[TIP-003] Continuation of Monthly Volume Target Based Burn

🔗 TIP-003 Forum Discussion

THE PROPOSAL

This proposal is for continuing the monthly volume target based burn that was initially tested for the past 3 months as part of TIP-001.

As this is the first time a multiplier has been implemented for monthly burn - an additional optional hard cap limit has been suggested. This proposal adopts a weighted voting system where voting power can be spread across any number of choices, from one to all. Voting power will be divided between chosen options according to how much weight attributed to each option by increasing or decreasing the voting power fraction.

If this proposal is passed:

1. Continue the monthly volume target based burn, starting August, 2023 onwards.

2. Continued burning of 3 times the emitted tokens (Currently about 2.5M THOR per month) from the Community Incentives pool ONLY if THORSwap’s trading volume surpasses the volume target for that month.

3. Implementing a sliding monthly volume target starting in August 2023:

If the volume target is reached, the following month's target increases by 1M RUNE

If the volume target is NOT reached, next month's target decreases by 1M RUNE

Since the July burn target has been reached, the monthly target for August 2023 will be 9M RUNE.

4. Enable a burn multiplier on top of the monthly burn based on volume % above the target. Where each +1% volume is equal to an additional 1% bonus after 3x Emissions. Example below:

5. (Optional) Multiplier hard cap limit: No additional multiplier bonus % shall apply after 300% of burn target is reached.

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Motivation:

Motivations remain the same as they were mentioned and approved with TIP-001. We’ve had 3 months to see how the the proposal played out it in reality and it seems to be all positive so far. The community seems invigorated with a common gamified KPI that is good for the project.

However, we’ve only scratched the surface of addressing the initial FDV concerns and we should continue this mechanism to achieve it’s initial goals.

Proposal Impact

Excerpt from TIP-001 regarding FDV below. Addressing the high FDV (Fully Diluted Value):

Many community members have been vocal about $THOR’s high FDV and in particular, the high amount of non-circulating tokens. The concern is that a high amount of non-circulating tokens could possibly lead to severe inflation and dilution.

Several steps have already been taken to reduce token inflation. Block rewards have been reduced. New community proposals are ongoing to re-allocate token emissions to more productive community actions. Dilution is now at its lowest point and at a healthy level.

However, the fully diluted supply of $THOR still exists as long as the tokens exist, even if they remain non-circulating. Many community members have rightly pointed out that the mere existence of these non-circulating tokens brings the risk of future token inflation and dilution. Burning some of these non-circulating tokens is an effective way to address this situation.

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Additional Notes

RUNE as volume metric

There are many possible metrics to measure the usage of the THORSwap protocol. As a trading protocol, THORSwap’s trading volume denominated in $RUNE is the best indicator of community usage.

Denominating in $RUNE is a way to align with THORChain’s success, and is a better way to compare historical volume because USD Volume is subject to $RUNE’s price fluctuations. Anyone can check the values using this midgard api endpoint (note that token and dollar values should be divided by 1E8 and that times are in unix time format).

Purpose of Community Incentives Allocation

THOR that would be burnt from the community incentives pool could be better used in other efforts to increase THOR adoption/volume. Though the community has already voted in favor of TIP-001 before and concluded that there is enough THOR in the incentives pool to do both at the same time

Burn Mechanism

THOR from the community incentives pool is not currently part of the circulating supply and the burned amount does not directly affect THOR price action in a way that a buyback + burn mechanism would.