In most “buyback-and-burn” token models, a network generates income in one currency token and uses the proceeds to buy-back and “burn” its own native token. The intent is to grow token value by reducing its supply as income grows. Buybacks tend to accomplish that goal, but burning affects currency and capital assets in different ways. When it comes to money, reducing the supply does theoretically increase the unit value of currency assets. But when it comes to capital assets like governance tokens, issuance is key to capitalization and burning can get in the way of growing fundamental value.
Proof of Liquidity →
In a standard proof-of-stake system, the more people stake, the more tokens are taken out of circulation. This may seem good for the price of the token, but in many cases insufficient liquidity can get in the way of network growth. So we should look for ways to create a direct, positive relationship between staking and liquidity. One idea is to use Balancer pool tokens as proofs of liquidity that can be staked in place of the network’s token, such that its liquidity grows together with staking.
Read MoreThin Applications →
Big Web companies tend to expand their platforms and monopolize information by locking users into proprietary interfaces. Cryptonetworks, on the other hand, tend to provide single services, and can’t “own” the interface because they don’t control the data. Specialization helps because the more decentralized a network, the harder it is to coordinate a complete suite of services under a single interface like Google, Facebook, or Amazon do. So instead, consumer applications in crypto/Web3 are independently built on top of multiple protocols using what we could call a “cryptoservices architecture” (like microservices, but with sovereign components).
Read MoreHow Much Does a Crypto-Vote Cost? →
In cryptonetworks where a token provides some kind of voting power (e.g. a DAO or proof-of-stake), we might determine the cost of each vote by calculating how much interest it would cost to borrow that token in secondary lending markets for the duration of the vote. This idea highlights the important role of time as a variable in the governance process, because the longer the period one needs to borrow the token to vote, the more expensive it is in terms of interest paid. If this is true, we can use this insight to design stronger governance systems. Protocols can’t control second-market interest rates, but they can influence the “cost of governance” by manipulating how much time it takes to complete the voting process.
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