ZIP: burn proposals

Community Collaborations protocol
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This is a placeholder. I am currently writing the pull request for a proposal that describes different burn mechanisms. One of my proposals relies on it and so do a couple of others.

It has been discussed in various places on this forum so I don’t see it as a completely new proposal. It is a supplement to various parts of others, adding more definition to them. I will only be using comments from the proposals threads where burn has been discussed. I think it would be good to have a formalised view on the burn options so people can say use burn_rolling or burn_ no_redeem and maybe a couple of others and it will just be in this proposal.

I don’t really know how to go about doing something modular like this, but we will see. if it doesn’t look like it will work I will just set up some burn proposals (I guess this is like a terminology definition proposal)

To be fair I only really care about rolling burn, but if I am doing one, I might as well do the lot.

I aim to get it into GitHub asap then update this post with the proposal so we can gawk at it.

@daira @nathan-at-least

This is using the zip process properly right? im not breaking it by trying to do this am I? hurm. actually I will forum them first. I am writing them up anyway, probably best to double check that they will be okay in GitHub.

I really appreciate your help, thank you.

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Please note that FinHub (SEC) has indicated that “limiting supply or ensuring scarcity [of a cryptocurrency], through, for example, buybacks, ‘burning,’ or other activities,” is a factor in determining that the cryptocurrency is subject to securities regulations.

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Thanks, I assume that if burning falls under SEC regulation, if so, that saves me a lot of time and I can just do rolling burn. and variants of that, like no carry over, extend halving period, tack on to the end, etc.

I abhor the idea of burning coins and want to put up a few alternatives that should work with other zips

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It matters a lot who does the burning/lockup (or more generally exercises control over the monetary supply).

If the burning/lockup is up to the discretion and efforts of an "Active Participant (“a promoter, sponsor, or other third party (or affiliated group of third parties)” which thereby “provides essential managerial efforts that affect the success of the enterprise”, then this is evidence in favor of securities status.

Conversely, my understanding is that if the burning/deferral is done programmatically by consensus rules, or left to market forces and decentralized control by a loose set of unaffiliated parties (e.g., miners) then it does not support the “Reliance on the Efforts of Others” test.

I conjecture (by the spirit of things) that a legal Trust, disbursing funds by strict and simple instructions and not affiliated with other “Active Participants”, would not provide significance evidence for the “Reliance on the Efforts of Others” test. It ought to be considered just part of the legal plumbing that defines and tracks the asset (which is necessary for any traded asset), akin to the technicians maintaining the token issuance machines in an arcade.

For further context, see the SEC’s framework, and in particular the 1. Reliance on the Effort of Others section and this paragraph there:

An AP creates or supports a market for,[17] or the price of, the digital asset. This can include, for example, an AP that: (1) controls the creation and issuance of the digital asset; or (2) takes other actions to support a market price of the digital asset, such as by limiting supply or ensuring scarcity, through, for example, buybacks, “burning,” or other activities.

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I can’t comment on this specifically. We have retained counsel who is actively engaged in this space. We aren’t interpreting things on our own and I would personally suggest extreme caution when attempting to interpret guidelines at this time.

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So, where does this leave me and my burn proposals? I kind of need to know that legal information. I am not a US citizen so am even more unfamiliar with the framework and legal system. All I know is one paragraph can say “sure its cool” then another can say “no, that’s bad”.

So I concur with the best not to speculate sentiment. If I posit some examples could you say if it is worth my time writing them up? I am not going to do any burn that removes coins from circulation forever. Is there any other specific mechanism I should avoid or caveat?

My three main ideas are:

  • these all mess with the emission curve very slightly, but not total issuance - is that the problem with the SEC stuff? because if it is then these should be okay right?
  • these are mining examples, but they don’t have to be, this is just the quickest examples for me to do

1 - rolling burn, where if a miner/whoever opts out of donating the coins get added to the end of that halving. so say x coins were burnt that would mean the halving changes by + x/distribution blocks. (so 50 coins burnt would give 8 extra blocks until the next halving)

2 - Next block burn, where the coins that would be taken out of circulation are added directly to the next block reward. (this changes the distribution not emission curve so much)

3 - Extended burn, where the coins that would have been taken out of circulation are added to the end of the emission, giving a similar style to monero, but still the 21million total is kept.

There are a few more variants on these. but I hope people will use these rather than “burn to take out of circulation forever” type of burn. Note all these options do allow for a “second bite of the cherry” when it comes to donating. Miner A might do a form of rolling style burns but miner B who solves the block does not and then the donation goes through.

The only way this does not allow for continual funding is if >51% of the network always burns, even then it just extends the emission at which point you would need 100% of people to always burn.

I would say if you ever got these numbers that is a clear signal that the recipients of the dev fund have lost the support of the community (I know this example just uses miners, and therefore gives them total power, this doesn’t have to work like that, but seeing as everyone is up for charging the people processing the transactions, that is what I have concentrated on)

So, what do I do?

@joshs, @tromer any ideas?

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@mistfpga, I like and support your idea here. I agree that a choice of burn/lockup/roll mechanism needs to be done in many of the proposal, and it makes sense to “factor out” the choice, and enumerate+analyze the options separately here.

Please do. Permanent burn was concretely proposed several times, so a comprehensive discussion of options must include that. We will discuss the implications of the various options, and if permanent burning has particularly bad regulatory implications (which I don’t think is true) then presumably it will not be chosen.

BTW, terminology: to my ears, “burn” means permanent burn. The other things you call “burn” but which actually move the issuance to later and/or others, please find other terms for… Perhaps “lockup”, “rollout”, “deferral”, etc.

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Cool, I will try to get them in with enough time so the can at least be briefly discussed in the livestream tomorrow 17th usa, 00:00 on the 18th UK time.

From your phrasing it sounds like you think they should all be put forward as individual proposals. I can do that, but the way I was imagining this would work would be is that 1 proposal would cover all the different aspects of “burn”. - This is because the proposals by themselves are supplemental and I think putting them all in one it is more likely to get passed the first and second rounds of talks. - because everyone wants their type of burn to go through which would be included in this proposal, so they cant stop the other options without stopping their own. - This keeps all options open.

I was wondering if doing it like this is an abuse of the zip process? Should I just do individual ones and they get caveated with something like “supplemental zip, not standalone - For discussion purposes”

I 100% agree on your terminology and the way the word burn is perceived and agree. However this is meant to be where ever you see the word “burn” in a proposal, it could be substituted for anyone of these. Which is why I kept burn in the title of them. Ideally I would like to remove it. I will probably do this via titling it something like “Burn and alternative mechanisms” then no use the word unless it is burn - take out of circulation for ever burn.

Most of the people I have spoken to about using “burn” in their proposals said they did it for simplicities sake. So I think quite a few might be open to other mechanisms, that can accomplish similar genuine opt-out but with better chance of funding. (due to second bite, etc.)

I am not an economist nor a lawyer. So my proposals will all be written in the “hardest” RFC language (i.e. MUSTS, etc) because it is easier to soften a proposal to be inline with the law, rather than find out the law is more flexible then try to harden the proposal. I will title the specification/requirements section something like “the requirements and specification MAY change based off legal feedback.”

Thanks for the quick response!

edit: just though of a way of wording them so they should pass anyway and it leaves the details to be decided. - I am a little concerned about adding ambiguity but it might work.

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Yeah, I support that.

I was wondering if doing it like this is an abuse of the zip process?

The ZIP process is our servant, not our master. I’m comfortable with well-merited bending of the formal structure. :slight_smile:

So: perhaps have your ZIP specify that other ZIPs need to specify one of the following mechanisms whenever they don’t hand out all coins according to the prior monetary policy.

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That is a really good idea! I will try it out and see how they read.

Okay, if you say so. Im not going to argue with Daira or Nathan :worried: . I take this as you offering to be my “human shield” should this displease them. I graciously accept the offer, hehe

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Okay, since the second round of feedback. Are we ruling out any proposals that feature some sort of burn, rolling what not, emission change, etc?

@acityinohio, @daira - Would you please speak to this. It impacts if I write this up or not. (Daira could you respond with and without the magic hat on plz)

for Josh C in particular, even if the ECC is apparently not up for burn, etc does that mean the foundation is not?

Is this going to be trademark 2.0?

Thanks,

steve

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(Note that I no longer have a ZIP editor hat, magic or not :wink:) Oficially the Foundation will still entertain proposals with some concept of burn; as @tromer suggested it matters a great deal who does the burning. If it’s a single party doing so that “provides essential managerial efforts that affect the success of the enterprise” that’s definitely a non-starter for the risks @joshs mentioned. But otherwise, our view mirror’s @tromer’s here:

Conversely, my understanding is that if the burning/deferral is done programmatically by consensus rules, or left to market forces and decentralized control by a loose set of unaffiliated parties (e.g., miners) then it does not support the “Reliance on the Efforts of Others” test.

All that being said, from my personal (non-official-Foundation) perspective as a result of our discussion @mistfpga earlier in my proposal thread I tend to think burning should be avoided if possible as there are numerous, potentially much more effective ways for the community to spend those funds (e.g. in my proposal instead of burning coins they’d be diverted to the pool for ZF Grants).

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Thanks, that helps a lot.

I will do it.

I have to do another one for someone else first tho. (respected forum member with currently dodgy internet, nothing out of left field, just an suggestion towards current proposals.)

It was good to talk to you the other day. you are very eloquent.

Cheers,

steve

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Likewise! Great having you on the hangout @mistfpga, and thanks for doing all this corralling and your enthusiasm for the discussion.

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i think any changes in supply not only affect regulation relationship, but also the full value model of coin.
situation is somehow binary.
case 1: in future blockchain pow based assets will finally gain wide appreciacion as “sound money”, then integrity of model is an order of magnitude more important then any unfavorable inflation periods, etc. there is confidence or there isn’t. period.
case 2: in future, all of these, including bitcoin, will end up as obsolete ridiculous attempts to capture value, remaining market will be completely driven towards derivatives in civilized area and magical gambling tokens in uncivilized, pow will be considered just as a period of unnecessarily wasted energy resources - then it doesnt matter now to adjust something with supply or not, because even mid term it will be irrelevant.