Burning Men

Burning Men is the name given to Bisq contributors who choose to burn BSQ in order to receive bitcoin in the form of trade fees and delayed payout transactions. The reason for the proposal was to increase Bisq's decentralization by replacing what was previously a sole 'burning man' (with a single point of failure and a requirement of trust) with multiple burning men without the need for trust.

Context

For background discussion regarding the burning man protocol please see: https://github.com/bisq-network/proposals/issues/390

The proposal was approved by a DAO vote in Cycle 41 (October 2022) with 100% approval.

The proposal was implemented on 1st January 2023.

Overview

A simplified explanation of the burning men protocol is as follows...

Traders using Bisq can choose to pay their trading fees in bitcoin. Previously these trade fees went to one individual called the Burning Man. The Burning Man was responsible each cycle for using the bitcoin they received from traders to buy BSQ and burn it. This created a centralization risk for Bisq (what is they died, ran away with the bitcoin, got hacked etc).

Bisq approved a proposal to mitigate this risk by sending users trading fees to multiple contributors AND having contributors burn BSQ upfront to essentially give themselves a chance to receive some of the trading fees. This solution removed the centralization risk of where the trade fees where going and in doing so created the option for Bisq contributors to receive bitcoin fees by burning their BSQ.

As well as burning men receiving bitcoin from trade fees they also receive bitcoin from when a user enters arbitration (as this publishes a delayed payout transaction that is shared by all the burning men).

Basics

Who can be a burning man?

Any Bisq contributor that has contributed something within the last 24 cycle (approximately 2 years) can be be a Burning Man. Also anyone who contributed prior to the DAO being launched who received a payout from the DAO genesis transaction can also be a burning man.

Why do some contributors choose to be burning men?

Burning Men burn BSQ, this helps the DAO and allows the contributor to receive bitcoin payments from trade fees and trades going to arbitration.

Burning Men Protocol goals

The main goal is to decentralize the burning man role. A secondary goal is to create better incentives for contributors to work on Bisq.

Burning Men Protocol UI

All the information about the current and past state of the burning men protocol can be found in the Bisq application: DAO > Proof of Burn > Burning Men

Risks of burning

When burning BSQ the value of the BSQ is sacrificed immediately for the chance to get paid a percentage of the bitcoin trade fees and delayed payout transactions from trades entering arbitration. The risk is the future trade fees and delayed payout transaction amounts are unknown. When burning BSQ contributors have no guarantee of future bitcoin payments. Things that could negatively effect the bitcoin payments could be any of the following:

Decrease in trade volume

If the trade volume of Bisq decreases then payments with decrease proportionally. Trade volume can be affected by things such as market cycles, high bitcoin transaction fees, competition from other services, etc.

Change to trade protocol

If there was to be a change to some of the trade protocol this could result in a reduction or cessation of payments being paid out to burning men. For example changes to the dispute process, trade fee model, trade limits, or multi-sig protocol could all result in less payouts going to the burning men.

Uncertainty around future BSQ/BTC price

When burning a contributor is choosing to burn one asset, BSQ, to receive the change to be paid in another, BTC. The price of BSQ and BTC will change over this period. This variable creates an additional factor some contributors may wish to consider.

Unknown amount of future burns by other contributors

As a contributors receiver share is based both on what they burn and what others have burnt it is not possible to predict their receiver share over time. Generally the less competition there is the more profitable it will be, and the more competition there is the less profitable it will be.

Benefits of burning

Burning can be of benefit to both the DAO and the individual burning men.

Burning is a benefit to the DAO

Burning BSQ is a benefit for the DAO. When contributors burn their BSQ they reduce the BSQ supply by the burnt amount. This benefits all BSQ holders (the DAO). BSQ holders do not benefit directly from trade fees or delayed payout transaction payouts. Instead they benefit from BSQ burnt in trade fees from traders and the BSQ burnt by contributors performing the role of Burning Men.

Burning BSQ can be profitable for the individual contributor

Since the launch of the burning men protocol more bitcoin has been distributed to the burning men than the bitcoin equivalent amount of BSQ that has been burnt. This means historically burning BSQ has been profitable for most contributors choosing to be Burning Men.

I am a Bisq contributor should I become a burning man?

Becoming a burning man is entirely optional. It is up to each contributor to weigh up the pros and cons of burning and for them to decide what is best for them.

It is easy to try out burning some BSQ and then decide if you want to burn more or not. Burning BSQ generally suits contributors that are happy to push their remuneration into the future with the hope of gaining more value for their BSQ by burning it than by either holding it or selling it upon receipt.

Questions that might be useful for contributors to ask themselves are:

- Am I looking to increase the amount of BSQ I have? - Am I looking to increase the amount of bitcoin I have? - Would I prefer to be paid in bitcoin or BSQ? - Is it better for me to trade BSQ for bitcoin or to burn BSQ to hopefully receive more bitcoin in the future than I would get for trading it now?

I am a burning man should I buy BSQ to burn?

Once someone becomes a burning man they might at some point consider burning BSQ to burn. This helps the DAO, and potentially is profitable for the contributor but it does require additional speculation on some of the factors discussed above. It is mentioned here as an option for someone already burning to consider.

Terminology

The burningmen section contains a number of terms that is it helpful for someone interested in the protocol to understand.

The burningmen section can be found in the Bisq application DAO > Proof of Burn > Burningmen

Contributor name

Pretty obvious, but worth noting that founder contributors are given an extra level of pseudonymity by being referred to as 'Bisq co founder XX'.

Burn target

You can click the ? to get more info. I take these numbers with a pinch of salt. Take these numbers as broad estimates. Do not make decisions based on what to burn on these numbers alone.

Receiver share

This is an important number. It gives you the following information:

- The percentage change you have of receiving a bitcoin trade fee. - The percentage amount of any delayed payout transaction you will receive.

The receiver share percentage is updated every block. Your receiver share changes based on who burns BSQ AND the decay over time of the burns made by the burning men.

The maximum a contributors receiver share can be is 11%. This is to protect the DAO from an attack from a malicious contributor that wants to self trade and send their trades to arbitration. Limiting the receiver share to 11% mitigates this attack.

Issuance share

The issuance share is basically the amount of BSQ compensation each contributor has received over the last 24 cycles. More weight is given to compensation received recently. BSQ compensation received decays linearly over 24 cycles.

The issuance share also has a bearing to what someone's maximum receiver share can be. A contributor can get a receiver share of up to 10 times their issuance share amount, up to a maximum of 11%.

Burned amount

This is the total amount of BSQ burned by contributor over time.

Decayed burn amount

This is the total amount of BSQ burned by the contributor when taking into account the decay their burns have over time. Each time you burn it decays linearly to zero over 12 cycles. Due to this decay the decayed burn reduces changes each block. The decayed burn amount is essentially represented in percentage terms by the 'issuance share' value.

Issued amount

This is the total amount of BSQ issued to a contributor over time.

Decayed issued amount

This is the total amount of BSQ issued to a contributor when taking into account the decay over time. Each compensation request decays linearly to zero over 24 cycles. The decayed issued amount is essentially represented in percentage terms by the 'receiver share' value.

Balance for DAO

This section gives an overview of all the BSQ burning and bitcoin that has taken place.

Total amount of burned BSQ

This is the all time amount of BSQ that has been burnt by all contributors acting as burning men.

Total amount of distributed BTC/BSQ

This is the all time amount of bitcoin that has been distributed to all contributors acting as burning men. For ease of comparison this figure is also given as a BSQ amount.

Generally if the amount of BSQ being distributed is greater than the amount being burnt then the burning men are in profit from their activities.

Export to CSV

If someone wants to see the results by month rather than all time then they can choose to export to csv to get more granular data.