Revenue-backed tokens: burn to claim a share of network fees
Post441 words
Proposes tokenomics where fees accrue in a vault and holders can burn tokens to claim a pro rata share, giving the token a revenue-backed floor that rises with usage. Argues this funds long-term validator incentives once inflation fades.
Key claims
Fees accrue in a vault and holders can burn tokens for a proportional share
The backing floor rises as more fees are generated
Burning shrinks supply, offsetting fee revenue leaving the vault
馃捀 Tokenomics Idea: Revenue-backed Tokens 馃捀
Fee revenue matters. Blockchains, while not traditional businesses, have to sustainably generate revenue. It is key to ensure sufficient validator incentivization and maintain network security in the long term.
Why not bake this into tokenomics? 馃
The revenue generated from transaction fees is what is ultimately funding network security in the long-term. Perpetually inflating token supplies are fine to start out with, but can鈥檛 be the end state.
The primary function of public blockchains is to serve as a secure, decentralized layer of trust. I would therefore argue that the extent to which a chain is able to generate fee revenue a.k.a. the long-term sustainability of validator incentivization, is key to re-enforce the main value proposition of any public blockchain network.
How much revenue a blockchain generates, should hence probably be a key determinant of the valuation we give these networks.
However, crypto markets are highly speculative and not necessarily always efficient. Rational factors like the amount of fee revenue are hence often not decisive for the market valuation of L1 or L2 chains.
馃挕 Recently I came across an interesting idea that aims to change this:
As fees are generated on-chain, they accrue in a vault. Token holders can at any time burn their tokens and claim their proportional share of fee revenue that has been generated on the network by that point in time.
This creates a situation where the native token is essentially backed by the revenue and hence has intrinsic value.
What is interesting about this, is that it effectively prices revenue projections into the token. It also establishes a floor price for the native token (the revenue backing), that increases as more fees are generated.
Since the backing is designed to increase perpetually with network activity, rational investors likely won鈥檛 burn their tokens. If they however choose to, the reduction in supply compensates for the fee revenue that leaves the vault.
While inflationary token emissions will still exist, I think a model like this does bear potential to, while emissions go down over time, ensure validators are still rewarded sufficiently through an increase in token price (driven by hopefully thriving network activity).
This could finally enable new economic models and token designs that help to preserve the key function of a decentralized and secure trust layer sustainably and beyond the early, often highly inflationary stages of a token鈥檚 lifecycle.
Definitely not a tokenomics expert myself, so really curious to hear your opinions on designs like this!
馃憠 Do you see potential here?
馃憠 How do we beat implement models like this?
馃憠 What projects are doing stuff like this already?