CIP for native token custom fee structure

Title: CIP 101? - Cardano Improvement Proposal for Customizable Fees for Native Tokens

Abstract: CIP 101? proposes an innovative solution to introduce a customizable automated fee system for Cardano native tokens that can be easily executed by smart contracts on all exchanges. This proposal outlines two alternative methods for implementing the fee system - one utilizing a smart contract that controls the supply of tokens, and the other leveraging metadata of a special initial token during the mint.

Motivation: Automated fee systems have become increasingly popular in the cryptocurrency space as they incentivize token holders to hold onto their tokens and discourage frequent pump and dumps. They are also used to fund development and charitable giving. This functionality has been present on every major chain for years. However, Cardano’s current structure of native tokens makes it difficult to implement such fee systems, which rely on smart contracts to govern fees and distribution. This proposal seeks to introduce a method for implementing a similar automated fee system for Cardano native tokens, enabling greater flexibility and customization for token issuers.

Specification: Option 1 - Smart Contract-Based Fee System: To implement a smart contract-based fee system, we propose the following steps:

  1. Create a smart contract that controls the supply of tokens and governs the behavior of the token.

  2. Define the logic for deducting the fee from each transaction and distributing those fees to the appropriate parties within the smart contract.

  3. Deploy the smart contract to the Cardano blockchain and associate it with the native token.

  4. The smart contract will automatically execute and handle the fees and fee distribution whenever a transaction involving the token occurs.

Option 2 - Metadata-Based Fee System: To implement a metadata-based fee system, we propose the following steps:

  1. Mint a special initial token that includes metadata defining the fee structure for the native token, much like the royalties done with NFTs on CIP-27.

  2. When a user sends a transaction involving the native token, DEXs can easily implement the fee like done on NFT marketplaces.

  3. Deduct the fee from the transaction amount, and distribute it to the appropriate parties.

  4. Since the fee is specified in the metadata of the initial token, it does not require a smart contract to be associated with the native token.

Alternatively, the metadata could even point to a smart contract that handles the details automatically, making it more modular.

Rationale: By introducing a method for implementing a customizable automated fee system for Cardano native tokens, this proposal would enable greater flexibility and customization for token issuers. This proposal aligns with the overall goal of the Cardano ecosystem to provide a robust and flexible platform for building decentralized applications and tokens. Moreover, it will make it easier for communities to fund their projects democratically and incentivize token holders to hold onto their tokens. The proposal will make it possible for the Cardano ecosystem to attract a wide range of projects, from nation-states seeking to create their own digital currencies to charitable organizations wanting to fund their operations using the generated fees. The possibilities are endless, and the potential for innovation is vast.

@CCCCoin this high level specification is a better candidate for a CPS (Cardano Problem Statement) than for a CIP, because it’s only a list of motives & goals with some loosely described options for achieving them. The corresponding CIP(s) would be for the satisfaction of those goals and would need to be much more specific than the methods currently appearing here. See:

A CPS also doesn’t require a Rationale (“how does this CIP achieve its goals?”) because at that level there are no design decisions taken. What you’ve written as a Rationale (as I’m looking at it above) is a continuation of the Motivation (“why is this CIP necessary?”).

As far as I can tell it doesn’t correspond to any of the current CPSs (we’ve not made any of them official yet by “merging” their PRs), though there is some overlap with Smart Tokens:

A properly developed CPS would help the community characterise the problem you are talking about and draw discussion & solution. I believe it will help for peers interested in Cardano token economies to contribute here… would @HeptaSean please help get this started? :pray:

Also remember that the editors assign the CIP and CPS numbers except for institutionally significant cases, so it will help your progress if you can remove the 101 currently in the draft and keep it out of any titles. :stuck_out_tongue_closed_eyes: