Tornado Cash V2 profit distribution discussion

Tornado Cash has been in development for over two years and issued Tornado Cash tokens earlier this year, but no shares have ever been issued in connection with the Tornado Cash program. As you know, stocks and tokens are fundamentally different (representing different interests), but share many similarities. For example, both stocks and tokens can have voting rights (governance rights) and we cannot say that because a token has voting rights, it is equivalent to a stock. Similarly, why not distribute the project’s earnings funds in proportion to the token holders, or use the earnings funds to buy back the tokens in the market and destroy them, thus making the Tornado Cash token a deflationary model?

Because there are currently no earnings or revenue

Not now, but in the next generation version, using subsequent earnings, it will be in the interest of all holders to buy back the tokens and destroy them or to distribute the earnings.

Ah, of course. You said V2 in the title. My bad

Yeah, it’s very likely there won’t be a need for relayers in V2 which is where fees are distributed now. I’m still not familiar with what V2 will look like exactly. But regardless, if/when “community” fees are introduced, it has been discussed to distribute them exclusively to governance participants; TORN holders who actively vote on proposals. Instead of buy & burn to just rewards all TORN holders.

This makes sense to me, but I’d be open to remaining agnostic to it depending on community consensus

Thanks [email protected] I only present a few personal views and analyses, and I hope that more community participants will discuss together. Of course, the premise of my starting point is that the interests of the community and the interests of the holders are the same.

1. There are barriers to the use of blockchain, not everyone has a clear understanding of how to vote (even if many think it’s easy), and a significant number of people have difficulty voting on the extranet because of country (e.g. China) factors.
2. As I mentioned earlier, there is a fundamental difference in equity between tokens and stocks, but if the profits are distributed equally to the holders, or if the profits are bought back and burned, it will give the tokens themselves a way to be truly valued and make them have real value. Similar to stocks, the benefits gained through profit sharing alone would be far less than the value of the equity. And that in itself is truly in the common interest of the community participants.
3. Blockchain technology currently has a very small number of adopters, we need a larger market with more people working together on the project so that Tornado Cash can gain longevity. Our community also needs to grow and more influential people need to come in and run the project together. Just like a company, it doesn’t just exist in the R&D department, it also needs other departments to work together to support a company.
4. Many of the ideas are not just from the community participants, but also from the token holders, and many are long-term investors who may not know the technology itself, but can make good suggestions for the development of the project. Because the common interest of everyone is to do a good job with Tornado Cash as a project, which is also the premise of my remarks above.
5. For active voters, there could be a better incentive system, such as using a small amount of tokens from DAO for rewards.

Theres hardly enough proposals to warrant constant voting and keeping your TORN locked in governance. There’s also the matter of associated gas costs when locking/unlocking tokens in governance.

I think it’s a horrible proposal to only share protocol rewards with governance participants. At this point I believe the biggest issues Tornado faces are twofold:

/ Nobody knows about it and if they do, everyone tries their hardest to associate it with dirty shit and claim money laundering as the primary use.

/ Nobody seems to give a fly about the creep on anonymity and the fact that this is a massive bulwark everybody should propagate and constantly use.

Please keep in mind that this is an amazing protocol with brilliant devs and a solution to ever increasing problems, but the marketing is whack. Please dont kill it. Fucking share.

From my point of view, such a thought is scary. These investors are literally buying with their own money in the market, and the team’s tokens are obtained through smart contracts. Remember what poma @poma said in a previous post, “TORN is a utility token, not a security, and you shouldn’t expect it to gain value because of team efforts”. The team’s contribution is clear for all to see, and is the basis for the smart contract to give 30% of the tokens to the team as a reward. But such a response is very much made to feel very inappropriate. It is terrible that investors who buy tokens on the secondary market with their hard-earned money, making the coin price supported, not only do not get a dividend, but rightly should not enjoy any value.
I think the ideas presented by 363960267 @363960267 are good and are indeed the direction the team should be thinking about. Leading people to vote can be with a small amount of tokens in the DAO, and not all the dividends should be given to those who vote, after all, not everyone is able to vote without barriers.

The nice thing is, we don’t have to just debate it on the forum. Anyone can submit a proposal and the community can cast a vote to determine the structure of the code

I would just say this: people shouldn’t invest in things they don’t understand and if they do understand TORN, then they should be willing and able to either (1) vote themselves, or (2) delegate their votes to someone else

If we start issuing dividends to all TORN holders - to people who don’t understand TORN - then we are actually incentivizing more people to buy an asset they do not understand. If we issue potential future streams to only voters, then we create a more sustainable ecosystem

I would prefer to build a long term project rather than chase short term profits

The logic to implement voter-only rewards is actually about incentivizing innovation for how governance can be responsible for creating more value for Tornado users

It is not about saying “okay voters, you are the elite of the tornado cash community. Therefore only YOU will receive rewards.” No.

It’s about saying “okay, you want rewards? You gotta work for it. Come up with a win-win scenario where more value is generated for users. If you can do that, then YOU will be rewarded.”

So for example, the cDAI pools have very low anonymity sets. But there are over $3 billion worth of cDAI in circulation. Most of it just sitting there. Interestingly, cDAI pools are also capable of mining COMP. So governance could decide to throttle AP rewards for the cDAI pools as a way to increase the anonymity set. By doing so, more value would be created for cDAI pool users. Simultaneously, the amount of potentially mineable COMP would also increase. This COMP could be distributed to governance (either directly, or as a buy & burn TORN model) as a reward for making a decision that directly benefits users without creating an arbitrary “tax” on the entire protocol.

Governance would have to do work to make all this happen, so therefore they should be solely rewarded for their efforts

If only voters are entitled to rewards like these, then it will be a carrot on a stick for more clever types of innovation through governance to take place. Which is worth optimizing for the protocol long-term

How could it be killed?

Tornado thrived before TORN and it would thrive even if TORN went to $0. What’s the threat?

I agree with this. Marketing can certainly be improved to shine a light on legitimate use cases. It would actually be quite nice if we began to incentivize community creators to publish content on this matter

To me, that type of effort would be 10x more valuable than paying dividends to all TORN holders

I think you misunderstood something, I mean not understanding, not the nature of things, but simply not understanding the technology itself. Just like you can invest in biopharmaceutical companies, you will certainly not know exactly how this drug is made, even if you are an industry expert, you will not know how others are preparing drugs specifically. Otherwise, companies would not possess any competitive barriers to each other. Similarly, according to your logic, Tornado Cash should only be purchased by the development team itself, and no one else should buy it. However, this raises a more interesting question：What is the purpose of the team issuing the Tornado Cash token, since the price of the token going to 0$ does not affect the development either?
Of course, I’m not trying to argue about anything, I just feel like we should strive for more of a community of interest rather than sparking antagonism.

I’m not sure I follow. A distributed autonomous organization is fundamentally different than a centralized corporation where trade secrets are their competitive advantage. Transparency and anti-fragility are our competitive advantage. “Investors” have the opportunity to understand their investment’s technology in DAOs entirely. Everything is open source. Whereas they cannot gain this understanding with patented, opaque pharmaceutical companies, where everything is closed source

The Tornado Cash team does not have a monopoly on understanding the protocol. Anyone can learn to understand it. And in fact anyone can develop the future of the protocol far beyond what even the core developers imagined (there are multiple examples on the forum already)

People would be wise to first understand the protocol if they want to buy any of the governance token

The price going to $0 does not effect what has already been deployed. Even governance cannot change these core contracts

The price going to $0 might effect future development, however

The purpose of the token (of really any governance token) is to externalize development and decision making from the core team and distribute it to the users by giving them a “carrot” as described above

I see your response as a good faith rebuttal. Same as I hope you see mine. We’re all here to work together and hash out understandings, which is what I feel we’re both doing now

As ETH, the TORN tokens could be used for gas. We may discuss governance when the token has more technical uses. For the moment it has none.

I don’t totally agree with you. Utilities can be implemented despite the fact that there is no technical utility ftm, on the contrary. We should refund voting fees.

I think you’re both right: we need to do both of those things, use TORN for withdrawal fees and secondly reimburse the fees used to vote. However, I would rather agree with being able to use any token in fee : all tokens available in pool, such as WBTC, DAI, USDC & USDT, with an instant swap for example (linked to uni)