Transaction fees

A percentage of fees from transactions could be used as treasury income

Fees can be collected when transactions get submitted on a network. Transaction fees commonly pay for node operation costs but they could also or alternatively be collected as income for the ecosystems treasury. Transaction fees could potentially create a sustainable circular economy where ongoing income is generated to support a number of different treasury funding responsibilities.

Low short term income potential (Score - 2)

A new and growing Web3 ecosystem will often have a limited amount of transaction volume. Low transaction volume will often translate into a limited amount of generated income through transaction fees. Some income could still be generated in the short term, however for this to be a meaningful amount the network would likely need to scale and increase adoption to generate more transaction volume.

High long term income potential (Score - 4)

As an ecosystem grows the number of transactions should also increase over time. Large transaction volume could result in a more meaningful amount of income for the ecosystem's treasury. A growing amount of use cases could be one reason why an ecosystem is able to generate more demand and transactions in the network. Growing both the number of use cases and the number of users that participate in the network can both be important factors for increasing the total amount of transaction volume and fees that the ecosystem could generate on a daily basis. These fees can then be used to fund future ecosystem initiatives. The only main problem with this approach is the amount of transaction fees generated could vary on a daily, weekly and monthly basis based on a multitude of internal and external factors. There could be periods of time where there are far fewer transactions submitted and this could lead to unpredictable and unreliable treasury income.

High incentive complexities (Score - 2)

All community members that use the network and create transactions would pay fees that help to fund the treasury. This can be an easy and simple taxation model for generating income to fund the treasury but it is not fair for all participants in the network as only the ones that create transactions would pay for the maintenance and improvements of the network. If these fees increase the value of the network then the people that simply held the coin and didn’t contribute would now be receiving a benefit that they didn’t contribute towards. Transaction fees create a free rider problem. This income approach creates the incentive for people to invest in the network but to transact elsewhere if there are cheaper options as they can benefit from other people's contributions in the network that they invest in but then also benefit from not paying for higher fees that other people might be paying. This outcome is undesirable as the people who are just holding the coin are making the economy more stagnant and also are doing the least to contribute towards the network but are still getting the benefit of other people's contributions. A transaction fee approach rewards these actors that just hold the coin the most and then also punishes the most active and important users in the ecosystem, those who actually use the network regularly! The incentives are not fairly aligned with this approach.

Low malicious actor risks (Score - 4)

Everyone would pay the same transaction fees based on the adopted fee approach. A sufficiently high minimum fee will be needed to protect against spam transactions that could attempt to harm the networks liveness. Apart from this users would not get any advantage from increasing or decreasing the number of transactions they make or the amount they transact with. The main way that someone could try to game this income approach would be by investing and just holding onto the coins without transacting to avoid fees and then use other networks with the lowest fees wherever possible.

Very high transaction deadweight loss (Score - 1)

Any additional fees that get added to transactions can cause a deadweight loss due to the loss of potential transactions that get submitted. The larger the fees the larger the amount of deadweight loss. This could be highly problematic in a market with highly competitive networks that each are trying to optimise and reduce their fees as much as possible.

Total score = 13 / 25