Background: When the $BLUR token was first released in February 2023, the tokenomics outlined a 180-day freeze on governance voting for/against a fee switch on the platform. This freeze period has now expired. We created this initial proposal in order to kickstart meaningful conversation with the community on how a fee switch could positively impact Blur as a protocol for users. In this post, we provide:
- An analysis on the current state of BLUR tokenomics
- A two-tiered solution to enact a fee switch that also aims to protect Blur’s exchange volume dominance
- Encouragement of open-ended discussions on Blur fee switch and other potential upgrades to the token
Proposed Tokenomics TL;DR:
- Turn on a fee switch at a 1% base fee. All fees will flow to a smart contract for a BLUR token buyback and burn.
- Create tiered fee discounts based on the amount of BLUR held in a user’s wallet.
The Current State of BLUR Tokenomics
Distributing BLUR tokens to users that provide liquidity on Blur has been a novel introduction to the NFT space. The Blur Foundation has done a large amount of work to fine tune their points system to reward good faith liquidity providers. This has allowed Blur to consistently capture over 50% market share of the NFT marketplace volumes. However, from a demand perspective, the only utility the token currently provides is governance voting rights. Despite governance being the token’s sole utility, the governance forum is largely unused. In its 8 months of existence, only one proposal has been voted on, and most posts on the forum go unnoticed. Governance voting rights has not proven to provide enough incentive to hold BLUR.
The lack of demand side tokenomics can be seen in the BLUR price. The BLUR token is down ~89% from its all-time high in February and continues to break all-time lows.
On Monday, the Blur team made an announcement regarding the end of Season 2 and subsequently, 300M BLUR tokens will be released to liquidity providers. Under the current tokenomic structure, there is no compelling reason for the majority of these tokens to be held, causing further price decline. This will likely cause more farmers to quit and take their efforts elsewhere for Season 3. It is clear that an upgrade to the token’s demand-side utility is a needed step. We believe that the following solutions will upgrade the demand-side tokenomics by providing two new use cases for the token.
Proposed Token Economics Changes
Blur Fee Switch:
We are proposing a 1% base trading fee for the Blur marketplace. These fees will be swept into a smart contract that systematically buys back and burns the BLUR token daily via dex.
Tiered Fee Discounts:
We acknowledge that imposing a fee on all Blur Marketplace transactions could potentially serve as a detriment to the volume dominance Blur’s marketplace currently holds over other NFT marketplaces. Therefore, we are additionally proposing a tiered fee structure for users that prefer trading with low fees. For token holders that hold X amount of $BLUR in their wallet, the token holder will be eligible for a discount to the 1% base platform fee per the below thresholds. When a trade is executed on the Blur marketplace, a smart contract will look up the amount of BLUR tokens in a user’s wallet to determine the appropriate trading fee for that user. Requiring users to hold tokens for trading fee discounts adds an additional utility use case for the token.
Source: Internal Estimates
A platform fee will create a level of friction for farmers who provide liquidity, but ultimately, the potential profit from farming will still largely be based on collection performance and trade execution. Currently, very few of the largest farmers hold the $BLUR token. Under this proposal, when Season 2 rewards are distributed, this structure will potentially incentivize farmers and traders to hold their rewards rather than sell.
Source: Internal calculations, Blur Season 2 leaderboard
Open-ended Discussion/Outstanding Questions To Address
While we believe that this proposal is a positive solution for Blur, we plan to amend the proposal based on the feedback from all stakeholders in the ecosystem: token holders, liquidity providers, the Blur Foundation, and NFT collection teams. We are requesting feedback for the following areas:
- Is a base platform fee of 1% the appropriate base fee amount?
- What are the appropriate thresholds for tiered fee discounts?
- How can creator royalty enforcement be incorporated into Blur’s marketplace? Due to recent events in NFT marketplace policies, the topic of creator royalties is as relevant as ever. We firmly believe that the return of creator royalties is a crucial step to the NFT market healing, but we also acknowledge that a blanket policy of 100% royalty enforcement is undesirable as users have proved they will trade elsewhere.
Blur’s governance process is outlined in their documentation here. The documents allocate a minimum 7 days of discussion on the research forum before moving the proposal forward to a Snapshot vote. The Snapshot voting period will go on for 14 days and require 30M votes to reach quorum. The final vote will last 14 days and require 120M votes to reach quorum. We look forward to the community’s feedback.