Buyback-and-Burn BTP Fees
Creating a positive flywheel of value accrual to the ICX token
*Throughout this post “BTP” and “ICON Bridge” are interchangeable*
A couple months ago I wrote a forum post regarding the CPS treasury and removing its “maximum cap”. (ICON's Decentralized Growth Engine)
My reasoning for this stance was that the economically optimal choice was to leave “optionality” of BTP fees in the hands of the CPS participating validators, but there was one issue with my thesis: I didn’t attribute enough value to simple narratives within this industry.
Since I wrote that post, there have been multiple articles regarding the attention economy and narratives within crypto:
Knower’s “The Decomposition of Attention”
NoSleepJon’s “The (Eco)System is Broken”
I’ve thought about this extensively and came to the conclusion that an ecosystem fund should not be viewed as a burning mechanism.
ICON Ecosystem Fund Purpose
After consulting with some community members and the team to gauge opinions, I have realized that setting clear goals can help create simple narratives that both the community as well as investors can passionately support.
I’ve proposed to rebrand the CPS -> ICON Ecosystem Fund which I think is important for setting the future expectations of the protocol.
The ICON Ecosystem Fund should be viewed as a growth and sustainability mechanism for our ecosystem, with the sole purpose of reinvesting in our developers, community members and ecosystem’s projects.
I think the ICON Ecosystem Fund has some areas for improvement as well, but I won’t address those in this post. I think better alignment of incentives for decision making, treasury diversification and new revenue streams are all possible in the future to improve our network’s “decentralized growth engine” and create something that is sustainable, independent of bear/bull market conditions.
With this purpose in mind, I believe the ICON Ecosystem Fund should no longer receive BTP fees.
What to do with BTP Fees?
BTP fees should be bought with ICX and then burnt, resulting in both increased buy pressure for ICX while simultaneously reducing its supply. This indirectly has a growth effect on the value of the ICON Ecosystem Fund treasury.
This buyback-and-burn mechanism would be strongly correlated with the adoption of BTP. As transaction volume and utilization of BTP increases, so will the frequency of buyback-and-burns. This will positively impact the value of the Interoperability Incentive Program, allowing for more incentives to be allocated towards the future adoption and utilization of BTP.
I believe the psychological value of this buyback-and-burn narrative is greater than the value optionality presents in this instance.
ICX Value Accrual (Flywheel)
Buzzword after Buzzword I know.
In this tweet by CZ, he points out that creating products that people actually use is the path towards sustainability for a protocol:
Sustainability = Revenue > Incentives
ICON is in a unique position where we actually have two “revenue generators”, both of which are independent of each other but can positively impact one another.
Similar to Binance having revenue generators of A) Binance Exchange and B) BNB Chain, ICON has revenue generators A) BTP and B) ICON Network.
I believe BTP and the ICON Network can create a positive flywheel when combined that is unique to our industry, with clear value accrual to the ICX token via buyback-and-burns, token utility and network fees.
From my perspective, this is the positive flywheel that is created:
We have two unique subsidies to help kickstart our revenue generators via 10% ICON Inflation sent to the ICON Ecosystem Fund and our Interoperability Incentive Program for BTP.
10% of ICON Inflation will be used to increase the value and utilization of the ICON Network through the ICON Ecosystem Fund. If the funds are used efficiently, our ecosystem will begin to grow thus causing more demand for network fees. This is a form of buyback-and-burn in itself, which should provide positive effects to the future value of ICON inflation.
The Interoperability Incentive Program will be used to increase the adoption of BTP wrapped assets and the utilization of the technology. As funds are used to effectively grow these areas, transaction volume should increase along with fees generated by the solution. Based on current plans, these fees would be bought at a discount by community members and then burnt. This buyback-and-burn should also provide positive effects to the future value of the Interoperability Incentive Program.
We’ve seen what the ICON Ecosystem Fund can do without BTP fees added to the treasury (ICON Ecosystem Fund Projects) and theoretically if the positive flywheel effect is achieved, the same amount of funding that was expected to be added via BTP fees could be achieved strictly through ICON inflation.
In conclusion, I believe the ICON ecosystem is in a unique position to sustainably grow for years to come.
References
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