1. TL;DR

Tying into the second period includes a revamp of how rewards are distributed among stewards of Botto. A short summary of what we envision the changes to be:

50% of revenue is redistributed directly to users
20% of revenue is used to buyback and burn $BOTTO
Incentivized onboarding to earn your way into the economy
Social awards to recognize valuable contributors and enable targeted revenue distributions

The objective of the DAO is to execute on an economy that is not only self-sustaining, but one that is attractive to participate in. With this in mind, the Botto economy should align with rewarding labor, time spent contributing to Botto, and active input of stewards.

A summary flow chart details how a Botto steward would interact with different parts of the economy: Link Here

2. Current State of Economy

Before getting into the new proposed economy, let’s review the current state.

The current design of Botto’s economy is relatively straightforward with two contracts: “Governance” and “Liquidity Mining”. Staking in these contracts make users eligible to participate in Botto’s protocol and collect rewards over time in the following way:

2.1. Accessing the Economy

To join the protocol, users can either: 1) purchase and stake $BOTTO, and/or 2) provide liquidity by staking LP shares.

(The DAO has also just introduced an alternative method of access in the form of Access Passes via BIP-12, which will play an important role in the new economy design.)

2.2. Generating Voting Points and Earning

All methods of access (including access passes) generate Voting Points.

The stakers earn an APR% return in $BOTTO for their commitment depending on which of the two staking contracts they are in.

2.3. Burn Mechanism

At project launch, a burn mechanism was set up to reward stakers based on revenue generated from Botto sales, where 100% of 1/1 sales revenue was used to buy back $BOTTO and subsequently sent to a burn contract.

BIP-06 slightly altered this process, removing market buys and instead using treasury $BOTTO for the burn process and keeping the ETH in the treasury.

2.4. Retroactive Rewards

Retroactive rewards were distributed once to early protocol supporters (stakers who voted) in the form of Pipes, from the ‘Ceci n’est pas un Botto’ DAO collection.

3. Addressing the gaps of the current economy

The economy for Botto has largely been passive:

Governance Stakers earn a modest return for their commitment and lock-up of $BOTTO, helping recover transaction fees upon entering the project, and provide only a simple incentive to participate in the project.
Liquidity Mining Stakers earn a higher return for providing liquidity, which is essential to a token economy, but creates sell pressure that needs to be counterbalanced.
The Burn mechanism has been simple, but ultimately mild in its effect. Further, ending the buyback part of the process removed buy pressure to support the token price.
Retroactive NFT rewards are labor-intensive to provide a satisfying result, and so cannot be produced very rapidly.

Ultimately, the incentive to help Botto create great art has been weakly tied to the rewards contributors see.

There is a significant gap to address in terms of more direct rewards for contributors. The challenge has been how to do so without inviting Sybil attacks or bad-faith contributions due to a gameable rewards system.

Below we propose a new rewards system to better address the ways people contribute to the protocol.

3.1 New Revenue Split

70% of each ETH sale is converted to $BOTTO through an open market purchase, and split by:

25% to those who voted on the winning piece
25% to a pool for retroactive rewards (the conversion to $BOTTO for this pool will happen when the retroactive rewards are executed.)
20% is burned

The remaining 30% is added to the DAO treasury.

3.2. Incentivized onboarding

To help onboard new members and enable earning into the protocol, users can make 1000 $BOTTO for provably becoming an active voter.

3.3. Social Rewards

Badges will be awarded for behavior that the DAO determines to be positive. These provide an instant reward for those who are values aligned with the community, shared definitions of rewardable actions for retroactive rewards discussions, and on-chain social proof that any protocol can use to identify valuable contributors for further rewards and opportunities.

The following sections further detail out the conditions of each reward and comment on how they create a balanced system that buffers against being gamed. Conditions are flexible, programmable, and can be adjusted by the DAO to better reflect desirable actions that benefit Botto as a protocol. Simply put, additional ways to earn in the economy can be designed using these conditions.

4. New Reward Mechanism: 25% Revenue Redistribution

This mechanism, distributed via a new contract titled “Active Rewards Contract”, is the most direct reward for active participation - encouraging users to vote and curate a winner throughout each and every round.

With VP generation logarithmically generated and vote expenditure per fragment capped at 100VP per vote, it is difficult for a single whale to define the outcome. A payout could be theoretically guaranteed through blind voting on the top 15 shortly before the round ends, but payout quantity is impossible to predict.

Further, by only rewarding those who voted on the winner with a blind leaderboard, this strongly encourages discussion and lobbying in the community to coordinate in a kind of positive collusion on determining a proper winner that will attract bidders. This discussion significantly contributes to the social consensus and cultural meaning around a mint that underlies culturally impactful art and a robust community.

Finally, this mechanism is balanced with the Retroactive Rewards (section 6) to further encourage protocol-aligned behavior.

4.1. Qualifying for Active Redistribution Rewards

Revenue redistribution will include all revenue sources for that round, such as Botto 1/1s, DAO Initiatives (collaborations), and Access Passes.

Bottonians that place votes on the winning artwork of the round will qualify for a percentage of the 25% redistribution proportional to the total voting points they spent on the winning artwork.

To further defend against sybil and bad-faith inputs, we propose some additional qualifiers to become eligible for active rewards redistribution.

4.1.1 Qualifiers:

Voted on a winning artwork
Minimum 5000 $BOTTO staked
Discord & Twitter Profile Connected

*Note: Core team members will be blacklisted from active redistribution rewards. The team carries reputational risk for creating our own Sybil.

4.1.2. Distribution & Redistribution:

Upon auction end, treasury uses $ETH to buy $BOTTO proportionate to 25% of protocol revenue accrued up to the point of auction.
Purchased $BOTTO is deposited into Active Rewards Contract
$BOTTO is redistributed, proportionally based on your voting point expenditure on the winner relative to other voter expenditure.

4.2. Contract Summary

5. New Reward Mechanism: Incentivized Onboarding

Onboarding new users is a critical part of the protocol’s sustainability. Access Passes help create a new primary entry point that is simpler to understand and easier to distribute to aligned communities without inviting sell pressure. Incentivizing onboarding is a powerful way to make the protocol stickier and communicate to users the ability to share in Botto’s success, and enables users to earn their way into the protocol. For this, the DAO will reserve 1,000,000 $BOTTO from the returned airdrop funds to be allocated into this Onboarding contract.

5.1. Conditions & Payouts

The team have outlined conditions that reflect user engagement in the voting process, allowing each and every DAO member to earn based on actions they take within Botto’s dApp. The following conditions can only be completed once and their accompanying payouts are listed below:

5.2. Claimability

The Onboarding Contract accommodates the first 1,000 eligible earners. Users are able to claim as soon as they have completed ALL conditions. If funds within the contract are depleted, the DAO may elect to replenish contract funds through a Snapshot to accommodate other users who were still in the process of meeting all 10 conditions.

5.3. Contract Summary

6. New Reward Mechanism: Social and Retroactive Rewards

It is proposed that an additional 25% of weekly protocol revenue is reserved for retroactive redistribution at the end of each of Botto’s periods (tentatively set to be 12 weeks long going forward, see the art engine update proposal).

This large pool of retroactive rewards enables the DAO to determine who should be rewarded with the clarity of hindsight on what actions were most beneficial. By making a significant portion of rewards retroactive, it makes it difficult to predict and game the system.

These discussions can be challenging and drawn out, and would be enabled by a social rewards system.

6.1. Social Rewards

Badges can immediately recognize positive contributions to the protocol, and are long overdue. Right now, it is difficult to see what kind of in-app contributions different people have made and so their hard work goes unrecognized by the community. Badges provide a way to give recognition that is valuable within the community, earning bragging rights and greater weight in DAO discussions.

The badges also provide shared definitions of positive behavior that will be critical to discussions of retroactive rewards. We would set up badge distribution based on conditions defined by the DAO. In short, badges:

Represent participation and active involvement in the protocol
Are something the DAO can (retro)actively define
Are used to streamline the process of distributing $BOTTO retroactively
Would be soulbound (on-chain, non-transferrable proof of participation)

We also see an opportunity for community-generated badges through a bounty program for people to analyze voting data and propose badges for positive behavior they identify.

We are currently exploring out-the-box solutions like Otterspace versus developing something natively in-house. Botto’s second period will launch independent of a technical implementation; badges and accompanying rewards will be proposed in a more detailed proposal and retroactively distributed post-discussion.

6.2. Eligibility for Retroactive Rewards

Any protocol participant can rightfully earn badges, but a minimum staking requirement of 5000 $BOTTO would be required to become eligible for reward distribution.

This means Access Pass holders are able to earn badges, but can only earn $BOTTO retroactively provided they meet staking requirements.

6.3. Voting on Retroactive Rewards Distribution

At the end of a period, a snapshot will be taken of $BOTTO token holders, who will be given 100 special voting tokens times the square root of all $BOTTO tokens they hold.
The badges earned in a period will be presented in a voting interface and voters can distribute their votes according to how much they think each badge should earn.
There will also be an option to commit some portion back to the treasury as a means of reinvesting profits.
The core team will take the final results and budget out the distribution to be presented in a draft proposal to the community.
The community can discuss the outcomes, and the weighted poll will be run a second time.
The final results will be used to update the proposal and put to a final up/down vote on Snapshot
If accepted, the ETH for redistribution in the Retroactive Rewards Pool will be converted to $BOTTO on the open market and distributed accordingly. ETH determined to return to the treasury will remain as ETH.

We are currently exploring an out-the-box solution JokeDAO for the special voting rounds versus developing something natively in-house.

7. Reward Mechanism: Buyback & Burn

Currently, the burn mechanism is in place without any buy back since BIP-06. The team includes in this proposal re-adding the buyback mechanism for 20% of weekly accrued protocol revenue. Buybacks would occur at the end of each round, with the team using Cowswap to provide MEV protection.

This partial reversion allows the protocol to support token buy pressure and reignite external interest in regular buybacks as the economy shifts to redistribution of $BOTTO to its stewards. Furthermore, buybacks occurring across the Botto economy offset emissions from both the Governance and LP contracts.

8. Summary

In sum, this version of Botto’s economy redistributes 50% of protocol revenue directly to DAO members, 20% of protocol revenue goes to buyback and burns, and 30% is reserved for cost coverage and DAO growth. Here are the reward types outlined: