The Bisq DAO
Using the Bitcoin protocol to decentralize Bisq Network's funding and policy-making
Usually, tokens aren't useful because the entities issuing them can accomplish the same goals without a token.
But Bisq is not an entity, so it needs a token to do what an entity would otherwise do.
Why a DAO?
Bisq seems to work just fine right now...?
Bisq's core trading service is not changing a whole lot. The major changes are in how it's controlled: how trading fees are handled and how decisions are made.
Bisq trading is currently decentralized, but management is not.
Bisq needs to decentralize its own management to become truly resistant to censorship.
Okay...But Why a Token?
A simulation to show why plain bitcoin doesn't work
Play with the simulation below to get a practical feel for how BSQ trading fees differ from BTC trading fees. As with the real Bisq, you're the trader and you ultimately decide how you want to pay fees.
Every few seconds, you'll notice that contributors will deliver work and ask for compensation. Periodically, DAO voting converts those requests into BSQ tokens you can buy to place a trade.
This is just a simulation. Trading fees are exaggerated for clarity, but the point is that BTC fees will be higher than BSQ fees to incentivize traders to compensate contributors.
Click on a contributor to buy BSQ
Or click on a trader to trade without BSQ (see what happens!)
Next DAO Vote in 0:31
Who actually votes? Any trader and contributor who wants to. Contributor compensation is just one aspect of voting. Virtually every facet of the Bisq project's policy can be altered by making a proposal in the DAO.
When Bisq governance is decentralized, the destination for trading fees will no longer be known at the time of the transaction.
Thus paying trading fees with a plain Bitcoin transaction will be impossible, and a token is needed as a placeholder.
Common Questions
Let's break it down
Is Bisq doing this because it needs money?
No. Bisq has bootstrapped itself to facilitate 20,000+ total trades in the 2.5 years since April 2016. It makes real revenue right now.
The goal is to remove central points of authority from Bisq's control structure.
All tokens are useless. So why create one?
Tokens so far are useless because they're all issued by legal entities like companies and foundations. These entities could easily accomplish their goals without tokens.
However, when there is no entity, as in Bisq's case, things change. New tools are needed to collect revenue and make policy. Where can revenue be collected if there is no central wallet? Who determines policy if there is no leadership team?
Explain to this to me, simply. Please.
Here's a concrete example with round numbers for simplicity.
Developer does $1000 of work on Bisq software. He requests $1000 of BSQ, and includes 1000 satoshis with his request. DAO stakeholders vote to approve his request, coloring his 1000 satoshis into BSQ worth $1000. Traders buy this BSQ with $1000 of BTC and redeem the BSQ as trading fees.
BSQ is just a placeholder for a BTC payment until the other party is known. The DAO is just a mechanism for collective decision-making in the absence of a CEO.
Why can't you just do this with plain Bitcoin?
Because the sender of bitcoin is not known ahead of time, when compensation is earned. Consider the trading fee transaction. You need a sender and a recipient to do a Bitcoin transaction, right? There's a gap between the time a contributor does work and the time a trader places a trade, and nowhere to hold the value to be transferred in the interim. BSQ is a tool to hold the value of a contributor's labor until a trader shows up to pay for it.
Practically, what changes for me as a user?
Not much. Old model: pay bitcoin as trading fees. New model: pay bitcoin for BSQ, and redeem BSQ as trading fees. Just 1 extra step.
Even 1 extra step is more work. Why would I do that?
BSQ trading fees will be dramatically cheaper than plain BTC trading fees. Also, BSQ fees actually help sustain the project—BTC fees do not. See the simulation above.
Will I be required to use BSQ to trade on Bisq?
No, you can choose to continue paying trading fees with plain bitcoin instead of BSQ—just note that (1) you'll pay more and (2) your bitcoin won't go to Bisq contributors, and thus won't help to sustain the project.
Where exactly BTC trading fees will go has not been decided yet.
But...Bisq works just fine without a token right now. Why do a token?
Because Bisq is changing its governance model. It's going from a centralized control structure (funding and policy determined by founders) to a decentralized control structure (funding and policy determined collectively by users and contibutors).
With the old model, all fees went to arbitrators. The new model enables fees to be distributed meritocratically to all contributors, and a token is needed to make it work.
Why is Bisq changing its governance model?
Because decentralized software is not good enough. What's the point if the team in charge of the software is still a single point of failure?
This is why we call it the Bisq Network and not the Bisq Project. This has been the plan from the beginning.
The BSQ token bothers me because it creates money out of thin air. That's sketchy.
The very act of human labor is creating something out of nothing. Take a developer, for instance. When they implement a feature, they'll add code where there wasn't any before. If they do it right, the code they added will result in new functionality. Voilà! They've just created something out of nothing.
The BSQ token is a tool to capture this newly-created value in an exchangeable medium. Bitcoin miners create money out of thin air too, right? This is no different, just with human labor and validation instead of machine labor and validation.
What is the issuance schedule for BSQ tokens?
New BSQ is issued every time a contributor's request is approved. BSQ issuance is not a 1-time event. Issuance is not a capital raise like an ICO—it's a revenue event—so it happens continually.
BSQ is also burned out of existance continually as traders redeem them for trading fees.
Many tokens sound good in theory. How do you know yours will work in practice?
Good question. Theory cannot be tested until it's put into practice. However, quite a few aspects of the token and DAO have already been put into practice. People have been paying real trading fees to use Bisq for over 2.5 years now, so the token must have value at launch. As for the DAO, the Bisq contributor team has approximated DAO functions with low-tech tools like GitHub and Google Sheets for several months. The DAO merely formalizes these processes.
The Bisq DAO and BSQ token are not required to provide Bisq's core trading service today.
But they are required to remove single points of failure from its control structure, so it can be relied upon tomorrow.
Learn More
Docs, videos, and more
You don't need to know the nitty-gritty details of Bisq's colored coin implementation or DAO mechanism in order to use it. But you might find it interesting, so if you're inclined, here's a series of video and written resources for you to check out.
Videos
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This playlist, by Bisq founder Manfred Karrer and contributor Aruna Surya, covers everything from the basics of bitcoin transactions and colored coins to the economic and technical roots of the BSQ token and how it powers the Bisq DAO. The videos are each about an hour long, but done in question-answer interview format, so they're easy to follow.
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Outspoken Bitcoin maximalist Max Hillebrand discusses the BSQ token and why, in his opinion, "it's not a shitcoin." This video is one from a series of videos by Max posted on the World Crypto Network YouTube channel that covers everything from installing Bisq, setting up payment accounts and settings, making offers, taking offers, and more.
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Bisq DAO Discussion with Eyal Ron
Casual and insightful discussion about the ideas and concepts of the Bisq DAO between Bisq founder Manfred Karrer and Bisq contributor Eyal Ron. Eyal had a big hand in shaping the workings of the Bisq DAO, along with Manfred, so it's nice to hear their thoughts.
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Meetup presentation on the Bisq DAO by Eyal Ron. It's a ground-up explanation of the Bisq DAO that doesn't assume any prior knowledge.
Written Guides
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Plain-language description of the DAO and BSQ token, and how it enables decentralized funding and decision-making for the Bisq Network.
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Getting Started with the Bisq DAO
Step-by-step walk-through of the Bisq DAO. Shows you how to participate in one round of voting, from making a compensation request to voting on other proposals. As of December 2018, the Bisq DAO is live on testnet, so you can tinker with it right now!
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Phase Zero: A Plan for Bootstrapping the Bisq DAO
An overview of the philosophy behind Bisq, why it was created, and how it planned to decentralize its own team from the very beginning. The doc is a bit long, so check out Max Hillebrand's reading if you prefer.
Technical
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Bisq DAO Technical Specification
Technical details of (1) what BSQ tokens actually are, how they're created, and how they're destroyed and (2) the various functions of the Bisq DAO and how BSQ enables them. The document includes several example transactions so you can explicitly see the processes.
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This video is a thorough look at the technical implementation of the Bisq DAO. It's a fairly advanced treatment of the DAO that assumes you are already familiar with its basic ideas and workings.