compared to the one with 100 BSQ to receive a trade fee.
Lets assume the revenue from BTC trade fees is 25 000 USD and 1 BSQ is 2 USD. 
So in total they share by that probabilistic algorithm the 25k USD and have spent in sum 20k USD by burning BSQ. So in total they made a profit of 5k USD. Those with higher amounts get a bigger share.

If there is some profit to be made it will attract more who want to partizipate. So next cycle there might be 15K BSQ burned and assuming the same revenue, there would be a 5000 USD loss. This time some will leave the pool...
Over time there will be found an equilibrium so that those who take the efforts and risks get enough profit that its worth it for them, but profit is hard enough earned so that the pool is not overbought. With pool I mean the funds of the group of fee receivers who have burned BSQ.

For Bisq 1 that might not be justified as the added complexity and costs might not be worth it (those who take that risk will need to make some profit, so for the DAO it will be more expensive as the burningman solution used now).
But for Bisq 2 we need a fee solution for those trade protocols where we cannot use the current model.

The beauty of that model is that its permissionless and open to partizipate (anyone can become such a fee receiver) and that its flexible to be used for any crypto currency. For fiat it would not work as linking a bank account would not really work in the privacy context of Bisq.

Technically the linking of the fee receiver address to the burned BSQ is done by attaching the address to the burn BSQ tx as opReturn data, either via a hash and extra P2P data or directly putting the address into the opReturn.

Hope that makes it more clear.




 





 




 









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