Counterargument Proposal: Lisk Should Invest Excess Tokens into an Ecosystem Fund

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Counterargument Proposal: Lisk Should Invest Excess Tokens into an Ecosystem Fund

The proposal to burn the 100 million DAO tokens aims to address concerns about token dilution and restore confidence among Lisk holders who experienced a reduction in their token proportion during the migration. However, I would like to present a counterargument in favor of investing these excess tokens into an ecosystem fund instead. Here are several reasons why this approach could be more beneficial for the Lisk community and the long-term success of Lisk:

  1. Stimulating Ecosystem Growth

Investing excess tokens into an ecosystem fund can provide much-needed capital to support ecosystems working with Lisk in its niche markets, developers building longterm, startups, and projects building on the Lisk platform. This can stimulate innovation, attract new users, and create a vibrant, dynamic ecosystem. By supporting projects that enhance the platform’s utility, Lisk can drive adoption and usage, ultimately increasing the demand for LSK tokens.

  1. Long-term Value Creation

While burning tokens might provide a short-term boost in token value by reducing supply, investing in the ecosystem can lead to sustainable, long-term growth. A thriving ecosystem will generate ongoing value for the Lisk network, its users, and token holders. This approach focuses on creating a foundation for continuous development and expansion, which is crucial for the platform’s future success.

  1. Enhancing Network Effects

A well-funded ecosystem can attract a diverse range of projects and participants, enhancing the network effects of the Lisk platform. As more developers and users engage with the ecosystem, the platform’s overall value and utility increase. This can lead to greater token adoption, higher transaction volumes, and a more robust and resilient network.

  1. Attracting and Retaining Talent

An ecosystem fund can be used to provide grants, incentives, and support to talented developers and teams. This can attract top-tier talent to the Lisk ecosystem and retain those who are already contributing. By fostering a supportive environment for innovation and development, Lisk can ensure that it remains competitive and continues to evolve with the blockchain space.

  1. Mitigating Short-term Market Reactions

Burning a large number of tokens can create volatility and speculative behavior in the market. While it may lead to an immediate price increase, it could also result in sudden sell-offs and market instability. Investing in the ecosystem, on the other hand, provides a more measured and strategic approach to value creation, reducing the risk of short-term market disruptions.

  1. Strengthening Community Engagement

By involving the community in deciding how the ecosystem fund should be allocated, Lisk can strengthen its relationship with its users and stakeholders. This participatory approach fosters a sense of ownership and collaboration, ensuring that the community’s needs and priorities are reflected in the platform’s development.

Conclusion

While the concern about token dilution is valid, the long-term benefits of investing excess tokens into an ecosystem fund far outweigh the short-term advantages of burning them. By prioritizing ecosystem growth, value creation, and community engagement, Lisk can build a more sustainable and prosperous future for the platform and its stakeholders.

Therefore, I urge the stakeholders and community to consider the broader and longer-term impact of this decision and vote in favor of investing the excess tokens into an ecosystem fund. This approach will not only address dilution concerns but also pave the way for a more innovative, robust, and valuable Lisk ecosystem.

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  1. 45M LISK has already been minted for the DAO fund (!!!)
  2. I’ll ask just one question: Why was the Lisk Foundation renamed to Onchain Foundation, and why does Onchain Foundation not want to cover all expenses related to the Lisk ecosystem?
  3. Onchain Foundation and the team have already “robbed” their holders of 50%, and now they want more? Is it not enough?
  4. Read this: If the team doesn’t plan to increase the price, then burn it. If they do plan to increase it, then my variant is the best one, or again the team is lying and showing deceit. IMHO

Update: To be honest, over time I’ve come to agree that maybe we should keep the tokens, but only with my variant. This will motivate the team to create the best product, and investors will not sell tokens because the team will have strong motivation. There are many other advantages as well.
Update 2: If the first vote is to keep or burn, I will vote to burn. If the first vote is to keep it with a lock by price or burn, I will vote to keep.

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@grumlin thank you for your submission and for sharing more on your perspectives. At the end of the day we all want Lisk to win.

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The easier path for many investors or holders might seem to be token burning. However, we’ve evolved significantly since the ICO boom of 2017, progressing through IDOs, IEOs, and beyond. Many projects raised millions to develop the next groundbreaking Layer 1 (L1) solutions, yet few have made significant strides.

At this stage, the key performance indicator (KPI) or benchmark for Layer 2 (L2) protocols, especially for Lisk, should be to incentivize builders to create real-world applications using the technology. This approach would enhance the utility of both the tokens and the underlying technology. The trade-off here is clear: large holders must decide whether they are more interested in seeing the technology address real-world problems at scale or are simply chasing quick returns.
Given that we are now reaching the early majority phase of the industry, I believe the focus should be on incentivizing the builder community, particularly in frontier markets like Africa, where this technology is not just a luxury but a necessity. By doing so, we can ensure that Lisk and similar technologies are used to solve real-world challenges, creating sustainable value beyond mere token holding.

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@AyaHQ_Michael, all your points stated here are valid but I believe the execution of this would convince everyone that we are moving in the right direction. I believe Lisk has the opportunity to foster massive growth across the global south with the ecosystem development fund. This is where the technology adoption is highest and needed the most. I look forward to seeing this proposal move ahead.

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Token burn is way more than “quick return” it is lisk chance to recover from dying and chance to change investors sentiment. The turth is that people are looking at token price and lisk is showing lower lows, instead of firm price rise we observe price going down downperforming compared to whole crypto market meaning every other project on average is doing better than lisk.

As community we don’t want to invest our money to support lisk DAO - that means lisk team who already robbed us from tokens and have more than enough money collected for development to keep going with project for years and years. Moreover, they are looking for “cheap” cooperation with newbie emerging developers from Africa etc. and the truth is 99% of them won’t be successful. We need at least one coop with project that is already successful or we will end up being collector of crap projects with no real community behind it and that will do more harm than good for lisk because people will not be looking at it seriously.

Lisk team took over voting and they can make vote results to be in favour for them meaning that community vote is worthless because lisk team own more than 60% votes. They prefer to squeeze money from investors and have thug life all year long on coasts and islands around the world under the pretext of looking for new projects in emerging markets - that is looking for any developers from streets and welcomming them with their ultra uncertain in terms of success projects giving them grants from our investors money. This is almost like gambling and instead we need some decent cooperation with a well-known project.

Token burn will grab people attention way more than anything else. The dapps list running on lisk is still very small not to say compromisingly small number of dapps considering how long lisk has been running.

Short term price rise caused by token burn will attract new investors and we need them very much for snowball effect combined with crypto bull run time opportunity. Trading volumes on lisk token went down from 130mln+ to 4mln and keeping lisk tokens for DAO won’t change it much meaning that this is lisk last opportunity to survive in crypto market. Noone will be looking at project whose token invariably loses value over time despite development.

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I think this is an interesting discussion / proposal @AyaHQ_Michael. The specifics of it would be need to be clarified further, but certainly our intention with the DAO fund is for the community to be able to support such initiatives.

I know other ecosystems in Web3 have used such funds to be able to attract and retain top founders and applications. Could be a nice win-win… powerful for the founders in the specific market the fund is targeted towards, and the DAO gets an ability to generate new funding outside of solely LSK.

Always also possible to propose an initial fund at a reasonable amount, test it and then double down if it works well. :+1:

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I came across opinions suggesting that burns are effective, so I researched the token burns that were implemented or announced in 2024.

  1. In January, Huobi Token announced a 20% token burn, which caused the token price to surge by 80%. However, two weeks later, the price returned to its original level and is currently down 70% from before the announcement.

  2. The Solana-based DEX “Jupiter” announced a 30% burn of JUP tokens in June, leading to a 10% price increase. However, three months later, the price has returned to its pre-announcement level.

  3. ASTR proposed a 5% token burn in June, resulting in an 8% price surge. Yet, three months later, the price is down 25% from before the announcement.

  4. The meme coin BONK burned 278 billion tokens in April, causing its price to triple. Additionally, another burn of 84 billion tokens was announced in July, but the price has now returned to the level before the April burn.

  5. Terra Classic (LUNC) conducted a burn of 2.6 billion tokens in July, resulting in only a 3% temporary price increase, and the price has since remained around the level before the burn.

Given these results, do you still think burns are effective? While the impact of the bear market should be taken into account, the currencies mentioned above are mostly those with higher market capitalization than Lisk, yet their effects from burns seem to be underwhelming. Investor expectations for burns do not appear to be as high as they once were, and even if there is some effect, it seems to fade within a few months. Burns seem to be little more than toys for short-term investors, leading the community to lose significant funds that could be used for the development of the ecosystem.

The recent news that Polkadot spent $37 million on marketing in the first half of this year but saw no effect is still fresh in our memory. It is clear that substantial DAO funding is necessary for the long-term growth of the Lisk ecosystem, and that funding could serve as a significant incentive to attract developers.

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Yes, burn is effective. You haven’t taken into consideration that token burns happened on bear market so it is natural that price is dropping. The difference is that if they haven’t burn their tokens price of those projects would be 2x more on -%. Lisk have one of the worst marketing so I think investing in promotion for sake of promoting something that have no real interesting product is waste of money. I strongly believe lisk would get enormous attention if burn would happen at the start of the bull run. We don’t need to support DAO as much as you think lisk have big funds to run for years as of now without even DAO funding.

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Thank you, @UZAMARU for the research :bowing_man: . I have no doubts that many people’s decision about burning the tokens is driven by the quick, most likely short-term, price increase (if any). In my mind, this is silly and shouldn’t be taken into consideration in the discussion. But we need to look back at what actually happened with the tokenomics.

During the migration, the following tokens were printed:

On the community side:

  • 15 million LSK for the Airdrop campaigns
  • 7.8 million LSK for the Ecosystem Fund
  • 45 million LSK for the DAO (non-burnable)

On the Lisk side:

  • 7 million LSK for the Team
  • 8 million LSK for Operations

As we know, printing money/tokens at the end of the day is funded by the people who hold the tokens long-term. This already seems like a lot, considering Lisk’s capitalization of ~150 million LSK before the migration.

Having a huge DAO treasury may sound awesome on paper, but in reality, it all comes down to the token price. If the price of the token rises X times, the value of the treasury rises the same way, and there’s no need for hundreds of millions of tokens in the treasury. On the other hand, if the price of the token drops significantly, having millions in the treasury is meaningless because you would deplete it very fast. Not to mention the potential selling pressure on a market that is already down, where the DAO’s expenses would likely be reduced to a minimum anyway.

It feels like the tokenomics were designed in such a way that they don’t need the additional 100 million tokens.

What should be done:

Develop mechanisms around the ecosystem that fund the DAO treasury in one way or another. This way, when the ecosystem is thriving, the DAO treasury is full and self-sustaining. If the ecosystem can’t generate any traction, millions of low-valued tokens in the DAO won’t help.

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Thank you @przemer for your insights from the perspective of tokenomics. You are indeed correct that if the token price rises, the DAO’s assets would similarly increase, which makes the necessity for a DAO fund of 100 million LSK questionable.

However, a long-term and stable increase in token price requires growing future demand and an increase in expected value as an investment target. This can only be achieved through upfront investments, and I have some concerns about the idea of burning DAO funds based on the assumption of price appreciation.

That said, I completely agree with the proposal to develop a mechanism for raising funds for the DAO as a solution to the concerns mentioned above.

As you suggested in the Discord chat, if a mechanism is established to allocate a portion of the fees to the DAO fund, it could significantly contribute to the development of the Lisk ecosystem through a sustainable DAO fund. This would provide the community with an alternative to the allocation or burn of DAO funds, and it seems like the best option to satisfy both groups of voters.

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Thank you for your research.

Some corrections:

1 HTX burned only 13%.
2 and 3 are correct.
4 and 5 are just for manipulation. :joy:
The total supply (TS) of BONK is ~93 trillion (burned less than 0.4% :rofl:).
TS of LUNC is ~7 trillion (burned less than 0.04% :sweat_smile:).

But the first 3 are interesting stats.

Fully agree.

Don’t forget about the 20-30 million that won’t be reclaimed…

P.s. Now I realize how compromise led me down the wrong path. And thank you, @przemer, for not being afraid to express your thoughts openly—it’s doubly pleasant to hear this from you. The price peg is a compromise, but probably not a good one. There’s a logical trap here. Use the treasury wisely, and the 45+20 million tokens in the DAO (about 20% of the total supply) will be more than enough. If the team has no goal to grow the token’s value (read: develop the project, because if it’s not increasing in value, it means the consumer isn’t voting with their money for it), then it might as well be buried right away. That would be better.

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Are you joking? How community would like allocating 100M to DAO fund if lisk team is spending investor’s money without any positive results that could affect token price lately? You think they would like to give portion of their money to DAO for promotion which is absent? This is ridiculous. Looks like you will end up with zillions of worthless lsk tokens in DAO.

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@przemer and @grumlin, this is a great conversation. Some points / questions to add:

  • What initiatives would you propose to make the DAO fund sustainable in addition to shared sequencer revenue @przemer?

  • An adjusted plan that the community helps finalize could be a great path forward (the ideal path really, since we want this to be beneficial and bullish for the ecosystem as a whole). So I hope you don’t give up on the idea that easily @grumlin.

  • Would you, or anyone in full support of burning the tokens, mind sharing some examples of where this has been demonstrated to an overall long-term positive outcome for the ecosystem or the token? (I am not talking about coins with crazy high inflations rates, nor projects that promise an upcoming airdrop of 5%, 10%, 20% of their supply to gain initial traction and then everything is dumped at once). I am genuinely curious what you have found.

  • When we research the possible effects of one time supply increase, we did not find conclusive evidence that it would have much longterm impact (similar to what @UZAMARU found above, just in the other direction). So far we have seen just that, currently the 100m tokens are part of the FDV/total supply, and we haven’t seen that meaningfully impact price. I have shared this image before, but it’s worth sharing again to dispel this notion that change in tokenomics has changed anything thus far. This chart starts before the public announcement of the change in early April.

Screenshot 2024-09-20 at 3.08.40 PM
Screenshot 2024-09-20 at 3.08.40 PM2562Ă—1488 374 KB

I am personally not opposed to burning the 100m LSK reserved for the DAO fund over 10 years, especially not if there is conclusive data we can point to for why that is the best long-term solution for the Lisk ecosystem and LSK holders. However, I think it would be a mistake to base this decision on:

  • Assumptions of what is right / wrong / best for price action, or
  • On resentment from the past.
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Cryptocurrencies with a constant or decreasing total supply are often designed to be deflationary, which can create scarcity and potentially drive up prices over time. This mechanism is typically achieved through token burns, where a portion of tokens is permanently removed from circulation. Let’s examine some notable projects that fit this category, analyze the impact of token burns on their price, and understand how these mechanisms influence market behavior.

Key Projects with Deflationary Models

  1. Binance Coin (BNB)
  • Token Burn Mechanism: BNB has one of the most well-known token burn programs. Binance initially committed to burning 100 million BNB (50% of the total supply) over time, using a portion of its quarterly profits to buy back and burn tokens.
  • Impact on Price:
    • BNB’s price has seen a general upward trend since the inception of the burn program in 2017. Each burn has often led to short-term price rallies as it signals decreased supply and increased scarcity.
    • The largest burns (e.g., the 15th burn in April 2021, which removed 1.1 million BNB worth ~$595 million) coincided with significant price surges. In the months following this burn, BNB reached its all-time high of over $690.
  • Long-term Impact: Over time, the cumulative effect of burns has contributed to BNB’s status as one of the top cryptocurrencies by market cap. The diminishing supply, coupled with Binance’s growing ecosystem, has created strong demand, leading to sustained price appreciation.
  1. Ethereum (ETH) – After EIP-1559
  • Token Burn Mechanism: With the introduction of Ethereum Improvement Proposal (EIP-1559) in August 2021, a portion of the transaction fees (base fee) is burned, making Ethereum partially deflationary. Unlike fixed supply projects, the burn rate depends on network usage.
  • Impact on Price:
    • Since the activation of EIP-1559, more than 3.5 million ETH have been burned (as of 2024), contributing to a net reduction in ETH issuance. This mechanism became especially relevant during periods of high network activity, where more ETH was burned than created.
    • The price of ETH saw a significant rally following EIP-1559’s implementation, reaching new highs in November 2021 (over $4,800). While other factors also influenced this surge (such as market-wide bull trends), the reduction in supply growth due to burns likely played a significant role.
  • Long-term Impact: The burn mechanism helps make ETH scarcer over time, especially during periods of high usage. This feature makes ETH more attractive as a store of value, supporting its price appreciation over the long run.
  1. PancakeSwap (CAKE)
  • Token Burn Mechanism: PancakeSwap is a decentralized exchange (DEX) with a deflationary token model where a portion of trading fees and other income sources are used to buy back and burn CAKE tokens regularly. CAKE does not have a fixed supply but employs continuous burns to counter inflation.
  • Impact on Price:
    • The token’s price has experienced spikes around burn events, especially during periods of high trading volume on PancakeSwap. For instance, in Q2 2021, as the platform gained popularity and conducted massive burns, CAKE’s price rose to its peak of $44 in April 2021.
    • However, in times of reduced activity and less frequent burns, CAKE’s price has tended to consolidate or decline, showing that the impact of burns is more evident during periods of high ecosystem activity.
  • Long-term Impact: While CAKE is not strictly deflationary due to the ongoing emission of new tokens, the regular burns create a balance between supply and demand. This has helped maintain a relatively higher price floor compared to other yield farming tokens with high inflation rates.
  1. Terra Classic (LUNC) - Formerly LUNA (after the fork)
  • Token Burn Mechanism: Following the collapse of the original Terra (LUNA) ecosystem in May 2022, the community implemented token burns to reduce the oversupply of LUNC (formerly LUNA Classic). A percentage of transaction fees on the new chain is burned.
  • Impact on Price:
    • After implementing the burn mechanism, LUNC experienced several price rallies, with some spikes reaching over 100% gains in short periods, as traders anticipated the potential reduction in supply.
    • However, given the massive circulating supply after the collapse, the burns have not yet had a sustained impact on price compared to smaller, more controlled deflationary projects.
  • Long-term Impact: While the burns generate periodic interest and trading activity, the sheer size of LUNC’s existing supply makes it less effective in driving long-term scarcity. The effectiveness of burns in this case remains to be seen over the long run.

Analysis of Token Burn Impact on Price

  1. Short-Term Effects:
  • Positive Price Reaction: Token burns often create bullish sentiment, as they reduce supply and signal commitment to the project’s deflationary vision. This can result in short-term price spikes, especially if burns are significant or unexpected.
  • Psychological Impact: Burn events can generate hype, causing more investors to buy in anticipation of the reduced supply. This can lead to increased demand, further pushing prices upward.
  1. Long-Term Effects:
  • Increased Scarcity: Regular, predictable burns contribute to long-term scarcity, which can lead to sustained price appreciation, as seen with BNB and ETH.
  • Utility and Ecosystem Growth: Projects that couple burns with growing utility (e.g., BNB with Binance Smart Chain or ETH with DeFi/NFT applications) tend to see more significant long-term price gains. Burns alone are not enough if the project lacks broader adoption or use cases.
  • Inflation vs. Deflation Balance: For tokens like CAKE, which have ongoing emissions but also burns, the net effect on price depends on whether burns can outpace new token issuance. If burns exceed new supply, the token experiences net deflation, which can support price growth.

Common Patterns Observed

  • Price Spikes Around Burns: Most projects experience a price spike around burn events, as the reduced supply leads to a short-term imbalance between demand and availability.
  • Long-Term Appreciation When Burns Are Predictable and Consistent: Projects with clear and consistent burn mechanisms (e.g., BNB) tend to benefit from long-term price appreciation as investors anticipate future scarcity.
  • Burn Impact Depends on Utility and Adoption: Token burns have the most substantial impact on projects with growing utility and adoption. If a project’s ecosystem is stagnant, burns may not have a lasting effect on price.

Conclusion

Token burns can have a significant impact on the price of cryptocurrencies, especially when they create genuine scarcity over time. However, the effect is most pronounced when burns are part of a broader strategy that includes strong utility, adoption, and ecosystem growth. While short-term rallies are common around burn events, sustained price appreciation requires ongoing demand and real-world use cases that make the token valuable beyond its deflationary mechanics.

The Lisk DAO controls 100 million LSK tokens, representing 25% of the total LSK supply of 400 million. Given current lisk price it is 92 240 000 USD - more than enough to keep the project going. Despite that we have lisk Foundation:

3840Ă—4340 292 KB

The total funds held by the Lisk Foundation in December 2022 were approximately $44,985,750.23 USD
As you can see funds for project development are already there.

But you still think that token burn is not a good idea…

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the obvious ones:

  • A portion of the ecosystem fees goes to the DAO. You can use the PassApp wallet for this, with features like account abstraction, etc. and push it as a default ecosystem wallet

  • The DAO could provide liquidity to various pools and earn from the fees. Unfortunately, the DAO currently holds only LSK.

  • NFTs can fund the DAO, either by minting them or by taking a percentage cut from every future trade.

It’s true that the announcement/minting didn’t have a significant impact. However, any impact at this stage would be purely speculative since the tokens haven’t entered the market yet. Given that Lisk is not currently in the spotlight, speculative movements are naturally reduced. Similarly, I don’t expect any major reaction after burning them, as they aren’t being bought from the market and then burned.

That said, those tokens will eventually enter the market if we decide to use them, and it’s undeniable that they will have an impact. We’re just assuming that the growing ecosystem will be able to absorb them.

I’m curious, though… what is your actual vision for these additional tokens? It seems that, in your view, the 45M LSK (plus unclaimed tokens) isn’t sufficient.

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@dominic, I am very disappointed that you are trying to disregard economic theory by claiming that this won’t have any impact… This is, at the very least, reckless and unprofessional. I would prefer that our dialogue be based on professionalism and established practices recognized globally.

We all understand, as @Przemer pointed out, that any token issuance affects the system. Yes, the recent minting hasn’t had a major impact at this moment, but nonetheless, the price has decreased by half, which is quite significant. Moreover, tokens were minted, but the value of the ecosystem didn’t increase proportionally to the minting (there were no developments to trigger growth or stabilize the price), which ultimately led to the decline.