Token Burn Alternative -- Community Controlled Fund

Proposals
1

An Alternative to Token Burning Which Increases FNX Utility & Value

The community has been pushing for a token burn, however, I believe it will not have the effect they intend. The concern (which is a valid one) is that the team currently has control of too high a portion of the total token supply, and could potentially dump those tokens in the market and tank the price of token. Burning a big chunk of the token supply which is currently controlled by the team is of course one possible answer to this problem, however I don’t think it is the answer which is best for FinNexus, and I don’t think it’s best for the long-term returns of FNX token holders.

Prof. K Had a few very good points about why it’s not the best idea, which I am pasting here, and below that I have some of my own thoughts on why it’s not idea:

Burning tokens from non-circulating supply is useless. And it reduces flexibility going forward. For me, this is an emphatic NO and an extremely bad and short-sighted idea. It MIGHT cause a temporary pump in the price at best. AT WORST, it leaves us with no way to attract deep enough liquidity to our options pools.

Here are my reasons:

  1. Current FNX token supply is not a lot. HEGIC has a supply of 3,012,009,888 HEGIC, so since this is the closest project to FinNexus, you could say that our current max supply of 469,097,362 FNX is quite small by comparison.

  2. What matters is circulating supply of FNX. Our current circulating supply of 17,900,126 FNX is quite reasonable. What we need is a burn mechanism built into the protocol that burns FNX from the existing supply. Burning from the non-circulating supply does absolutely nothing for us and reduces our flexibility going forward. What if we need to sell those for treasury? What if we need to increase mining rewards? It doesn’t make any sense to burn FNX tokens that are already not circulating.
    ?

  3. Limits our potential growth to other blockchains. One of the founding goals of FinNexus is to be a cross-chain DeFi protocol suite. How can we move FNX to other chains if we burn it all now? What if we need to have supply across 10 different blockchains? We already have Wanchain and Ethereum. Elrond and Kardiachain are on the roadmap. If we add Binance Smart Chain, Polkadot, Zilliqa, Tron, etc. (all completely reasonable possibilities), where will FNX supply come from if we burn it? How will we fund mining rewards?

  4. History proves FNX burns have no effect on FNX price. Guys, we’ve already burned over 30 million FNX and that had literally no effect on the price. What makes us think this will be any different?

  5. A massive burn is a desperate move that makes us look bad. To me, a massive token burn is a last-ditch effort to pump the price before giving up on a project entirely. The optics are bad. We have a lot of blocking and tackling to do to improve the protocol before we go down this road: Overhauling the UXUI, implementing vesting of FNX mining rewards, expanding the underlying asset portfolio of the pools (adding things like XRP, LTC, XLM, etc.), starting up on Elrond and Kardiachain, tweaking the mining rewards rates, improving the tokenomics so as to better tie the stablecoin pools to the value of the FNX token… There is literally so much to experiment with before we take such a drastic step as this.

I could go on but I will leave it at these 5 reasons. I dare those in favor of a token burn to try and refute them. I don’t think you can. But let’s have a debate.

To sum up, I am EXTREMELY opposed to a token burn. Now, if we are talking about a burn mechanism embedded into the protocol that slowly and transparently gobbles up FNX from circulating supply, now that is something I could get behind!

I generally agree with everything Prof. K says, and have some of my own thoughts:

A token burn does nothing to support the long-term price of the token. Long term, it will be a token utility which drives the token price. So whatever we are doing with the token supply in order to solve the issue of having too many tokens in the team’s control, it should not just reduce the token supply, it should increase the token utility.

So, I have an alternative proposal to a large token burn, my proposal is that we combine inflation with a small burn and put the majority of the tokens which were to be burned in previous proposals into a community control fund. The fund can be used to sponsor community projects which benefit the FinNexus platform. This way:

  1. …the tokens are actually are used to continue the development of the platform…
  2. …and the tokens also increase in utility since FNX holders get to decide what happens with the community funds. That makes it so that FNX holders are all like chairmen of this fund.

Why Add Inflation?

Currently, the liquidity mining rewards do function as a sort of inflation, but since they are pretty much a short-term awards program and there is no guarantee of the long-term inflation due to liquidity mining rewards, they don’t really have the effects of a truly inflationary policy. Inflation is a excellent tool we can use to ensure that ecosystem participants are rewarded while passive holders of FNX are penalized. The idea is that all participants (that is, people who lock FNX in any of FinNexus’s Protocols or who contribute liquidity to Uniswap or other DEXes) are rewarded with inflationary tokens. As these tokens increase the total token supply, they could potentially push down the price of the FNX token, however, any participants who lock FNX tokens will be increasing their percent holdings of the total FNX token supply, which means the total value of their FNX token holdings should be increasing even if the value of individual tokens may potentially be falling. It also means that passive HODLers of FNX will be penalized by the inflation since they are token value will fall without them being compensated with inflationary tokens.

This is the same principle behind pretty much all major POS systems. The only reason that Polkadot works, and that it is able to attract enough stake to secure the system is that They have an inflationary system which pumps a lot of DOT into the system and devalues the price of individual tokens while rewarding active participants in the system (stakers and delegators) So that as long as they participate actively, their total percent holdings of the DOT token supply will increase even if the price of individual token decreases.

General Outline of New Token Buckets

Currently, the tokens in question account for 70% of the total token supply. My new proposal divides these tokens up into several different buckets for different uses

Bucket A: Token Burn ~ 10%
Bucket B: Community Fund ~40%
Bucket C: Inflationary Fund ~30%

The inflationary funds are set in a time locked smart contract, and will be distributed equally amongst all users who lock FNX in any beneficial way to FinNexus. Topics specific types of locked FNX which will receive inflationary funds can be adjusted by FNX token holders through voting in the new governance system which will be set up and which will also control the community fund.

The rate at which the inflationary fund is issued will be set from the beginning in the smart contract, only the types of locked FNX can be adjusted, not the issuance rate.

New Governance System

For the new government system, we want a system which will use smart contracts to ensure that the funds in the community fund cannot be spent by anyone, not even the team, unless it is voted on by FNX to holders.

I believe we can use the same system used by Idle.finance, which is based on Compound and Uniswap’s governance.

Compound has a excellent governance system where In order to call any of the small contract methods of the protocol which are reserved by the admin keys, COMP token holders must vote and reach a consensus. The way Idle does it is they required at least 5% of the available tokens must participate in the vote, and that way they ensure that votes only get passed with a significant portion of token holders supporting them.

Some of the smart contract methods which can be called methods which update the protocol proxy contracts to point at new addresses, which basically allows for total updating of the protocol. If you’re not familiar with the idea of proxy contracts, you can read about them here, basically it’s a design approach which allows for DAPPs to be upgraded even though Ethereum smart contracts are immutable.

Long term, I expect that FNX token holders will likely vote for some sort of profit-sharing proposals so that fees from the platform are shared with FNX token holders. I believe that for the short term, the best strategy for FNX token holders will be not to do this and rather to ensure that the majority of the funds go towards bounties for people who are contributing to building up the protocol and increasing usage of the platform, and once platform usage increases, then it will be a good idea to start turning on fee sharing.

Regarding this, I’d like to point our community towards these posts which explain why it’s not a great idea to start fee sharing right away, and why it’s better to focus on platform development while we’re still such a young project.

  1. Thread in the Idle forums about fee sharing
  2. Thread in the Yearn forums explaining why fee sharing at an early stage of project development are NOT a good idea

Conclusion

I believe that a large token burn will backfire, and will not lead to the intended effect which the community believes it will. I think that any actions we take regarding token supply should increase FNX token utility and encourage FNX token holders to be active participants in our ecosystem, and not passively HODL FNX tokens. A one-time token burn event does not have any long-term positive effects, want to be using our token supply to set up mechanisms which encourage token holders to act in constructive ways in which increase utility of the token itself. A combination of a relatively small token burn, establishing community governance with a fund that holds the majority of the tokens in question, and establishing a smart contract controlled inflationary fund to encourage active participation in our ecosystem are a far better usage of the 70% of the token supply in question.

References:

These are the documents and forum posts which influenced my thinking on this matter:

  1. Idle governance approach
  2. Uniswap governance approach
  3. Compound governance documentation
4 Likes
2

Interesting.
If the community fund is decentralized and governed on-chain, I think I am okay with it.

3

I hate too much inflation.
There is already a pool in FPO with only FNX tokens in it. I think it is identical to staking FNX somewhere else.

I say if we are not burning tokens. We remove all of them into the ‘community reserves’ and make it totally governed and controlled by the FNX holders. Decentralized on chain governance is a must.

As long as it is not controlled by some individuals, not released on the market maliciously, and dump the market overnight, I am fine.

4

Thank you for this alternative proposal.

You bring some very interesting points and I can already say that we agree at least in one point. It’s necessary to add utility and value to FNX token.

My concern about an inflationary fund:
What is inflation? It’s a loss of purchasing power. So if with 100 FNX you can buy $10 before, with inflation you need more than 100 FNX to buy the same $10. By principle, inflation is contradictory with the goal of supporting the price of FNX.
Inflation leads to more inflation until it’s called hyper inflation. That’s why I don’t like the idea of an inflationary fund. It creates a vicious circle: due to inflation, each FNX token lose value, so you have to compensate this loss by giving amount of FNX, increasing the supply of FNX, which decrease the value of FNX, etc. At the end you have maybe a lot more of FNX in terms of quantity but a lot less in value.
At some point, it’s more a question of how to view things. Personaly, I prefere to keep the same quantity of something that is taking value over time than a bigger quantity of something that looses value.

My concern about community fund:
A community fund is just another term to call the non circulating supply. Even if rules are set to protect this fund and only the community can democraticaly decide what to do with this fund by voting on proposals, it’s, in practice, always the big whales (big FNX holders in that case) who controls the use of the fund. For me it’s just a decoy.
It presuposes also that this fund will be used and so that this huge amount of token will flood the market one day or another. Thus, as long as this fund exists the dilution and so the loss of value of each FNX will exist, creating fear and uncertainty. The burn is the only solution that gives certainty that this large amount of undistributed token will not decrease the value of FNX.

I agree that it necessary to support activity and participants that contribute to Finnexus ecosystem. But it can be done even with a burn. Because even with a burn of 70% of the token there will still be a Community rewards reserve of 100’000’000, 10’000’000 for future sales, 10’000’000 in reserve for operation, plus an insurance fund of 25’000’000 and 25’000’000 for the team. Compared to the actuel circulating supply of approximately 19’200’000, that’s is largely enough. In my point of view, there is absolutely no need to have this 300’000’000 in reserve. They are more frightening and dissuasive than useful for anything.

To finish, I don’t say you are wrong and I am correct. It’s just my point of view about FNX supply and I totaly respect your well argumented thoughts.

2 Likes
5

Thank you Noah for bringing up this alternative plan and thank you Jonathan for the suggestions.

  1. I have a similar concern with Jonathan when having additional inflation written in the contracts.
    Inflation only works well in case of increasing demand or the continuous enhancement of the ecosystem. It should not be determined and fixed beforehand and needs to be adjusted according to the supply-demand relations if it does exist.

Also, the mining incentives are kind of inflation. FPO protocol already gives the FNX holders a venue to stake their FNX into liquidity pools and earns mining rewards. Unlike many other projects, in FPO, staking FNX can make holders participate and use the products, while stake and reward in FNX at the same time. Additional inflation will seem to be abundant, at least right now.

  1. Community controlled fund is indeed an interesting option. According to the better-known projects like Uniswap, Compound, AAve, etc, they all have some similar reserves controlled by communities and switched on-chain.

FinNexus aims to become a fully decentralize-governed protocol in the long run. A fund controlled by the community would be a good reserve and be in line with this goal.

Yes, a burn would be much simpler, and in the short run, it could be helpful to pump up the price. I was in favor of this plan. But if we dwell on the long-term plan of FinNexus and think again, we might lose the flexibility or potential for further incentives in future development.

FinNexus aims to build a cross-chain protocol with multiple DeFi applications. Elrond, Kardiachain and Heco are still on the roadmap, and even more. Also, the team is thinking of building more DeFi derivatives/insurance products on the FinNexus protocols, not just limited to options. If we just burn the tokens, it is easy for now, but could be putting on some chains on the future development, as there will be little flexibility to bootstrap liquidity for future products or chains.

Jonathan concerns whales may literally control the funds. This problem could be the same with many projects doing decentralized governance. Even Bitcoin and Ethereum can not avoid. In tradiFi, it also applies to corporate governance. But it is working. Why? Whales are indeed the biggest stakeholders of the entity or project. Making malicious proposals and decisions will only hurt them most. If I was a whale of some platform, I would be more careful and responsible for the big decisions.

Moreover, the token distribution and circulation are pretty public and transparent at present. The team has nothing to hide and the team tokens are yet to be released. The team do not want to make the market feel they control lots of tokens and they want to hand over the keys to the general community.

I personally believe if we can build a fund like this, hand over the admin keys to the communities, and govern it on-chain, it will be a better choice than just burn the tokens. And by doing this, the current and future token holders’ rights and well-beings can also be well protected.

6

After reading through the replies I’m still of the opinion we need a token burn. I agree with Jonathon and the points he put across. I liked Ryan’s response with the issues a token burn could have on the project. I’m sure the right decision will be made when it’s time to vote

1 Like
7

I like this idea a lot. It solves the program of too much fund concentration in founder’s pockets and on top gives the community and the project space to maneuver and invest into the project (marketing, partnerships, integrations, alternative front-ends, etc.) which is really needed at this point.

Also a slow and steady inflation is nothing bad, we see with Synthethix how it does not have to contraction an appreciation of the asset price. Price is driven by:

  • a professional team
  • constant development and updates
  • scaling on horizontal or verticals business levels (something that I am missing currently)
  • marketing / word of mouth / awareness in general (also here there is a lot of potential)
  • user adoption/TVL (same)

The question is how we can get more engagement in the community to get traction on these activities. There are some projects out there who do it pretty well with “community jobs” (e.g. BadgerDAO).

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Let the community vote

9

Do you like liquidity mining? Because that is inflation. Do you like Bitcoin’s mining issuance? It is also inflation (although finite and declining).

How do you feel about proof of stake systems? They are all inflationary.

“Inflation” has become a dirty word in crypto and it really shouldn’t be. People don’t like it because they think inflation in crypto is the same as inflation with fiat. It’s not, it’s totally different – let me illustrate why.

Take the US dollar for example. The US dollar is a highly inflationary asset. It has an infinite supply, and the gov often issues lots of new dollars.

The BIG DIFFERENCE between fiat inflation and crypto inflation is where the new inflationary assets go. For fiat currency, often the newly printed money will go to banks, bailouts for companies, to pay off debts, etc. It does not generally go into your pocket…this means your savings get devalued, and the total value of the money you hold gets devalued.

It’s totally different when it comes to crypto. Take proof of stake for example. In proof of stake systems, new assets are issued as rewards to stakers and delegators. This is a form of inflation. It puts some downward pressure on the INDIVIDUAL TOKEN PRICE. It does not affect the total value of the whole token supply.

As a staker / delegator, you receive a portion of the newly issued inflationary tokens. Since there is never 100% participation in staking, you are certain to be receiving some inflationary tokens while non participants in staking receive none. This means that for non participants in staking, their total holdings lose value since they do not receive inflationary tokens, which means their percent holding of the total token supply is decreasing.

For you as a POS staking / delegating participant, your percent of the total token supply is increasing, even if the inflation decreases the value of individual tokens. Therefore the total VALUE of your holdings is increasing, even if the value of individual tokens is decreasing.

This makes inflation a very powerful tool for motivating token holders to participate in the token economy. Ultimately, the value of any token, FNX included, will be determined by its utility. If everyone who buys FNX just HODLs it and hopes that someone else will use it so the price increases and they can sell, well then the price will likely NOT increase since it’s being used primarily as a speculative token and not being used.

With an inflationary system where tokens are issued only to participants in the token economy (people who contribute FPO liquidity or liquidity to a DEX supported by our liquidity mining program), then those participants total percent holdings of the token supply will increase, while the total percent holding of the passive HODLers will decrease.

1 Like
10

What do you think will happen after a token burn is done?

11

The idea is that inflation is distributed equally to all FNX token economy participants, so that anyone who participates will increase their total percent holdings of the total token supply, while passive HODLers will have a decreasing percent of the total token supply.

The concept is to encourage ecosystem participants while discouraging passive HODLing.

It’s basically the exact same as our current liquidity mining program – that’s also inflation. I just think that the inflation should be more equitable, and since the rewards in the current system are so variable, short term, and seem to be temporary and often changed, it’s hard for it to have the same affect of significant long term, steady, and guaranteed inflation.

1 Like
12

Yeah slow and steady but relatively significant inflation is what I was going for. The key thing is WHERE do the inflationary tokens go? They should be distributed in a fairly equable way to ALL token economy participants (FPO liquidity providers and DEX liquidity providers).

The idea is that anyone who locks FNX in a beneficial way to the FinNexus ecosystem should be rewarded with inflationary tokens so that their total percent holdings of the total token supply is increasing, while passive speculators who don’t lock their tokens in order to benefit the FinNexus ecosystem are penalized since their tokens lose value due to inflation and they don’t receive inflationary tokens to counteract that.

Ultimately, encouraging everyone to lock their tokens will have a stronger positive effect on the price than a relatively small amount of inflation which is just enough to push most people to lock up their tokens.

13

Yup! That’s the idea, but this way votes are actually enforceable, currently votes depend on trusting that the team will actually follow the results of the vote.

14

Please see my response to @Samsung where I explained how the type of inflation I am proposing will reward active participants in the FNX ecosystem while only passive speculators will be penalized. Yes it puts downward pressure on the price of individual tokens, but it rewards active participants with additional tokens to counteract that, and it also encourages all FNX holders to lock their tokens in order to avoid inflation, and locking tokens is a great way to get them off of the market for longer periods of time.

15

I understand your point but we already have FNX mining.
FNX is already inflated a lot, and the FNX stakers or liquidity providers in FPO are rewarded with incentives.
I mean we currently don’t need another inflation reserve or something like that. We can totally achieve the said goal by the current mining. We have some mining reserves already, or the to-be-built community fund may also achieve the similar goal.

So NO MORE OTHER INFLATION FUNDS.

I think the new mining plan is clever. It ties up the two pools together.
Higher TVL needs a higher amount of FNX to be in the pool to have more rewards.

16

I like the tokens to be burned.
We can reserve some in the community reserves, but the abundant ones need to be burned.
It is simple and straight-forward.

1 Like
17

Surely the new proposal of 225 million fnx with a burn of 275 million is sufficient. I really don’t see the need for such a large amount of fnx.All the reasons have been stated earlier. 225 million fnx will give us plenty of runway to be successful. As a retail investor it’s horrendous to see such a small circulating supply vs total supply. People just walk away instantly when they see it.

2 Likes