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I can have my burn scars in animal crossing! So happy and validated, heh.

I can have my burn scars in animal crossing! So happy and validated, heh. submitted by jasper-evs to AnimalCrossing

Long Term Incentives for Validators: Transaction Fees Should Be Rewarded, Not Burned

This post is a followup to question #2 in my original $AVA Native Token Questions. Thank you u/sekniqi for providing those answers.
In Bitcoin, the intention was that eventually transaction fees would entirely replace the block reward through a very large volume of low-fee transactions [1][2][3].
Since AVA fees are burned, they cannot replace the minting reward for validators after the $AVA supply cap is reached and minting ends. AVA currently lacks this long term incentive that Bitcoin was intended to have.

the price will increase to subsidize the lower block rewards, which is true to a certain extent for Ava as well
I am specifically curious about the plan after the $AVA supply cap is reached and minting ends completely. Price increases will not incentivize validation after minting rewards end. At that point, token holders will benefit from any price increases whether or not they are validators, but validators will suffer the expense of running a node and the opportunity cost of locking up tokens for staking.

applications that are built on Ava might have their own tokens, and those tokens will pay fees in their native currency to Ava validators as well
It seems dangerous to speculate that future applications might create their own application tokens and decide to pay sufficient fees to validators in those application tokens. If it has already been decided that native $AVA transaction fees will be burned and will not be rewarded to validators, then what happens if future applications follow the same logic and decide to burn any fees or not require fees? In that case, there is little incentive left to be a validator, other than possibly for a few large businesses that depend on the existence of the AVA network. The security of the system should be inherent in the native base layer, not pushed off to hypothetical implementations of future applications.
If details such as the sliding-cost function for transaction fees are still under prototyping, is it possible that the system could be updated prior to mainnet so that all transaction fees are not burned, and instead some or all fees are rewarded to the validators as minting decreases?
If some fee burning is desired, perhaps the percent of transaction fees that are rewarded to validators could be one of the critical parameters adjustable via on-chain governance voting.
The $AVA token paper acknowledges that the minting function should be adjustable to maintain a sufficient level of total staked supply [4]. Using the same logic, as minting decreases and ends, the transaction fees rewarded to validators could be adjustable to maintain a sufficient level of validators or staked supply.
Really though, it seems like all transaction fees should be rewarded to the validators to incentivize running the system. Some minimal fees are required to reduce congestion and incentivize validators to run the network. Beyond those two objectives, requiring additional fees for “burning” simply increases the burden on end-users and reduces the utility of the network.
There are real costs associated with running a validating node, including hardware, bandwidth, and maintenance, but also the opportunity cost and time value of money for the staked $AVA locked up by a validator. After the $AVA supply cap is reached and minting ends, validators must be incentivized and compensated for these costs by very small transaction fees paid by a very large volume of transactions.

  1. “Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free.”
Nakamoto, Satoshi: Bitcoin: A Peer-to-Peer Electronic Cash System (2008)
  1. “In a few decades when the reward gets too small, the transaction fee will become the main compensation for nodes. I'm sure that in 20 years there will either be very large transaction volume or no volume.”
Nakamoto, Satoshi: Bitcointalk (2010), topic #48, message #349
  1. “The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions [referencing current weaknesses of commerce on the Internet]"
Nakamoto, Satoshi: Bitcoin: A Peer-to-Peer Electronic Cash System (2008)
  1. "The goal of changing γ and λ is to increase total supply of tokens in case the empirically observed total staked supply is too low."
Buttolph, S., Moin, A., Sekniqi, K., Sirer, E.G.: AVA Native Token ($AVA) Dynamics (2020/02/09)
Additional information:
  1. “Validators, sometimes referred to as stakers, are compensated for their validation services based on staking amount and staking duration, amongst other properties."
Sekniqi, K., Laine, D., Buttolph, S., Sirer, E.G.: AVA Platform (2020/04/21)
[Not necessarily true after minting ends and rewards cease?]
  1. "Validators are incentivized to stay online and operate correctly as their rewards are based on proof-of-uptime and proof-of-correctness."
Buttolph, S., Moin, A., Sekniqi, K., Sirer, E.G.: AVA Native Token ($AVA) Dynamics (2020/02/09)
[Not necessarily true after minting ends and rewards cease?]
External links omitted to avoid the moderation queue.
submitted by AVA-4-EVA to ava

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