Two things I've become opposed to lately are token burns and fixed max supply(hardcaps).
Based on most project whitepapers and development processes made public, most implementations of token burn mechanisms and fixed supply approaches are attempts at creating some sort of stability of token market values.
The problem? Well, economically-directed assets are not supposed to be stable. Certainly, big constant swings is a huge problem for the security of most protocols or networks and its users, but token burns or putting a hard cap on any of these assets isn't remotely going to do a lot to stabilize its market value.
Why people buy and hold(not sell) an asset
First, what do I mean by “economically-directed assets?”
An economically-directed asset is any asset whose market value is primarily influenced or determined by economic activities and market forces. We are dealing with assets typically acquired or purchased by investors with the sole intention of generating income + preserving and growing their wealth.
Now everyone should know that you don't generate income with a stable asset, if any, you generate “debt” — if you're dealing with a stablecoin, that is.
Likewise, you cannot preserve and grow your wealth with a stable asset because inflation is a thing that will always exist and assets actually need to appreciate in value to offset inflationary losses to your principal(initial investment capital) and bring added value that contributes to wealth gain.
A stable asset is like a savings account, it's the worst thing to hold beyond a timeframe that would no longer be considered “short term” debt acquisition.
From the above definition of economically-directed assets, there's some bits of information on why people buy certain assets but let's explore it nonetheless;
Everything happens to sum up well to wealth accumulation as the long-term investment strategy of most people but it can come about in various ways that aren't that simple.
For example, the action to actually place a market order may be influenced by many things including the fear of missing out(FOMO) on gains, perceived inflation in the underlying purchasing currency, insider info and lots more.
This goes to say that regardless of if the fundamental goal is to evade taxes, escape inflation or chase gains, the ultimate destination is where one doesn't lose on his principal, but rather makes gains.
Stability in this sense isn't exactly face value stability, what is rather demanded is some sort of principal value protection with expectations of an upward value movement.
It's like saying that one wants the floor price to be protected, but they'd certainly want an upward movement, the stability they desire is essentially one-sided.
Economic robbery; defaulting on debt owed to the future
Think about it for a second, people say they want stability, but at the same time they want things to become cheaper.
That's not stability, what they are really asking for is a system that doesn't allow their purchasing power tank but they certainly want it to increase.
That's appreciation, not stability.
Knowing this, why then would we burn or set a hard cap on the very thing that enables a system to scale upwards and autonomously — through decentralized governance — manage debt?
Token burns are an economic waste, especially for hardcaps assets, no matter how you look at it. That said, having a hard cap in the first place is going to prove to not be the most effective long-term design.
When we burn tokens, we rob the future of liquidity we can't give back, essentially defaulting because it's somewhat debt owed to the network or protocol given that all burnt tokens remain counted towards the assets market valuation(capitalization), and putting a hardcap on any asset just restricts it's ability to expand it's operations, effectively.
Decentralized control of inflation and debt; a stablecoin for every blockchain
Crypto leans greatly on the idea of numbers going up, this is why numerous protocols have various poorly thought-out economic implementations.
Everyone wants nothing to do with inflationary assets but they have not a clue how twice as expensive deflationary assets can be.
Also, there seems to be a general belief that unbonded token supply directly equals “accessible liquidity” of which, if large, could lead to value depreciation and that lost(burned) supply would directly lead to an increase in market valuation.
What linear thought process does not consider is that liquidity is only the available tokens on the market book at any given time and that lost or burned supply is not a liquidity injection process, it's rather a removal whereas its virtual value remains counted to the asset’s market capitalization.
There's also this weird belief that when the number of tokens burned or lost increases, the asset can never drop below a certain price but I'm here to see that it can absolutely go to zero even if 99.99% were burned.
We don't need to keep throwing away tokens in the name of burns to bring about scarcity because before scarcity, exclusivity and luxury, there's utility and that supersedes every other reason people will invest into something.
Rather than burning tokens and implementing hardcaps as a way to create or maintain value, every blockchain could better manage inflation and debt by having its own native stablecoin.
For instance, If we believe that Hive's supply, which is central to our economic health as a network is growing too much in the short term, rather than burning tokens through whatever means, said tokens should be converted into HBD, creating a virtual debt that the network doesn't want to deal with right now.
With this, individuals who don't mind the inflation will buy, hold and use HBD for their every day transactions. HBD just has to have great utility penetration, that way, it is directly seen as a dollar equivalent no one is really expecting it to be anything more than a currency indirectly tracking the value of the USD.
Now if Hive market value grows too quickly, HBD just gets converted back, paying off the debt the network previously acquired without significant supply expansion. This is of course all done through autonomously incentivized means alongside semi-forced implementations.
This means that whilst in some cases, validators could be forced to earn full or a specific percentage of their Hive equivalent block rewards in HBD, there will also be approaches like HBD savings or some liquidity related offerings that incentivizes network participants to acquire HBD by directly burning their hive.
In cases like this, burning native assets actually makes sense because you're not really burning the value that comes with it being in circulation, you're just turning it into a debt instrument that is managed through a decentralized governance.