[TIP-001] Community Incentives Burn

THE PROPOSAL

1. Initial burn of 30M $THOR from Community Incentives allocation (non-circulating supply) if TIP-001 passes the snapshot vote.

2. For 3 months, at the conclusion of each month, burn 3 times the emitted tokens during that month (estimated 2.5M $THOR per month) ONLY if THORSwap’s trading volume surpasses the monthly volume target.

3. Monthly volume target of 8M $RUNE.

All token burns are contingent on the community’s own actions - the community must approve the initial burn, and the trading volume targets for each month must be met for the monthly burns to proceed.

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Proposal Impact

Impact of the Initial Burn:

The initial burn of 30M $THOR will more than offset all Staking Pool emissions to-date (~27M).

Impact of the monthly burn(s):

Currently, emissions to $THOR stakers are 4 $THOR tokens per block produced. The block rate of the Ethereum network has averaged about 7100 blocks per day since September 2022, meaning the current monthly emissions rate is around 850,000 $THOR tokens per month. If the monthly trading volume target (8M $RUNE) is met, 3 times the emitted tokens will be burned. So we can estimate the monthly burn amount to be slightly above 2.5M $THOR tokens each month.

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Intro

The THORSwap token’s ($THOR) original tokenomics were allocated to be driven by the community and there has been repeated feedback from the community on the high total token supply.

While the circulating supply of tokens is an important metric, total supply is also relevant. It may take a very long time for a token to fully emit its total supply, it may never be fully diluted, but the fully diluted valuation (FDV) shall remain for as long as the tokens exist.

Addressing the high 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 large amount of non-circulating tokens could possibly lead to severe inflation and dilution.

At the community’s behest, several steps have already been taken to reduce token inflation. Block rewards have been reduced significantly. New community proposals are in discussion to re-allocate token emissions to more productive community actions. $THOR’s token dilution is now at its lowest point and at a healthy level.

However, the fully diluted valuation of $THOR still exists as long as the non-circulating tokens exist. 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 has been raised as an effective way to address the community’s concern.

Community Incentives Allocation: Purpose & Goals

THORSwap is a protocol by the community, for the community. Of the original token distribution, 50% of the total supply (250M $THOR tokens) was allocated to Community Incentives. The core purpose of this allocation is to help drive adoption of THORSwap, as governed by the community.

This allocation has been used to seed liquidity, incentivize partner programs, and as the source of emissions to $THOR stakers. Right now this leaves ~260M non-circulating $THOR remaining in the Community Incentives allocation - this pool of tokens is the biggest contributor to the high FDV.

The Community Incentives pool is meant for the community to govern and drive adoption of THORSwap, as the community sees fit. The community is empowered to submit and vote on proposals for how best to use this allocation. There are already many ideas on re-allocating emissions to more productive user actions, rewarding swappers, attracting new users, etc.

THORSwap Improvement Proposal #1 suggests that burning a portion of the non-circulating tokens is a benefit to all THORSwap users, as it reduces future dilution and rewards early users.

How?

A major change to the protocol, such as a token burn, must be approved by the community and be based on the community’s own actions in using the protocol.

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.

This has been THORSwap’s volume for the past 15 months from Jan 2022 to March 2023:

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).

This community proposal proposes that potential token burns will be contingent on the community’s own usage of the THORSwap protocol, as measured by THORSwap’s trading volume.

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Final Notes

This proposal is intended to be an initial test. The numbers and figures in this proposal are intentionally conservative because a token burn is a one-way street - no one can undo a burn. This proposal is NOT intended to be a fully comprehensive tokenomics revamp. As with iterative software development, this proposal intends to start with iterative adjustments that capture real-world data, which will be useful for considering future adjustments.

The community may bring forth future community proposals that propose to adjust the time frame, monthly targets, burn amounts, etc. - as the community deems to be the best use of the Community Incentives allocation.