Summary
The following is not a single proposal but rather a series of 4 proposals for better economic alignment for Terra Classic. The aim of these proposals are:
- To increase demand via staking by enhancing staking rewards
- To increase developer funding by increasing community pool funding
- To decrease supply by increasing burns
- To increase chain utility and volume by whitelisting smart contracts
1. Increasing Demand via staking by enhancing staking rewards
v1.1.0 modified the burn AnteHandler to split the Burn tax to the Community Pool. Rather than this, I propose to modify the burn AnteHandler to split the Burn tax to the Distribution Module instead.
Why? Because the distribution module already splits 50% of the proceeds with the CP. By splitting the burn tax with the distribution module instead of the CP, stakers also stand to benefit, thus creating a broader alignment with the community and increasing demand for staking and for LUNC.
This has already been discussed here:
Signaling Proposals around 3 Optional Features in the next release - #8 by dfunk
and here:
[CODE v1.1.0] Optional Feature # 3 - Burn Tax Split to Community Pool - #4 by dfunk
A signalling proposal to include this feature in the next release by L1TF will be raised on station.
2. Increasing developer funding by increasing community pool funding
The above proposal will likely impact developer funding since it will reduce the funds going to the community pool. In order to compensate for this, I propose to modify the Burn Tax AnteHandler split from 90/10 to 80/20.
This shall be raised as a parameter change proposal on station.
3. Decreasing supply by increasing burns
As we focus on increasing LUNC demand via staking, we also need to focus on reducing LUNC supply via burn tax. As a result, I propose to increase the burn tax to 0.5%.
Why 0.5%? Burn Tax is a form of Currency Transaction Taxes such as Tobin Tax. While financial transaction tax rates of the magnitude of 0.1%-1% have been proposed by normative economists, James Tobin himself had suggested a rate of 0.5% in an interview.
This shall be raised as a parameter change proposal on station.
Note: The burn tax has been repurposed from Tobin tax and so apart from increasing the rate to 0.5%, I would also like to recommend to change the name of Burn Tax to Tobin Tax.
4. Increasing chain utility and volume by whitelisting smart contracts
Increasing the Burn Tax is likely to cause a drop in volume and usage of dapps such as DEXes. In order to compensate for this, I propose to whitelist dapp contracts, such as Terraswap and Astroport from Burn Taxes.
This has been discussed in detail here:
[Proposal] Exclude Smart Contraction Transactions from the scope of Burn Tax
This should counter any negative effects of increasing the burn tax.
A signalling proposal to include this feature in the next release will be raised on station.
Note: All 4 proposals will be created separately and shall be voted upon separately.
Feedback is welcome.