Proposal: Marketplace Fees as Cash for the DAO
Right now, all marketplace fees (2%) are getting burned, with the intention of marginally increasing the value of outstanding MANA in circulation. These fees could be redirected towards fostering growth or incentive programs, or whatever the DAO votes for.
Change ownership of the Marketplace and ERC721Bid contracts to MANACollect, a contract that redirects funds to the Decentraland Finance application. This code has not been audited. It has been deployed on mainnet and it’s configured for production use. It draws from the “MANA Burner” contract and duplicates methods for the two Decentraland Marketplace Contracts. Ownership of the contract was sent to the Decentraland DAO Agent. A test transaction can be seen here.
Recently, a number of projects (particularly in the #DeFi scene) have been showcasing new issuance incentive models for tokens to foster the growth of platforms. In Stop Burning Tokens – Buyback And Make Instead, Joel Monegro from Placeholder VC makes the case for why burning tokens is not a good strategy. Here are some extracts from the blog & some considerations for Decentraland:
- Quotes from the article:
Reducing the supply of shares or tokens over time can discourage capitalization just like deflationary currencies discourage consumption.
The key point is that removing capital units from circulation works by improving participation ratios for outstanding stakeholders, (…). Reducing the number of shares may boost the price, but it doesn’t change the overall value of the system. It’s the same for capital tokens in cryptonetworks: buybacks do have a positive influence on price, but burning doesn’t create new value (it just redistributes it among all the other token holders).
We know tokens can be issued to compensate the various participants in a cryptonetwork who contribute different kinds of capital: to producers for their work, to users for their continued business, and to investors for their capital and liquidity. In all cases, issuance helps grow fundamental value by growing the capital of the system, which then turns into a greater token price.
- MANA is both a currency and a capital token – it’s used every day in the marketplace to price and exchange items, and it’s also the governance token of Decentraland. So, in some sense, the “Automated Market Maker” is not really that necessary (the capture of value in the token happens when users buy MANA from the market in order to use it in the platform).
- Transferring the tokens to a reserve of tokens controlled by the DAO provides the same economic low-risk of inflation as burning. Because the DAO could decide to burn them, mirroring the old behavior, what to do with the MANA fees becomes a matter of policy dictated by DAO voters instead of automatically take the decision of burning.
Thanks for reading! Looking forward to hear your opinions.