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Distributing the Dash Proposal Fees

During the Dash Investment Foundation Q&A at the recent Dash convention, a question was brought forward: should the 5 Dash proposal fee be used to fund the DIF instead of being burned as it is currently? This is an idea I support and similarly have called for the proposal fee to be used to fund Dash Boost (currently in hibernation due to lack of funding).

When Dash’s proposal system was first implemented, it was more logical to burn the fees than redistribute them. There was no DIF, Dash Boost, or other suitable Dash Funded Organizations (DFO’s) to give the funds to where the funds wouldn’t be concentrated unfairly. The difference between the DIF and Dash Boost versus other DFO’s is that the DIF and Dash Boost redistribute funds based on the wishes of the network. Giving the proposal fee to a standard DFO would act as a subsidy and since subsidies lower quality, increase complacency, and interfere with free market competition, it would have a detrimental effect on the DAO. 

Also, burning the proposal fees makes economic sense. The economic principle behind burning the proposal fees states that, all else being constant, a reduction in supply relative to demand will increase the value of said good or service, and therefore burning Dash should in theory increase the price of Dash. This principle is in fact one of the primary reasons for the creation of cryptocurrency in the first place. Fiat currencies tend to have a perpetually increasing supply of units in circulation (inflation) which is why they lose value year after year and is why most cryptocurrencies are developed having a decreasing rate of inflation – they want the value of the currency to increase over time. The downsides to burning the proposal fees is that the value gained is linear, hard limited, and takes a very long time before the gained value can be recognizably realized. Taking a hundred or so Dash per month out of circulation from a total of eighteen-ish million total Dash is going to have a very limited effect and is going to potentially take years before the price reflects this minimal deflation, especially since new Dash is still being mined into circulation.  

While burning Dash isn’t throwing value away, it is throwing potentially exponential value away. What I mean by this is that these burned Dash could instead be distributed, via an organization like the DIF or Dash Boost, to projects that are growing the Dash network and generating potentially significant value, and as the value of Dash increases, there is more opportunity for other projects to also grow the network, and so on, creating a cycle of positive reinforcement and thus exponential growth. Even if 9 out of 10 funded projects fail, funding just one project that goes viral will increase the value of Dash for everyone and will easily make up for the missed gains of giving the proposal fees to failed projects or burning it. We lose nothing but an imperceptible deflationary gain by redistributing the proposal fees. The risk versus reward ratio is clearly on the side of reward. 

Another benefit of sending the proposal fees to the DIF or Dash Boost is that it would ease the demand on the treasury. Currently, the DIF is requesting 9% of the budget (though they’re splitting that up into two distinct 4.5% proposals per cycle for future requests as this will allow MNO’s the option to choose to vote for just one 4.5% proposal if that’s all they’re comfortable with or choose to vote for both proposals if they believe the 9% is a suitable request). During this extended down market, 9% of the budget is quite significant and has and will result in other projects not getting funding. As an example, the Dash LatAm team lost their funding this last cycle, not because their proposal didn’t pass, but because the DIF got more votes and the funding was all used up before Dash LatAm’s place in the payout queue was reached. 

To further expound upon my point, Dash Boost has been in hibernation for many months now because of a lack of funding. This is rather unfortunate as there are lots of smaller projects that are in turn not able to get funding. Also, since Dash Boost gives non-MNO’s the ability to have a say in how funds are distributed, it creates a sense of inclusion for those who aren’t able to own a masternode. Being a non-MNO myself, I miss reviewing and voting on the smaller proposals. I believe the hibernation of Dash Boost has had a bigger negative effect on the DAO than most realize. 

One of the arguments against redistributing proposal fees is that it would be playing favorites and some proposal owners may not want their fee going to an organization they don’t support. If we were talking about ‘normal’ DFO’s, I would agree with this argument, but I don’t think it applies to the DIF and Dash Boost. The DIF is an organization that’s legally owned by the network. They have a legal mandate to use the funds in a manner that is good for the DAO and if they misbehave, the MN’s could always vote to hold the funds and suspend operations until their behavior or personnel is changed. And with Dash Boost, the funds are redistributed to smaller projects per community vote. Dash Boost is just a redistribution mechanism, it doesn’t use the money itself (other than some minor administrative costs) and has no say in who the funds are given to. 

Another argument is that this would be a protocol change and would require a software update. While this is true, it’s a relatively insignificant protocol change as nothing in regards to consensus or the blockreward is changed. The only change would be that instead of sending the fees to OP_Return to be burned, they would instead be sent to an address that the intended recipient organization would control in full or in part via multisig. However, I’m not a developer so it may be more complicated than I imagine. Also, there’s no rush to get this implemented; it could simply be included in a future update. 

Normally, I’m very conservative when it comes to changing protocol but in this instance, I think it makes sense. The risk is negligible, the reward is potentially exponential, it’s a relatively minor technical change, and it wouldn’t take anything away from anyone. Refusing change due to dogma leads to obsolescence; there has to be a compelling reason to not change, and in this case, I don’t think the arguments against using the Dash fees to grow the network are particularly compelling. Don’t forget, Dash was born out of Bitcoin refusing to change its protocol!

I know this is rather contentious topic and needs to be discussed further. If you want to contribute to the conversation, please comment below or hit me up on twitter.  

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