Besides $600 million in funding, Tezos has another trick up it's sleeve to ensure future development

Besides $600 million in funding, Tezos has another trick up it's sleeve to ensure future development

By Allen Walters | Publish0x posts | 8 Jun 2020

Hundreds of $millions in the treasury of the Tezos Foundation that can be spent on development and ecosystem growth. That is a hell of a kick-start for a blockchain project. But no matter the size of this treasury, eventually it might run out. Running out of funds is a risk for any project, and it would stagnate evolution and would make the project obsolete eventually. For this future even, the Tezos protocol has a solution: developers that insert a proposal into the amendment cycle, can add an invoice that asks for a payout in XTZ (Tezos' native coin). If the amendment is accepted after the voting rounds (more info about Tezos' decentralized and on-chain governance model here) the protocol mints the amount of XTZ and deposits it on the address that is included in the invoice.

This would obviously add more XTZ to the total circulating supply and be a form of inflation. But inflation beats stagnation and since Tezos' government protocol is decentralized. Decisions are made in a democratic manner via an on-chain governance model that gives holders of XTZ the power to decide to implement (and thus pay for) the proposed amendment. So we can rest assured that the inflationary effect of the proposal is not against the interest of the community. Besides, we are not talking about huge inflation here: $1 mill in invoices would be 0.05% inflation if we look at today's marketcap. That gives you a hell of an upgrade. (Highest amount of XTZ that was added as an invoice so far, has been 8000 XTZ. This amendment did not pass by the way.)
Other solutions out there in cryptoland are examples where funding for development comes from a pool of funds that is reserved from fixed portions of blockrewards. Unless miners donate part of the fees that they receive, this development funds is also minted and thus causes inflation. Only in this case the funds is minted in continuous proportions and controlled by a centralized entity who decides what funds is spent on which upgrades. The variation that Tezos uses, is democratic, economic, decentralized and only activated when necessary and considered worth it by the community together.

Tezos' invoicing system is a feature that ensures that Tezos NEVER stops evolving.

An example of protocol invoicing can be found in the first amendment that was proposed (and accepted) by Nomadic Labs: "Athens A". This invoice was symbolic and was added to show the concept works and is ready to take Tezos to the future.

"For this first update, we decided to include an example of invoicing, an on-chain way to fund the development of protocol proposals. During the migration, the account of the authors of a proposal can be funded by creating a certain amount of tez. In this case, we chose a symbolic value of 100ꜩ, enough to buy a round of drinks for the devs who worked on these proposals. In the future, we hope this mechanism can be used to fund the work of new teams and help increase decentralization." - Source

Besides eternal funding for developments, this feature also ads to the decentralization level of Tezos: anyone can work on improvements for Tezos core protocol and be compensated for it. (Assuming the amendment is accepted and implemented.) So even at this stage, if the Tezos Foundation does not fund work on a certain development, this development can still come through, both technically and financially. (Although it has to be pre-funded by the development team itself.)

Allen Walters
Allen Walters

Fascinated by blockchain and future proofing cryptocurrency. Discover the tech before it gets relevant.

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