Proposal: Enable Burning Mechanism

[Markov]

Proposal to Enable 100% Transaction Fee Burning on Casper Network

Executive Summary

This proposal recommends implementing permanent burning of all transaction fees on Casper Network.

Key benefits:

• Creates deflationary pressure on CSPR supply
• Increases token scarcity over time
• Maintains validator earnings through block rewards
• Aligns with successful models like Ethereum and BNB Chain

Technical Implementation

Core Changes:

Immediate Changes:

• Modify chainspec to burn 100% of transaction fees:
• Current setting: fee_handling = { type = 'pay_to_proposer' }
• Proposed setting: fee_handling = { type = 'burn' }

Future Changes:

• Implement a feature which allows partial burns where certain percentage of the tx fee is burned and the rest is sent to a designated account. Both the percentage and the designated account values will be chainspec parameters.

Monitoring:

• Add burn tracking
• Track burned fees in block headers
• Display in network explorers
  (Implementation details are up to the development team’s best judgement as long as the desired goal of being able to monitor the burned amounts is achieved.)

Economic Impact

• Same total earnings (via block/signature rewards)
• Potential CSPR value appreciation benefits all

Deployment of the 100% Burn:

• Devnet: Practically immediately post-approval
• Testnet: In 1 week post-approval
• Mainnet: In 2 weeks after Testnet deployment
• Monitoring: In 6 months post-approval

Implementation of the Partial Burn Feature:

• Scheduled to be released in Casper v2.2

Risk Mitigation

Risk	Solution
Validator concerns	Show equivalent earnings
Spam attacks	Keep minimum fees
Volatility	Gradual implementation
Explorer issues	Pre-launch coordination

Ecosystem Benefits

• Token value growth
• Simplified economics
• Competitive advantage for:
  • DeFi applications
  • Financial dApps
  • Long-term holders
• Sustainability of the chain is supported with a revenue stream for future developments through partial burns.

Conclusion

• Fee burning creates sustainable tokenomics by:
  • Reducing supply permanently
  • Maintaining validator incentives
  • Following proven industry models

—-
Edited by @kara by combining the proposal in the thread and correcting factual issues

[kara]

Hi @Markov,

Thank you for your proposal.

To initiate a formal vote on a network-wide change like enabling a token burning mechanism, you’ll need the support of at least one active validator on the Casper Network. This validator would need to submit the proposal through the proper governance channels (typically a CEP – Casper Enhancement Proposal – and/or through an on-chain vote if applicable).

The recommend way would be following these steps:

1. Refine your proposal: Clearly outline the motivation, technical details, and potential impact of the burning mechanism.
2. Engage with validators: Reach out to validators who may be aligned with your vision and discuss your proposal with them.
3. Submit a formal proposal: With validator support, your proposal can be submitted to the appropriate governance process for community review and voting.

Let me know if you need help connecting with validators or preparing a more detailed draft.

Best,
Muhammet

[Markov]

Hi @kara! Please to meet you!
I really dont know what types of parameters would be enabled when activating the burning mecanism, or if they can be modified to match our needs. But here i left my proposal, and i hope the community contributes with their ideas.
Please if you can conect me with validators to hear their opinion on this case, i will be grateful.

Regards

1. Summary
Proposes a Dual-Path Burn mechanism to:
- Reduce CSPR inflation from 15% to 5-7%
- Maintain ≥90% of validator rewards
- Create deflationary pressure during low network usage
- Enhance token scarcity while preserving network security

2. Problem Statement
- Current annual inflation: 15% 
- High dilution threatens token utility and holder value
- Urgent need to balance inflation control with validator incentives
- Critical requirement: Validator rewards must remain economically viable

3. Proposed Solution: Dual-Path Burn (DPB) - Adjusted for 15% Inflation

Component 1: Enhanced Transaction Fee Burn
------------------------------------------
Mechanism: Burn 60-80% of all gas fees
Parameters: 
  - Base burn rate: 70%
  - Adjustable via governance
Additional: Distribute remaining 20-40% to validators

Component 2: Aggressive Dynamic Block Reward Burn
-------------------------------------------------
Mechanism: Burn = B × (1 - Utilization)^1.5
Parameters: 
  - B = 35-45% max burn rate
  - Utilization = Actual TPS / Max TPS
  - Exponential factor increases burn during low usage

4. Economic Impact Analysis
- Inflation reduction: 15% → 5-7%
- Validator reward impact:
  * 100% base block rewards preserved
  * 20-40% of fee rewards maintained
  * Net reward reduction: 8-12% offset by token appreciation
- Supply impact: +15% annual growth → +4-6%

5. Implementation Roadmap

Phase 1: Testnet Deployment 
- Simulate current 15% inflation baseline
- Model burn scenarios with 70% fee burn + 40% max block burn
- Stress-test validator economics

Phase 2: Governance Vote 
- Stakeholder voting on parameters:
  * Fee burn percentage (60-80%)
  * Constant B (35-45%)
  * Utilization sensitivity factor

Phase 3: Mainnet Activation 
- Protocol upgrade implementation
- Real-time inflation dashboard with burn metrics

6. Validator Impact Assessment
- Reward protection mechanisms:
  * Full block rewards maintained (critical for 15% baseline)
  * Minimum 20% fee reward guarantee
  * Value appreciation from reduced inflation offsets 60% of reward reduction
- Security preservation:
  * Staking APR remains >12% after adjustments
  * Enhanced token scarcity improves reward value

7. Risk Mitigation for High Inflation Environment
- Validator compensation fund: 
  * 5% of burned fees allocated to temporary reward buffer
- Emergency governance override:
  * Allow temporary burn reduction if validator participation drops below 90%
- Phased activation:
  * Start with 50% fee burn, increase 5% monthly to target

8. Conclusion
The enhanced DPB mechanism addresses CSPR's critical 15% inflation by:
- Implementing aggressive but controlled burns
- Preserving validator economics through reward safeguards
- Creating supply reduction momentum
- Establishing CSPR as sustainable proof-of-stake network

[kara]

Thanks a lot for taking the time to draft your proposal!

I’ll notify the validators about the topic so that they can engage. In the mean time, you may want to revise the proposal based on the notes below:

• Casper’s inflation rate is not 15%, but 8%. APY you see on CSPR.live is result of partial staking of the total supply. For example, if 50% of the tokens are staked, the stakers will get the 8% emission distributed to them as rewards, resulting in a 16% APY due to half of the token owners not getting the rewards.
• There is a new mechanism which came with Casper 2.0, but not yet enabled, regarding gas fees. And there are more changes on the way, for the upcoming upgrades. Please see: Casper v2.0 Release Notes | Casper Docs
• As a validator, speaking only on my behalf, I would be totally okay to even burn 100% of tx fees at this moment.

[Markov]

Hi Kara!
Thank you very much for the clarification. I wasn’t taking into account that the APY corresponds to the percentage of tokens staked. Here i left the updated proposal:

Proposal to Enable 100% Transaction Fee Burning on Casper Network

1. Executive Summary
This proposal recommends implementing permanent burning of all transaction fees on Casper Network. Key benefits:

Creates deflationary pressure on CSPR supply
Increases token scarcity over time
Maintains validator earnings through block rewards
Aligns with successful models like Ethereum and BNB Chain

2. Technical Implementation

2.1 Core Changes:

Modify chainspec to burn 100% of transaction fees:
Current setting: fee_handling = { type = 'no_fee' }
Proposed setting: fee_handling = { type = 'burn' }
Add burn_address = '0x00...dead'

2.2 Monitoring:

Add burn tracking
Track burned fees in block headers
Display in network explorers

3. Economic Impact

Same total earnings (via block/signature rewards)
Potential CSPR value appreciation benefits all

4 Deployment:

Testnet: 8 weeks post-approval
Mainnet: Era X+100
Monitoring: 6 months

5. Risk Mitigation

Risk	                                     Solution
Validator concerns	                         Show equivalent earnings
Spam attacks	                             Keep minimum fees
Volatility	                                 Gradual implementation
Explorer issues	                             Pre-launch coordination

6. Ecosystem Benefits

Token value growth
Simplified economics
Competitive advantage for:
DeFi applications
Financial dApps
Long-term holders


7. Conclusion
Fee burning creates sustainable tokenomics by:
Reducing supply permanently
Maintaining validator incentives
Following proven industry models

[michaelsteuer]

Nice job on the second version of the proposal. This matches the functionality that’s available and can be enabled via chain governance.

[Markov]

Thanks for the feedback team! From what I understand, at this point we need the opinion of the validators who must take actions based on the community demands.

[999]

Agree to enable the CSPR token burning mechanism.

[kara]

Right. It’s time for you to do some lobbying.

I’m in support of enabling the burning mechanism, in principal, but need to check/discuss/refine the details. Maybe some projections/calculations on its impact on the economics of the chain.

[kara]

@Markov I’ve just edited your original post to have the latest form of the proposal at the top, did some formatting, and also corrected some factual details. I’m looking forward to its onchain approval.

[Markov]

Hi @Kara !

Thanks for the editing and for taking the time to look at this proposal with the team!

[gokaysatir]

This proposal is related to field of economics. For me, it is very difficult or maybe impossible to foresee the effects of the feature if applied. Seeing that there are successful examples is encouraging.

I think burning feature can help stabilizing the value of cspr. But on the other hand, i have a concern, what if there happen to be many transactions in the network? In that case, the inflation will go negative and cspr will be over-prized? And in the over-prized state, the transaction fee may turn into a burden for users.

In that scenario, adjusting the transaction fees may not be a permanent solution. Because that may require changes to the network configuration too often.

[Markov]

Hi! I understand the concern, but I think we should try to maintain a balance (even make it deflationary to a certain point if possible). I also don’t think enabling token burning will significantly affect the price of fees, considering how low they are now. It’s also important to keep in mind that very low fees can facilitate a DoS attack, even with dynamic gas.

I don’t know if there’s a way to test this in a lab to validate how many tokens would be burned in proportion to those created, in case the network’s usage increases exponentially fast.

We have successful examples like BNB BEP-95 and this Ethereum EIP-1559 (in this case they differ a little because they have priority fee too).
But for the BNB chain, they are burning more tokens than those that are being created(not just the fees).

You can find here the statistics:

BNBBurn - BNB Real-Time Burn and Auto-Burn Schedule

[Brkerimoglu]

Hello, the burning mechanism should definitely be activated and this should be highlighted and reported on social media.

[kara]

FYI: Consulted the protocol dev team about the proposal. They say the feature is complete and can be enabled any time with a network (chainspec) upgrade. I’ve also floated the idea of having a portion of the tx fees burned while the rest are collected in an Association account for the long term sustainability of the project. They say it’s possible but needs some development, and can come with the next major upgrade only.

[Markov]

Hi Team! @kara Thanks for the feedback! It is a good idea to send a percentage of the tx fees to CA and burn the rest (it would be nice to have the development so we can implement it in the next upgrade). And for the meantime, if we can enable the burning, that would be great.

[nowrich]

This is exactly the kind of mechanism that could put $CSPR on a stronger long-term trajectory. Fee burning aligns with scarcity economics, keeps incentives intact, and sends a powerful signal to the market. I’m fully in favor of activating this.

[Markov]

Hi @kara! Please, can we edit the proposal to set the time between testnet and mainnet deployment to 1 or 2 weeks, as @michaelsteuer suggests? And set the phase “Testnet: Immediately after the proposal is approved.” Thanks!

[gokaysatir]

I think that’s a good idea for the future of this chain. I personally support this implementation.

I will probably open another topic for making the burning percent adjustable, after burning is initiated

[Nodebook]

Hello, first of all thank you for the proposal. I think this is a good step towards starting a constructive conversation on the tokenomics of CSPR.

I have a bit of a different view on the burning proposal. Let me start out by saying that I agree that we need to reduce APY. But I think we should do it sustainably by treating causes not symptoms. The goal should be to reduce cost, further user experience in order to increase adoption and create sustainable and growing token sinks for CSPR to disappear in.

In the Casper network’s docs, there is a section about potential fee “elimination”.
Replacing the fee with a temporary hold on transactors’ balances corresponding to their incurred gas costs, instead of taking those costs from their on-chain balances.
https://docs.casper.network/condor/index#fee-elimination

Instead of burning tokens, fees would be locked in a payback loop. The duration of the payback loop can be voted on. Redistribution can be dynamic. The CSPR in the payback loop could be staked. The rewards could be issued to validators, burned, or both. Keeping the door open for burning. The cost to users would be the 8% inflation lost over the duration of their payback lockup. In addition validators can be further compensated by implementing a universal minimum fee for delegations.

Under this condition, payback loops lock CSPR reducing APY. Gas station contracts could run perpetually and autonomously, while incentivising locking CSPR in them, thereby further reducing APY. Payback loops would also protect against spam and reduce friction for users and developers. Inflation stays at 8%, but APY decreases. Once we move further along the adoption curve, inflation can be lowered in a separate proposal later. I do like burning, but I think solely burning treats the symptom, not the cause. It reduces supply, but it does not create an incentive to stay in CSPR.

Instead of a “pay to use” approach for the network, Casper can create a “hold to use” approach, creating sustainable token sinks and reducing friction by limiting costs to inflation during the lockup and reducing the effort of keeping smart contracts afloat.

Providing enterprises and developers with the lowest friction possible will enhance user experience and further adoption more than solely burning tokens. Burning alone is a band-aid, not a fix.

I think the burning proposal should be rejected.