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Table of Contents

- RFC-0010: Burn Coretime Revenue
  - Summary
  - Motivation
  - Stakeholders
  - Explanation

# RFC-0010: Burn Coretime Revenue

Start Date | 19.07.2023
Description | Revenue from Coretime sales should be burned
Authors | Jonas Gehrlein

## Summary

The Polkadot UC will generate revenue from the sale of available Coretime. The question then arises: how should we handle these revenues? Broadly, there are two reasonable paths – burning the revenue and thereby removing it from total issuance or divert it to the Treasury. This Request for Comment (RFC) presents arguments favoring burning as the preferred mechanism for handling revenues from Coretime sales.

## Motivation

How to handle the revenue accrued from Coretime sales is an important economic question that influences the value of DOT and should be properly discussed before deciding for either of the options. Now is the best time to start this discussion.

## Stakeholders

Polkadot DOT token holders.

## Explanation

This RFC discusses potential benefits of burning the revenue accrued from Coretime sales instead of diverting them to Treasury. Here are the following arguments for it.

It's in the interest of the Polkadot community to have a consistent and predictable Treasury income, because volatility in the inflow can be damaging, especially in situations when it is insufficient. As such, this RFC operates under the presumption of a steady and sustainable Treasury income flow, which is crucial for the Polkadot community's stability. The assurance of a predictable Treasury income, as outlined in a prior discussion here, or through other equally effective measures, serves as a baseline assumption for this argument.

Consequently, we need not concern ourselves with this particular issue here. This naturally begs the question - why should we introduce additional volatility to the Treasury by aligning it with the variable Coretime sales? It's worth noting that Coretime revenues often exhibit an inverse relationship with periods when Treasury spending should ideally be ramped up. During periods of low Coretime utilization (indicated by lower revenue), Treasury should spend more on projects and endeavours to increase the demand for Coretime. This pattern underscores that Coretime sales, by their very nature, are an inconsistent and unpredictable source of funding for the Treasury. Given the importance of maintaining a steady and predictable inflow, it's unnecessary to rely on another volatile mechanism. Some might argue that we could have both: a steady inflow (from inflation) and some added bonus from Coretime sales, but burning the revenue would offer further benefits as described below.

- Balancing Inflation: While DOT as a utility token inherently profits from a (reasonable) net inflation, it also benefits from a deflationary force that functions as a counterbalance to the overall inflation. Right now, the only mechanism on Polkadot that burns fees is the one for underutilized DOT in the Treasury. Finding other, more direct target for burns makes sense and the Coretime market is a good option.

- Clear incentives: By burning the revenue accrued on Coretime sales, prices paid by buyers are clearly costs. This removes distortion from the market that might arise when the paid tokens occur on some other places within the network. In that case, some actors might have secondary motives of influencing the price of Coretime sales, because they benefit down the line. For example, actors that actively participate in the Coretime sales are likely to also benefit from a higher Treasury balance, because they might frequently request funds for their projects. While those effects might appear far-fetched, they could accumulate. Burning the revenues makes sure that the prices paid are clearly costs to the actors themselves.

- Collective Value Accrual: Following the previous argument, burning the revenue also generates some externality, because it reduces the overall issuance of DOT and thereby increases the value of each remaining token. In contrast to the aforementioned argument, this benefits all token holders collectively and equally. Therefore, I'd consider this as the preferrable option, because burns lets all token holders participate at Polkadot's success as Coretime usage increases.