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BSIP: 0007
Title: Fee Backed Assets
Authors: Danial Larimer <Dan@cryptonomex.com>
         Stan Larimer <Stan@cryptonomex.com>
         Fabian Schuh <Fabian@BitShares.eu>
Status: Installed
Type: Protocol
Created: 2015-12-16
Discussion: <https://bitsharestalk.org/index.php/topic,20286.0.html>
Worker: not applicable

Abstract

Existing core features of the BitShares protocol are Market Pegged Assets (MPA) and issuer backed User Issued Assets (UIA). In this proposal, we introduce another type of asset: Fee Backed Assets (FBA).

Feed backed assets allow to propose and fund market based innovation by sharing a cut of future profits generated by this particular innovation with the people that helped fund it. Think of it as a Kickstarter for features. Hence, if people can profit from successful features in the form of fees then it can help the BitShares ecosystem to become more adaptable over time as it promotes innovation and can pay for its development.

Motivation

Let's assume a developer installs a new function into the BitShares protocol that charges fees for its service. Where should those fees go? To the developer? To the share holders? How should a decision be made? Why would share holders vote to fund a feature if they can't profit from it?

The answer is to pay the profits from fees generated by the feature to holders of a UIA that has been created for that purpose, specifically. In other words: owners of that UIA own a portion of those revenue producing assets. This revenue generating counterparty free asset is backed solely by the blockchain and its user base and can be sold freely on the decentralized market.

Since they have no counterparty, they are not a security. They are simply capital equipment, like selling a mining machine.

This new kind of digital asset trades like any of the others but has fascinating new properties.

For every new revenue generting innovation or feature in the whole ecosystem, there can be a new fee backed asset. Developers recoup their costs by selling (or pre-selling) these revenue generating software devices (or keeping them to earn the revenue they produce.)

Examples

Taxi Rental

Let's assume we build 100 robotic software taxi cabs that deliver private packages for hire. Program them via blockchain logic to take turns delivering packages. Sell the cabs to the network in exchange for a set of tickets good for rental minutes on a cab. Now we can resell or trade of those tickets on the open market. This way, anyone can rent time on any of the limited supply of "cabs" and earn fees for performing delivery services.

The TAXI FPA could represent all available minutes on a network-owned fleet of robotic taxi cabs. Buy up as many minutes of their time as you want and you have your own revenue generating business with no counter parties.

Project/Feature Funding

In the case of the Privacy Mode, the project development can be funded by a PRIVACY FPA that gets their owners a cut of fees produced by transactions using that feature in the future. Every BitShares customer that wants to gain advantages of that Privacy Mode needs to pay an increased fee for its service. These fees are distributed among all owners of the STEALTH asset.

Regulatory Issues

One of the first and thorniest problems we tackled is the nasty fact of Regulatory Risk. There exists a vocal contingent of people who want very much that an FBA (fee based asset) be created to fund a feature upgrade to the BitShares blockchain. They want that everyone be thus enabled an opportunity to participate in the fee stream originating from future use of the feature by purchasing shares of a FBA.

The conundrum is that whoever creates the FBA and offers it to the public as a means of participation in a fee-based income stream faces a risk of coming under regulatory scrutiny if the project is a success (e.g. Satoshi Dice) or even if it is not a success (through some disgruntled investor complaining to a regulatory authority). For a more in depth look in to Regulatory Risk please see [1,2].

If something falls within the definition of a security under applicable law, it will be governed by extensive rules and regulations that can be quite complex and expensive to comply with. And subject the issuer to a large fine/other penalties if not complied with!

Once BSIP-0008 has been implemented and is available on the blockchain (but not before), it will be possible for future investor and entrepreneurs to create FBAs and crowd fund new features by having a Private Mode account (BSIP-0008), issue the FBA from an unknown jurisdiction that is presumably not subject to securities concerns.

Specifications

Since every innovation on the blockchain level has to come with a protocol upgrade (previsouly denoted as a hard fork), the upgrade also comes with a so called management account that is specific for this specific innovation or feature. For regulatory reasons, the blockchain itself is seen as the creator of the asset and has the sole permission to issue new shares.

The initial share holders of the FBA asset have to be defined upon the hard fork by the developers of the feature. It is left to the developers of the innovation to derive a proper scheme to identify the initial share holders.

Most importantly, the management account will have a Multi-Signature authority assigned to the X largest share holders of that account weighted proportional to stake and will have the power to set the fee.

Discussion

Daniel Larimer: I would say that far more than Worker Proposals or anything else, the Fee Backed Assets is incentivizing entrepreneurs to come up with ideas, come up with features and then go and fund them and make it happen.

This proposal helps fund new features and innovations without the need to dilute BitShares to pay for its developments. However, having the features transaction fees be paid to the holders of the corresponding FBA results in a reduced revenue for BitShares holders, which is only fair since they haven't funded the feature. However, the infrastructure is still provided by BitShares and as such a cut of the features transaction fees may be directed to the BitShares holders by burning or reserving in the reserve funds.

The developer of a FBA-supported innovation can chose a mixed funding model and make use of a worker to fund parts of the development. As a consequence a higher percentage of the transcaction fees should be directed towards the BitShares holders.

Copyright

This document is placed in the public domain.

See Also