Finschia Contribution Reward Policy: Walkthrough

^{Translated by elcreto}Key Takeaways

• Finschia's contribution reward policy largely consists of three types of information: 1) eligibility requirements for service contributors, 2) definition of service contribution, and 3) reward payment policies and stipulates the principle of "contribute first, get rewarded later."

• The policy hints at Finschia Foundation’s intention to 1) use crypto assets, i.e., LINK, as payment currency, 2) take a different approach to infrastructure due to unclear on-chain contribution and 3) introduce quality of service management to minimize reputational risk.

• Possible delays in infrastructure development and killer dapp onboarding remain a challenge.

Table of Contents

1. Intro

2. Finschia's Contribution Reward Policy in a Nutshell

2.1. Eligibility Requirements for Service Contributors

2.2. Definition of Service Contribution

2.3 Reward Payment Policy

3. What the Policy Suggests about Finschia Foundation’s Intention

3.1. Use of Crypto Assets, i.e., LINK, as Payment Currency

3.2. Taking Different Approach to Infrastructure Due to Unclear On-chain Contribution

3.3. Quality of Service Management to Minimize Reputational Risk

4. Closing Thoughts

4.1. Possible Delay in Infrastructure Development

4.2. Possible Delay in Killer Dapp Onboarding

 

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1. Intro

On April 17, 2023, LINE announced the establishment of the Finschia Foundation and unveiled the Finschia ecosystem principles on rewards for contributors, Token Economy 2.0. As LINE previously announced a zero reserve policy, Token Economy 2.0 can be seen as the core of LINE’s tokenomics. In this report, we will give you a brief walkthrough of Finschia’s contribution reward policy and speculate on how it aligns with LINE’s pursuit.

See LINE LINK (LN) Ushers in the New Era of Zero Reserves to read more about LINE’s zero reserve policy.

2. Finschia's Contribution Reward Policy in a Nutshell

Finschia's contribution reward policy can be divided into three parts: 1) eligibility requirements for service contributors, 2) definition of service contribution, and 3) reward payment policies.

2.1. Eligibility Requirements for Service Contributors

To start with, service contributors’ eligibility requirements for the rewards are as follows:

• An entity applies for service contribution → Finschia Foundation assesses its eligibility → Registered as a service contributor

Apparently, an entity looking to become a service contributor on Finschia must undergo the Foundation's review process. Akin to Optimism's whitelisting process, the idea seems to be anchored at quality control to ensure only high-quality services are provided to users in the Finschia ecosystem. The Finschia Foundation may have reached the decision after seeing how a number of scam projects can deal a blow to Klaytn, a blockchain platform that has promoted an open and inclusive ecosystem.

2.2. Definition of Service Contribution 

Finschia defines service contribution as above. The policy prescribes that only on-chain payments using LINK are considered a direct contribution, while the use of other payment methods is considered indirect. In addition, purchasing goods and products with payment methods other than LINK will not be recognized as an indirect contribution. Yet, any purchase of NFTs that are recorded on-chain with other payment methods will be considered an indirect contribution to the activation of the ecosystem. Therefore, service contributors are required to create a service with a payment method that is recorded on the chain to have their service contributions recognized. Off-chain payments using LINK may later be recognized as direct contributions upon compliance with the Onchain Receipt Protocol to be announced by the Foundation.

The policy also states that the highest priority is given to services that generate direct contributions, while infrastructure services such as wallets or payment intermediaries are given the lowest priority.

2.3 Reward Payment Policy

Finally, the compensation policy outlines how service contributors will be rewarded. One of the core principles of the contribution rewards stipulated by the Finschia Foundation is "contribute first, get rewarded later.” This may work in a similar way to Optimism’s Retroactive Public Goods Funding (RPGF). The reward is 30% of the mint supply plus LINK used for transaction fees. The Finschia Foundation also states that it will only evaluate on-chain records to ensure transparency of contribution rewards.

To this end, the Finschia Foundation will finalize the on-chain contribution records from various services in the preceding month and submit an on-chain proposal to Finschia Governance, which will then approve and execute the rewards. In the early stage of operation, however, direct contributions to the Finschia ecosystem will be paid base rewards, and additional compensation quotas for indirect contributions will be gradually increased over time.

It also mentions that the rewards paid will be used for user rewards and operating expenses of service contributors. It states that each service contributor shall compensate users who voluntarily use the service directly or indirectly, as long as it does not go against the policies of the Finschia Foundation.

3. What the Policy Suggests about Finschia Foundation’s Intention

3.1. Use of Crypto Assets, i.e., LINK, as Payment Currency

The publication of the policy hints at what the Finschia Foundation envisions with the introduction of this policy. For starters, the Finschia Foundation seems to intend to use crypto assets, including LINK, as payment currencies. In this contribution reward policy, an example of services provided by service contributors is physical products. For example, if a user pays for a physical product with LINK via LINE Pay, it counts as a direct contribution for the service contributor.

While the policy does not directly mention other LINE services, the project appears to have seen potential in LINE Pay—the powerful payment platform of its parent company LINE—that it may allow LINK and other assets to be used as payment currencies going forward.

3.2. Taking Different Approach to Infrastructure Due to Unclear On-chain Contribution

The next point to note is that this policy focuses on on-chain services rather than infrastructure development such as wallets. The policy made it clear that the lowest priority will be assigned to wallet and payment intermediary services. It also states that not only wallets and payment gateways, but also infrastructure services will not be rewarded for service contributions.

_{<Infrastructure, e.g., wallets, does not qualify as  service contribution | Source: Finschia Service Contribution Reward Policy>}

This is interpreted as an intention to develop infrastructure through other methods, such as in-house development and service contracts, rather than offering service rewards to infrastructure developments whose on-chain contribution is unclear. This means that Finschia is likely to offer service contribution rewards only to those services whose on-chain contribution is clear-cut in order to increase transparency. For services whose on-chain contribution is difficult to measure, such as infrastructure, Finschia may adopt different types of approaches, such as SLA contracts.

3.3. Quality of Service Management to Minimize Reputational Risk

Finally, off-chain LINK payments will be recognized as direct contributions under this policy, once the on-chain receipt protocol to be announced by the Finschia Foundation is complied with.

This illustrates its focus on quality of service management as a means to minimize reputational risk. In the case of Klaytn, it used to aggressively provide dapp projects with grants to promote ecosystem growth. However, most of the projects rarely built quality dapps and many of them even pulled the rug. A series of such incidents damaged Klaytn's reputation and caused many projects to leave the ecosystem.

As a latecomer, LINK Blockchain should have learned from these developments. This seems to serve as background for Finschia Foundation’s "contribute first, get rewarded later" principle and screening and management of service contributions—all of which would help prevent such risks.

4. Closing Thoughts 

As mentioned earlier in this report, LINE Blockchain‘s contribution reward policy came on the heels of the zero reserve policy announcement. It is putting its zero reserve tokenomics on a firmer footing by clarifying the "contribute first, get rewarded later" principle and contributions and rewards criteria. Still, there are two remaining concerns I would like to touch on before I wrap this up. As I discussed in my last post, there may be possible delays in 1) infrastructure implementations, and 2) killer dapp onboarding.

4.1. Possible Delay in Infrastructure Development

The Finschia Foundation has limited service contributors’ role to generating on-chain transactions and assigned a lower priority to infrastructure development. For many of the services that are part of the infrastructure, however, such as block explorer, wallet, bridge, and oracle, a roadmap has yet to be released on how they will be developed. This points to a possible delay in infrastructure implementations compared to other L1s.

4.2. Possible Delay in Killer Dapp Onboarding

The contribution reward policy also states the introduction of a type of whitelist system and the principle of "contribute first, get rewarded later.” While such measures may enhance management of service quality, they may reduce the incentive for service builders looking to come aboard given Finschia’s transition to an open ecosystem. It seems Finschia may need to leverage parent company LINE’s support to facilitate dapp onboarding.