QIP-2: Proposal to include burn mechanism in transaction fees

Protocol Development
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QIP Number: 2

Title: QUIL Token Burn Mechanism for Sustainable Emissions Control

Author(s): P. Jameson

Category: Standards Track

Type: Core

Status: Draft

Created: November 8, 2024

Discussions-To: QIP-2: Proposal to include burn mechanism in transaction fees

Updated: November 8, 2024

Abstract

This proposal introduces a mechanism to burn a portion of transaction fees on the Quilibrium network as a means to combat emissions and support a sustainable token ecosystem. By integrating a burn process into the transaction fee structure, this can add stability to the token economy and ensure better alignment with network sustainability goals.

Motivation

The Quilibrium network has faced challenges with emissions surpassing intended targets, particularly due to delays in the 2.0 release. Without proper countermeasures, this could undermine the value of QUIL tokens and affect the overall health of the ecosystem. Introducing a burn mechanism that removes a portion of transaction fees from circulation will help mitigate these issues by balancing emissions and promoting stability.

Specification

Definitions

  • Burn: The process of permanently removing tokens from the circulating supply by sending them to an irretrievable address.
  • Transaction Fee: The cost paid by users to utilize compute on the network.
  • Fee Burn Rate: The percentage of each transaction fee that will be burned.

Detailed Design

  1. Transaction Fee Structure: Adjust the planned fee structure to allocate a portion of transaction fees to the burn mechanism.
  • Example: For each transaction on the network, 5% of the total fee is sent to an unspendable address, effectively burning the tokens.
  1. Burn Rate Governance: The burn rate (e.g., 5%) can be adjusted periodically through network governance to respond to changes in network activity and economic conditions.
  2. Technical Implementation:
  • Modify the fee distribution logic within the code handling network fees.
  • Integrate a function that automatically routes the specified percentage of transaction fees to the burn address.

Rationale

The decision to burn a portion of transaction fees was chosen for its simplicity and proven effectiveness in managing token supply within other ecosystems. A straightforward burn mechanism is less complex to implement than alternatives such as buybacks or variable emission reductions, and it aligns with community expectations for transparent, on-network measures.

Backward Compatibility

This proposal introduces changes that require updates to the transaction processing logic in network nodes. However, these updates are backward compatible as they only modify the fee distribution method and do not affect transaction validity.

Test Cases

  1. Standard Transaction Fee Burn:
  • Input: Transaction fee of 100 QUIL, burn rate of 5%.
  • Expected output: 5 QUIL sent to the burn address, 95 QUIL processed as the net fee.
  1. Adjustable Burn Rate:
  • Test with different burn rates (e.g., 0.5%, 2%) to validate proper allocation.
  1. Zero Burn Rate:
  • Input: Burn rate set to 0%.
  • Expected output: No tokens burned, full fee processed normally.

Security Considerations

  • Irretrievable Burn Address: Ensure the burn address is properly set to prevent any recovery of burned tokens.
  • Network Stability: Monitor the impact of reduced circulating supply on transaction volume and network activity.

Reference Implementation

Initial implementations will be tested in a controlled testnet environment to ensure the burn mechanism works as intended without disrupting network operations. Progress updates and code repositories will be shared with the community.

Copyright

This work is licensed under CC0 1.0 Universal (CC0 1.0) Public Domain Dedication.

Next Steps

  • Solicit feedback from the community on the burn rate and potential impacts.
  • Test the proposal on a testnet with varying transaction volumes.
  • Refine the proposal based on testing outcomes and community insights.

End of Proposal

3 Likes
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I am not 100% against burning tokens, but based on the above argument it would essentially trying to resolve an already solved issue.

If we consider emissions curves that the network will use, it is clear that the network adjusts the reward emissions to that curve, so in essence it already accounts for this surpassing of unintended target for 2.0 launch by just moving the dates to match the current supply level. I.e. the emissions going forward are going to be drastically lower than initially projected due to this increased initial supply.

I guess I would want to hear more about what purpose people think a burn would serve before I say I absolutely wouldn’t want one.

My current opinion is there is no point to burning tokens.

2 Likes
3

I’m ok with burning a part of the node operator fees (but probably peter was proposing something broader, like any transaction, in that case I’d still be ok for it, but not at the 5% level, something more in the range between 1-3%).

Considering that the fees will be very small >= 0.000000000125 QUIL as described here:

I agree that the % should be something in the rage of at least 5% (or even more), otherwise the burning effect in circulation reduction would be meaningless (that could always be revised if in the future, either their avg value changes radically or there are way too many).

1 Like
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The fee burn is very effective for limiting the total supply, but buyback and burn is even more relevant, as it adds slight buying pressure and reduces the supply.

5

Its a utility token though. You dont burn tokens to make it more expensive to use the network.

6

The emission curve already constrains the total supply, we dont need to introduce another mechanism if that works. Burning operator rewards (the proposed burn portion of the transaction fee) would be kinda pointless.

2 Likes
7

hey guys, just brainstormed a bit…Adaptive Dynamic Burning Mechanism for Quilibrium Network Optimization

This proposal introduces an Adaptive Dynamic Burning (ADB) mechanism for the Quilibrium network. The ADB system aims to enhance network efficiency, optimize token economics, and ensure long-term sustainability while maintaining the utility-focused nature of the QUIL token.

  1. Introduction:
    Quilibrium’s current emission model, while effective, can be further optimized to address potential supply-demand imbalances and enhance the overall efficiency of the network. The ADB mechanism introduces a nuanced approach to token burning that adapts to network conditions, ensuring optimal performance without compromising the utility of QUIL tokens.

  2. Core Principles of ADB:
    2.1 Dynamic Burn Rate: The burn rate adjusts based on network utilization and economic indicators.
    2.2 Utility Preservation: Ensures that burning does not negatively impact the token’s primary function as a utility token.
    2.3 Efficiency Incentivization: Encourages more efficient use of network resources.
    2.4 Economic Stability: Helps maintain a balanced token economy in various market conditions.

  3. Detailed Mechanism:

3.1 Base Burn Formula:
BB(U, E) = α * log(U) * (1 - e^(-βE))
Where:
BB: Base Burn rate
U: Network utilization (0-1)
E: Excess supply relative to projected emissions
α: Base coefficient (adjustable through governance)
β: Economic sensitivity factor

This formula ensures that the burn rate increases with network utilization but is tempered by the current token supply relative to projected emissions.

3.2 Network Efficiency Factor:
NEF = 1 + γ * (R_actual - R_ideal) / R_ideal
Where:
NEF: Network Efficiency Factor
R_actual: Actual resource consumption per transaction
R_ideal: Ideal resource consumption per transaction
γ: Efficiency sensitivity parameter

The NEF adjusts the burn rate based on how efficiently the network is being used, incentivizing optimized resource utilization.

3.3 Market Volatility Dampener:
MVD = 1 / (1 + δ * σ_price)
Where:
MVD: Market Volatility Dampener
σ_price: 30-day rolling standard deviation of QUIL price
δ: Volatility impact factor

This factor reduces the burn rate during periods of high market volatility to maintain stability.

3.4 Final Burn Rate:
FBR = BB(U, E) * NEF * MVD

3.5 Burn Implementation:
For each transaction:
Burned_Amount = Transaction_Fee * FBR
The burned amount is sent to an unspendable address, permanently removing it from circulation.

  1. Technical Implementation:

4.1 Smart Contract Integration:
Develop a smart contract that calculates the FBR in real-time based on network metrics.

4.2 Oracle System:
Implement a decentralized oracle network to feed external data (e.g., market prices) into the burn rate calculation.

4.3 Automated Burn Execution:
Create an automated system that executes burns based on the calculated FBR for each transaction.

4.4 Transparency Dashboard:
Develop a public dashboard showing real-time burn statistics, network efficiency metrics, and the current burn rate.

  1. Network Benefits:

5.1 Enhanced Efficiency: By tying the burn rate to network utilization and efficiency, ADB encourages optimal resource use.

5.2 Economic Stability: The adaptive nature of the burn mechanism helps maintain token value stability in various market conditions.

5.3 Scarcity-Driven Value: Controlled burning creates a deflationary aspect to QUIL, potentially increasing its long-term value.

5.4 Incentive Alignment: Encourages users to optimize their network usage, leading to a more efficient overall system.

  1. Safeguards and Limitations:

6.1 Burn Rate Caps:
Implement a maximum burn rate (e.g., 10% of transaction fees) to prevent excessive token removal.

6.2 Minimum Circulation Threshold:
Set a minimum circulation threshold below which burning is automatically suspended.

6.3 Governance Override:
Allow for community governance to pause or adjust the burn mechanism in case of unforeseen circumstances.

  1. Economic Impact Analysis:

7.1 Supply Projection Models:
Develop comprehensive models projecting QUIL supply under various network growth scenarios with ADB implemented.

7.2 Utility Preservation Study:
Conduct ongoing analysis to ensure that burning does not impede the token’s utility functions.

7.3 Network Efficiency Metrics:
Establish clear metrics for measuring and reporting on network efficiency improvements driven by ADB.
Conclusion:
The Adaptive Dynamic Burning mechanism represents a sophisticated approach to token economics in the Quilibrium ecosystem. By dynamically adjusting the burn rate based on multiple factors, ADB aims to optimize network performance, enhance token value stability, and ensure long-term sustainability. This mechanism aligns with Quilibrium’s innovative approach to decentralized networks, providing a flexible and efficient solution to balance token supply with network growth and utilization.

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I agree with @Tyga and @agwm_2014 that this proposal is essentially pointless