[WFC]-Proposal to Burn a Portion of Transaction Fees on the Relay Chain and System Chains (This is a draft. Not executed yet)

Governance
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Polkadot’s Transaction Fee Mechanism: Proposal to Burn a Portion of Transaction Fees on the Relay Chain and System Chains

Overview

This Wish for Change (WFC) referendum proposes burning a portion of the transaction fees generated on the Relay Chain and system chains like Asset Hub, instead of accumulating them in the Treasury. The goal is to optimize Polkadot’s internal economy.

This referendum represents a logical next step following Referendum RFC#10, which established a fixed income for the Treasury. Adding transaction fees to the Treasury would result in a form of double financing for it, which this proposal seeks to address.

This referendum originates from discussion Burning transaction fees on the Polkadot Forum, which have been active for 30 days and highlight alignment with the broader Polkadot community’s preferences.

Main Proposal
This WFC proposes:

  • Maintaining the current allocation of 20% of collected fees to validators and collators.
  • Burning the remaining portion of transaction fees generated on the Relay Chain and system chains.

This approach ensures functional equivalence: funding operational costs through inflation while burning fees effectively acts as a direct value transfer from users to network-supporting actors.

Technical Details
The proposed changes include:

  • Revenue Structure: 20% of fees will continue to be allocated to validators and collators.
  • Automatic Burning: The remaining 80% of fees will be burned at the protocol level.
  • Balanced Inflation: Operational costs will continue to be funded through predefined inflation, with the inflationary effect offset by burning fees.

Voting AYE

Voting AYE for this proposal reflects your support for a more efficient and sustainable economic model for Polkadot. Specifically:

  • Maintaining the 20% fee allocation for validators and collators.
  • Burning the remaining portion of fees generated on the Relay Chain and system chains.

Important
This WFC referendum cannot be binding, i.e., there is no mechanism to force the chain to update these parameters. Instead, it is a method to aggregate the opinion of voters through OpenGov and offers some commitment of the community to this WFC on the social layer.

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Link to ref?

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This wfc is not yet executed on chain since the deposit is 20,000 DOT for a WFC and unfortunately I do not have that amount of DOT. If anyone wants to present it, go ahead!

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So you actually have not proposed a WFC referendum? This is misleading.

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Hard nay for me. We already reduced inflation very recently. I think we should do this in steps over time instead. Today our ecosystem is nowhere near ready yet for this and only a fraction of Polkadots total (massive) computing power is being used. Instead of the 20% / 80% fee split burning 80% we rather introduce a schedule looking something like this:

  • 20% go to network operators and stakers as-is.
  • Swap (automatic DCA) 20% into selected Polkadot ecosystem tokens as a means of treasury assets diversification.
  • Provide 20% as ecosystem liquidity and capital injection. Desperately needed.
    • On our DeFi parachains.
    • Yield farming incentives on our DeFi chains.
    • Incentives on non DeFi chains, for example fee stipend for bridges or gas stipends cross-chain intents.
    • Maybe also DOT derivates on other blockchain ecosystem DeFi chains to gain exposure and attention outside our ecosystem.
  • 20% go to the treasury as-is. Projects need funding prior to their launch, before they start being self-sustaining. Research, implementing proof of concepts, code audits etc. are all upfront costs.
  • The remaining 20% depend on whether the chain has contracts.
    • Burned if there are no contracts or the call didn’t involve executing any contract code.
    • Contracts can set a reward address (which defaults to the origin of the deployer transaction) for 20% of the fees they generate. This is a direct incentive for builders to deploy useful contracts, without any user costs. It’s also a strong incentive for getting existing dApps to deploy on Polkadot which we need desperately.

This creates an upward spiral for the entire ecosystem. Strong incentives for builders and users, regardless whether contracts or parachains, attract more builders and users. Higher TVL attracts more users and builders. More users and builders attract more users and builders and we end up with a strong network effect.

I agree that the inflation rate is way too high long term. However we still reduce inflation slightly over time, until we grow to a critical mass, and then bring down the inflation rate aggressively (I think that a fixed DOT supply should be the end goal).

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I have corrected the title and I put that it is a draft and has not been executed yet. I hope that is enough and sorry for the inconvenience…

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Don’t you think that what goes to the treasury is enough?Imo Polkadot has matured enough for this. Otherwise, this double funding for the treasury is an abuse for the holders. Without a holder you don’t have marketcap and without a marketcap we won’t have any capital, it’s that simple.

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Don’t you think that what goes to the treasury is enough

As said I am in favor of reducing the amount that goes to the treasury, just with a more considerate approach. Also, no, I don’t think what goes to treasury is enough. We need more builders, more funding, more capital injections, more incentives, more marketing. DOT is a DAO, there is just the treasury. We must treat every single user we gain as a desirable win, every single builder we work with is a highly desirable win. Other chains seemingly pursue aggressive business acquiring strategies, and we need treasury money to compete with them as to prevent us from drifting into irrelevance in the broader web3 space.

Polkadot has matured enough for this

What makes you think that? I strongly disagree. Kusama demonstrated 128k TPS with 1/4 of it’s cores. We are far, far away of being at capacity. But we should strive to develop an ecosystem that pushes us at capacity. Otherwise what is the point of optimizing blockspace capacity. We have optimized blockspace capacity a lot, no we need aim for a lot of active users, a lot of active parachains/cores, a lot of revenue generating contracts, a lot of TVL in our ecosystem for whom we build all that scalable block space first hand.

you don’t have marketcap and without a marketcap we won’t have any capital

There is no point of DOT marketcap when you can’t do much with DOT and there are few entities doing something with DOT.

I see no point in climbing market cap if compared to other blockchains, there is virtually no TVL in the DOT ecosystem. Look at marketcap vs. TVL for some other blockchains. DOT was already ranked much higher in the marketcap ranking years ago and yet here we are.

I see the strategy of climbing the marketcap ranking by burning away a lot of funds that otherwise go into ecosystem development as a short term grift for existing DOT holders. The “just build the best tech and people will come” has evidently failed as a couple years ago DOT was already ranked much higher in the marketcap ranking. What makes you think that this time it’s different?

This is why I think we need to reduce inflation but also inject a lot of capital towards builder and user incentives. Thinking that just decreasing the inflation rate is a guarantee for the DOT market cap to raise significantly, and then that raised market cap is a guarantee to increase users, builders, activity and TVL is flawed thinking.

Making DOT useful for humanity > bloating the DOT market cap for a few peoples short term profits.

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Injecting money in an uncontrolled manner for incentives is only useful in the short term so that the grifters can take advantage of it. In the end you will remain the same. We must attract serious projects, not the degens.

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What is uncontrolled? OpenGOV still decides about any treasury spending.

For example I wrote Swap (automatic DCA) 20% into selected Polkadot ecosystem tokens, note selected tokens. I expect the voters to elect proven useful and loyal projects for this. Polkadot ecosystem “bluechips”. The same goes for any capital injections. And the remaining 20% of traditional treasury funds are naturally more risk-tolerant. But we also still want to make higher-risk investments. Also any funds not spent in a while can still be burned regardless.

Also if burning a small portion (increasing over time) of fees and providing the rest the treasury for spending is called uncontrolled spending, then burning all the system chain fees would be called uncontrolled burning?

We must attract serious projects, not the degens.

I am in favor of attracting serious projects more than degens. But consciously not attracting degens will be massive mistake, especially in the current phase of blockchain where degen activity is still a strong proxy for the usefulness of a chain ecosystem.

Incentivizing contract authors by offering them a portion of the fees they generate as revenue will direct builders to write useful contracts. Accept that it is not up to any individual to define what useful is. You might personally not see degen activity as useful and it doesn’t matter. We incentivize people to write the contract that generates the most revenue. The amount of transaction fees people are willing to spend on a contract is a direct measurement of its usefulness. Now this might be degen activity, it might be something else, but it will certainly change over time. What doesn’t change is the incentive to write useful on-chain protocols.

Degen activity will help to build network effect and create attention. Degen activity is a legit revenue source for bridges, contract and DeFi chains. We can use it to proof the scalability and usefulness of Polkadot. As long as it doesn’t harm serious projects, I see a healthy amount of degen activity as something we should foster alongside serious projects.

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Burning all the fees would be called fair. Or do you think the inflation that the holders have to bear to pay the protocol costs is fair but you don’t see the burning as a good idea? I think you think that money grows on trees?

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I am not sure if you read my post.

Sorry have to disappoint you, I don’t think money grows on trees.

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I think we have very different points of view. I don’t think promoting Degens’ activity is a good idea. I wouldn’t like to see Polkadot turn into Solana. But hey, everyone has their own opinion.

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I don’t think that a healthy amount of degen activity does turn Polkadot into Solana.

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Thanks for sharing and discussing your opinion. I think we are actually aligned with that we want lower inflation further and want to see many useful and sustainable dApps on Polkadot. Just not exactly on how to get there :slight_smile:

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WFC proposals are suggestions, and they are voted on by tokenholders to indicate support, so I’m not sure about the usefulness of debating this sort of “pre-WFC non-proposal” in a small scale setting among just a few people, if I’m honest.

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Looks at this ser.Why are you so hard on me? Why don’t bother Alice and Bob?:face_with_monocle:

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And he said " not have more total votes/AYEs than this WFC)"

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what? I don’t read every post, friend

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I like the proposal. I had this on my backlog too.

One consideration where I am still unsure: It could be proposed to do a 50/50 and give 50% of the fees to validators.

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