Storable network coin & no treasury income

A storable network coin is one where overall there is no cost for holding the coin. A storable network coin will often be superior to most goods and services that decay or lose value over time. Storable network coins will commonly result in holders being able to generate a positive rate of return for low risk activities such as fully collateralised lending. For Web3 ecosystems that have adopted a proof of stake mechanism, coin holders can commonly generate a return by simply staking their coins to secure the network. This results in a yield generating fungible asset, the coin holder will keep receiving more coins over time just from staking. In these situations the user does not need to be productive with the network coin and can simply leave their coins idle, their coin ownership should continue to grow over time.

No treasury income means that no added fee mechanisms have been introduced to generate income for the network's treasury. This means an ecosystem would be reliant on the genesis allocation to fund any initiatives or be reliant on investment from community members. No income for an ecosystem treasury means the network would not be trying to create a circular economy using the network itself to help with funding any impactful initiatives.

Very low system reliability (Score - 1)

A storable network coin has all of the problems mentioned in the money resources such as reduced economic activity due to stored and idle networks coins and the artificial ceiling on capital creation due to the low risk yield that can be generated instead. A small staking reward creates another problem for this implementation of the network coin as it further incentivises storing and rewards people that hold coins and leave them idle. This approach could result in ongoing economic stagnation and low coin velocity due to the incentives people have to store the network coin and also due to the lack of incentives that exist for maintaining and improving the network.

Very low treasury income (Score - 1)

A network that doesn’t generate income from transaction fees or from a network coin tax would have no ongoing income being generated to fund impactful ecosystem initiatives. It would be reliant on any genesis allocation it has from the beginning of the network or from investments from community members. No income prevents the ecosystem from creating a circular economy that maintains and improves itself. This could be highly problematic for the ecosystem as it could eventually lead to stagnation in the development and maintenance of the network.

Transaction fee income could result in income that is above what is necessary to compensate node operators. The ecosystem could either overpay the node operators or it could redistribute it to the community. Paying node operators more when they need to handle congestion can make sense however there is a point where this can become excessive and unnecessary. Redistributing the excess income back to coin holders creates an even worse system as this rewards people that just hold the coin and leave it idle and punishes the people who are regularly transacting and paying fees. Neither of these approaches are desirable, ideally any excess transaction fee income would be used as treasury income to fund ecosystem initiatives.

Low transaction fees (Score - 4)

Transaction fees should be close to as low as they possibly can be. However it is difficult to have fees as low as they can be when the node operators depend on this for funding. The number of transactions that get submitted each day, week and month can vary quite drastically. It would be difficult for a network to predict how much usage it is going to receive in the future. In reality, the transaction fees will need to be conservative enough by being slightly above any predicted amount. If they don't do this there is a risk that the node operators won't be properly incentivised. So transaction fees wouldn’t actually be as low as possible if you use a dynamic fee structure as it is always going to conservatively predict how many transactions are going to be submitted to calculate a fee to charge. Transaction fee models result in less predictable income for the ecosystem.

Low incentive alignment (Score - 2)

Without treasury income, applications and new use cases that get developed in the ecosystem would eventually be reliant on external funding from investors. This creates partially aligned incentives as the investors will be commonly looking for a return on investment. Investors are less incentivised to fund open source initiatives that won’t directly generate them a return on investment. Creating tokens is a common approach that projects use to enable investors to generate a return on investment. In certain cases these tokens may not be required for the application or protocol to function and they may not even represent a desirable long term solution. Contributors in these projects also only have partly aligned incentives due to this arrangement. If they start working on other projects that benefit the ecosystem this could come at the cost of the growth of their own project that might already have its own token. These other initiatives may be more beneficial for the ecosystem but if they don’t align with the interests of the investors there is an increased chance of conflict.

Low network security (Score - 2)

Networks that don’t adopt demurrage and that don’t generate any treasury income would incentivise and reward the storage of the network coin as the attractiveness of holding the network coin would be higher than holding many other assets that commonly depreciate over time. This reduces the network security in the long term as it creates an ongoing risk that coin ownership consolidates into the hands of a few people that have managed to accumulate a large amount of the network coin. The inevitability of wealth concentration is increased only further by the presence of risk free staking rewards or any low risk income from financial protocols.

Low investment opportunity (Score - 2)

Investors would either be incentivised to hold the network coin if they believe it will appreciate in value or to invest into projects that build on the ecosystem. Projects that create tokens might be able to generate them a better return on investment than simply holding the network coin. This leads to the incentive problems mentioned already above where a token based solution might not even be beneficial to the project. The network coin could still be an appealing investment if there are enough protocols and applications being built that introduce new use cases. However the incentives to fund these initiatives are more complex and less fully aligned than if the networks created circular economies. There is no guarantee that ongoing investment will occur in a network that relies on external investment, it is less reliable than a network coin tax or transaction fee model. Many protocols and applications can benefit from being open source and many of these projects may not require a token. A lack of ecosystem funding could make it difficult to attract the required investment to maintain and develop every part of the network. Another problem with a no treasury income approach is it can lead to more capital fragmentation where people invest in project tokens instead of the networks coin even when these tokens may not even be necessary.

Total score = 12 / 30