DIP-3 Understanding

Recently, Darwinia Network’s Genepaper v4 and DIP-3 are released. Darwinia Network’s DIP-3 is a significant proposal aimed at revamping its network fee structure. This article aims to provide a comprehensive understanding of DIP-3, its objectives, and the potential impacts on the Darwinia ecosystem.

Problem

According to this discussion, the current supply design makes it difficult for network activities to be accurately reflected in the token economy, regardless of the token performance and value capture.

The current tokenomic design has two problems. One is the issuance problem. Another is that there is no built-in burning mechanism. Currently, there are still disagreements in the community about the first one, which requires further discussion and review. The second has already been adopted and accepted in the latest Genepaper V4 and DIP-3. Let’s dive deep into it.

DIP-3: Burning Mechanism of RING

To address the burning problem within the Darwinia Network’s tokenomic, the new design proposed in DIP-3 introduces a new EIP-1559 like burning mechanism into the Darwinia Chain. This mechanism is devised to enhance the token economy by aligning network activities more closely with token value.

Under this proposal, all transaction fees would be burned, while tips would be awarded directly to block authors.

EIP-1559 is a proposal from Ethereum that aims to change how the network calculates and processes transaction fees. While its primary goal is to address the issue of overpayment caused by unpredictable gas fees, especially during network congestion, it also introduces a well-designed gas-burning mechanism.

Like the EIP-1559, DIP-3 changes gas fees into a system with two components — a “base fee” calculated by the system that all users will pay for regular transaction speed, and an optional priority “tip” that users can pay to speed up their transactions.

With DIP-3, the base fee is burned. The base fee is a fee that all users will be required to pay for a Darwinia transaction. The Darwinia network will automatically calculate the base fee. The base fee will be predictable and will be the same for all users.

Changes after DIP-3

In my opinion, DIP-3 could contribute to making RING a healthier token, potentially leading to a positive cycle for its ecosystem.

Future Inflation Model Alignment

From the discussion, we can infer that the inflation model will undergo only minor changes after the implementation of DIP-3. While DIP-3 may slightly reduce the inflation rate, its impact remains limited due to the issuance issue. However, it is worth noting that a potential solution have been proposed within this discussion, aiming to maintain the annual issuance at its current level, without relying on the issuance formula that would increase block rewards as more RINGs are burned.

If the potential solution or something similar is implemented, DIP-3 could transform RING from an inflationary asset to a deflationary asset with a steadily decreasing supply.

Collators’s Income

Under this new mechanism, collators will only receive tips. After discussing with the core developers of Darwinia, it appears that DIP-3 may result in a slight reduction in the income of collators. But, in the long term, as DIP-3 mandates the network to burn RING tokens whenever a user pays a base fee, it will lead to a continuous decrease in the overall supply of circulating RING tokens. This reduction in supply will result in RING tokens becoming scarcer and consequently more valuable.

Value Capture

In my understanding, the key point of the discussion is to transform RING into a token capable of capturing the value generated by on-chain activities. This is crucial in making RING an appealing token for dApps developers. If more DApps are deployed on Darwinia, leading to increased on-chain activities, more RING tokens will be burned. This is the reason why RING could thrive within a positive tokenomic cycle.

Next

The closest related DIP would be a proposal aimed at resolving the issuance problem. The new DIP, in conjunction with DIP-3, would create a comprehensive inflation model for the next phase of Darwinia.

DIP-3 is not a significant change to the RING tokenomics, but it is a very important one. It is not only the beginning of the RING tokenomics alignment, but also a part of the Genepaper v4. In Genepaper v4, Darwinia’s narrative is more concise than before. Darwinia will concentrate on its cross-chain messaging services centered around its Msgport.

Summary

In this article, we take an in-depth look at Darwinia Network’s DIP-3 proposal, focusing on changes to its network fee structure.

It addresses one of the RING’s inflation issues by introducing a new burning mechanism similar to Ethereum’s EIP-1559. This mechanism aims to align network activities with token value by burning all transaction fees and providing tips to block authors. DIP-3 is expected to make RING’s gas fees more predictable and could shift it from an inflationary to a deflationary asset, promoting a healthier token ecosystem.

Although DIP-3 and EIP-1559 have minimal impact on the current economic data, they represent a significant change in the token economic design philosophy. This will affect narrative expression and expectations. By providing more data analysis and motivation through the community, it can promote and guide the community to allocate resources and invest in areas that can help burn more tokens or contribute to revenue, achieving a return to long-term token economic balance.

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