The Token Award Depletion Problem and How Braintrust’s Community Solved it for Themselves
This week, the Braintrust (BTRST) community came up with a novel way of solving a problem with fixed utility token allocation: the depletion problem. The depletion problem arises when a fixed amount of tokens is set aside for community incentives, because at some point, if the community is successful enough, the token incentives pool will be completely depleted.
Solving the Token Depletion Problem
54% of Braintrust’s entire token supply of 250,000,000 is earmarked for community incentives and rewards. This is good. But it’s also depletable. With time, and a lack of any governance, the entire supply of tokens for incentives will be depleted.
Bitcoin’s fixed supply would result in this same problem if it hadn’t implemented halving events (where the mining reward is halved after a set number of blocks are mined). Halving events built into the Bitcoin protocol prevent a linear depletion of the fixed Bitcoin supply. This is important because, without the halving events, the incentive to mine Bitcoin would dry up too quickly. I say “too quickly,” because even with the halving events, the Bitcoin reward for mining a block will eventually decrease to zero (around the year 2140). The thinking, however, was that transaction fees would one day rise to a point where they would offset the diminishing block rewards.
Braintrust, and other Tokens with fixed supplies for incentives, are not only susceptible to premature depletion, but total depletion of community incentives. Unlike Bitcoin miners who can also make money off the transaction fees, Braintrust community members can’t make money off the network in other ways. At some point, there becomes very little incentive for a single community member to invest their time into improving the network.
This was the impetus for this week’s protocol change.
From Fiat to BTRST with the Fee Converter
On Braintrust, employers pay a 10% fee on all monies paid to talent. This 10% is reinvested back into the community in the form of protocol and platform upgrades or community-targeted grants and bounties. At present, this 10% is paid in a fiat currency and is either doled out to node staff or to fund contracts for community members. The commitment to reinvestment is nice, but it’s also independent of the token and not directly governed by the protocol.
The new community proposal, however, would result in the following changes to this existing system of reinvestment:
- Create a new requirement that all fees on the network, including the current client success fee but also any other fees that may be initiated in the future, must be paid in BTRST.
- Nodes will convert client fees collected in USD into USDC to send to the new Fee Converter smart contract
- The new Fee Converter smart contract will purchase BTRST tokens with the USDC on a decentralized exchange
- The newly purchased BTRST tokens will go to Braintrust’s on-chain treasury (Governor Alpha) to be used for community development grants and to pay referral fees (“Changing the fee payment model for Braintrust”)
In short, the 10% fee from employers will now be used to purchase BTRST on a decentralized exchange and then held on-chain for community grants and awards.
Delivering on Community-Driven Innovation
The proposal is a clever way to resolve the issues of token depletion that I described above, but also to drive demand, a natural limiter to hoarding and deflation. In effect, the changes mean that
- the demand for BTRST will be programmatically linked to the GSV of the network as 10% of all GSV will be used to purchase BTRST
- referral rewards and grants, paid in BTRST, will no longer come from existing treasury but will come from actual client fees. This way the treasury will not become exhausted by paying referral fees and grants.(“Changing the fee payment model for Braintrust”)
On Oct 13, 2021, the voting began on the community proposal. Two days later, the voting closed and the proposal was approved 22k to 0. Just like that, a change, novel not just to Braintrust but other like DAO’s, was set in motion. This week that change will take effect.
Dig into the Fee Viewer to see the actual fee volume converted to BTRST:
Tying Token Value to DAO Success
Deserving emphasis is how the Fee Converter ties the value of the Token to the success of the DAO (Decentralized Autonomous Organization) and its community.
Besides solving a fundamental Tokenomics challenge, it also produces a flywheel effect around community success and token value. If the proposal bears good fruit, the community reaps the rewards from their own support of the DAO. This leads to high-quality talent sticking with Braintrust for their contracts (because they want employer fees to drive more demand) and to employers being more willing to pay Braintrust fees because they too have a stake in the Token.
Delivering on The Promise
Braintrust pitches itself as a replacement for “today’s outdated, fragmented recruiting systems” that reduces costs to both the supply and demand side of the talent marketplace through efficiencies gained by self-governance. The community owns and operates the network, incentivized through grants and awards, reducing overhead and operational costs. But can the community deliver on this promise? And can it, alone, improve the core platform so that it too does not become tomorrow’s outdated recruiting system?
In some ways, just the autonomous proposal and decision-making power exercised by BTRST owners shows that it can deliver on that promise. The fact, however, that the proposal was also actually novel shows something even more. The Braintrust community proved it could not only get together to affect a change on the system but it could affect an innovative one at that.
