In detail:
Let's assume that 2% of the world's population own crypto (160 million people).
Let's assume that they deposit an average of $50 into cryptocurrencies every third month ($200 per year, $17 per month).
That's 32 billion of inflows per year. The exact numbers will vary, but this is a strictly conservative approximation of observed reality.
Now let's assume that 1% of this money inflow would be via a decentralized on-ramp, given the choice.
That would be 320 million per year or 877,000 dollars per day (877k/$50=17400 on-rampings per day).
Now let's assume that only 99% of the value of the real-world asset is transferred to the user's wallet. This would mean that daily fees totaling $8770 ($263,000 per month) would be incurred, i.e. there's a 1% fee.
This means that with 50 human validators (who validate the proof of sacrifice and can mint new tokens that represent 99% of the worth of the sacrificed asset), each would earn $5260 per month (263,000/50=5260).
I believe that becoming a validator should not be easy, nor something that only earns a few cents, considering the importance of screening out scammers who will undoubtedly try to offer fake assets (e.g. fake bank notes) as sacrifice.
However, assuming every on-ramping is validated by one main validator and nine randomly chosen additional validators who validate that the main validator behaves properly, then only 5 out of 50 validators are actually on the job. 5 validators cannot handle 17400 on-rampings per day.
Let's assume a validator works 6 hours a day and needs 10 minutes to validate one sacrifice.
Then there are only effectively 6*6*5 = 180 daily on-rampings (6 on-rampings in one hour and a total work time of six hours per day multiplied with the number of effective validators).
17400/180 = 96.67.
So we have to increase the speed by almost a hundredfold.
Let's tweak some numbers.
We can triple the on-ramping fees from 1% to 3%.
--> ~100/3=33
I.e. we only need the speed to 33x now because three times more fees accumulate, therefore the number of validators can be tripled without reducing their monthly income of $5260 which means there's capacity for three times more on-rampings.
We assumed that the value of each on-ramping is 50 dollars and that it takes 10 minutes to validate.
However, if we require the average sacrifice to be 33*$50 (=$1650) and assume that a sacrifice worth of $1650 can be validated as fast as $50, our numbers add up.
Depending on the location, this is the price of one or two iPhones (those can be easily validated by running benchmarks that confirm the underlying hardware and OS). So if we could validate the sacrifice of ~$1700 in ten minutes instead of just $50, we would have successfully scaled.
Remember that the sacrificed asset doesn't have to be bank notes, it can be anything of value, including iPhones.
Validators should be free to accept anything as long as it is practical.
If it is faster to validate the sacrificed asset if it's an iPhone rather than a bundle of bank notes, then this is what will be used most of the time.
Validation of identical objects does not scale linearly with time.
If one iPhone takes 8 or 10 minutes, then two iPhones will take 10 to 12 minutes. The subsequent destruction can easily be accomplished with a bolt cutter.
This allows us to increase the speed a hundredfold.
These calculations show that the operation of a decentralized on-ramp can both scale to meet demand and simultaneously work economically.
In the following, I will abbreviate the concept of decentralized fiat on-ramps as “ETOR” (eternal on-ramp).
There are some assumptions that do not have to be fulfilled. For example, anyone should be able to become a validator. A governance token could be issued, and depending on your share, the network will assign incoming validation requests to you. For example, if you hold 10% of the network's tokens, you are authorized to handle 1% of all incoming validation requests (either as active main validator or as one of nine passive validators).
Example:
You handle six on-rampings per hour, each of an average value of $1650.
6*1650 = 9900
Of these $9900, 3% will be deducted as fee (=$300).
These $300 are divided by ten. This means that each of the ten validators who are present in these on-rampings earns an hourly wage of $30 ($5400 per month assuming a work time of six hours per day -> 6*30*30).
If (i.e. you hold 10% of all governance tokens but 1% of all validation requests is too much for you) this is more than a validator can handle, they will be incentivized to sell tokens and thus contribute to decentralization. If they are not sold and too few requests are validated, the network (or smart contract) should automatically increase the percentage of the allocations (example: You hold 1/1000th of all ETOR tokens, but requests are not being validated fast enough and a queue is building up. In this case, one or two of the following things should happen: The fees automatically increase, from 3% to 4%, then 5%, .... and as second point, you may receive more validation requests, for example 2 out of 1000*10 validation requests from users who want to perform a proof of sacrifice, even though your share is only 1/1000th).
Above it was stated that a plausible number of on-rampings is 17400 per day at $50 with 150 validators and 3% fee
or
17400/33 on-rampings per day at $50*33 with 150 validators and 3% fee
(=527 on-rampings per day at $1650 with 150 validators and 3% fee).
((527*1650*0.03)/150)*30 = daily on-rampings * average on-ramping sum * fees as percentage of this sum / divided through the number of validators * number of days of a month = $5217 as monthly income of a validator.
(527*10*10*30)/(150*30*60) = 527 on-rampings per day, each lasts 10 minutes, multiplied by 10 for each validator, multiplied by number of days, divided through 150 validators, divided through number of days in a month divided through the number of minutes in an hour = average daily work time of a validator in hours = 5.85 hours of worktime per day
The last two parapraphs visualize and confirm what I've stated: My proposal works economically.
Less than six hours of worktime per day result in over $5000 of income per month for a validator, all while imposing a tolerable fee of 3%. If at some point consensus is that 10 validators per validation processs is overkill and 5 (or 3.3 on average) suffice, this would reduce the fees to only 1.5% or 1%.
Owning a small fraction of governance tokens makes it statistically very unlikely to ever get assigned to a validation process. The smart contract/decentralized network could be designed to notify you 24 hours before-hand, which would solve this issue. Another workaround is that the validation requests a governance-token owner is entitled to get bundled, i.e. not 1 (=10 minutes) every month but 3 (=30 minutes) every three months (combined with the aforementioned 24 hours of prior notification). Of course, token owner don't need to verify at all and can simply hodl in which case their validation processes get assigned to other token-holders who want to validate.
The validators have an incentive to validate correctly, as otherwise the value of their ETOR tokens (= governance tokens) would decrease.
In addition, each validator is checked and controlled by 9 other random validators.
The validators will be able to mint a form of stablecoin backed by nothing except the proof of sacrifice.
However, as mentioned above, each mint must be validated by nine other random validators.
If at least 8 out of 10 validators accept the mint, the proof of sacrifice (PoSACR) was successful and the 3% fee of the newly minted token is distributed among all 10 validators.
If three or more validators reject the mint request, the PoSACR isn't accepted.
Depending on the exact implementation, this rejection of the offered PoSACR could be announced even before the physical destruction is performed. Only exception should be an obvious scam attempt (e.g. offering a fake "iPhone" or counterfeited bank notes) to punish the scammer and to deprive him/her of his fake asset.
A slashing mechanism that partially slashes the validator's share of the governance token can be implemented as well if validators try to accept obviously fraudulent PoSACRs, try to block obviously valid sacrifices or try to mint too many or too few stablecoins. The slashing can be performed via an election of the ten witnesses.
To sum it up:
If the validators don't accept the sacrifice, the attempt can be aborted (no loss of money or real world assets) except if it's an obvious scam, in which case the process can be continued to punish the scammer (sacrifce happens but no coins are minted).
I've talked several times about the 3% fee, but this could vary depending on supply and demand.
There could be an option for people who want to use the ETOR to choose from a list of available validators listed by their fees. Some could charge 2%, others 3% or 4%. The user should be able to rate their experience with the validator afterwards, so that they can choose between two criteria when selecting their validator: previous ratings and fees.
This ensures that the validator that offers the most pleasant, cheap and reliable validating process ranks first.
There are other incentives that stabilize the PoSACR-mechanism: Should a validator mint fraudulent stablecoins or more than the offered sacrifice justifies, word will spread and it will become known that this stablecoin is not reliable. The stablecoin would therefore devalue and penalize all other validators, as the fees they now receive are from a depegged stablecoin (if this is not clear, the payment to validators should be 3% of the newly minted stablecoin). Additionally, the governance token would lose in value. This is a further incentive for the 9 randomly selected validators and the active validator to abide by the rules. The threat of slashing further incentivizes correct behavior.
Another option would be for each validator to issue a different stablecoin (Stable1, Stable2, ...) so that only that stablecoin is depegged in case of successful scam attempts, but this is a more complicated approach and less effective, so I would stick with the first method.
Ultimately, the aim should be to replace human validators with AIs, but currently no model that is powerful enough for this task exists.
All of this could be implemented in a smart contract. To validate the PoSACR, a video stream is necessary. However, it's not needed to show your face or any personal details. The only requirement is a proof that it is not a prerecorded video (i.e. the validator could ask the other party to write down the current date on a piece of paper or to draw a certain geometric pattern). A video stream without audio and a chatbox is all it takes.
The video stream doesn't need to be processed by the smart contract, a combined streaming and chat software can serve for this purpose while the smart contract is used for minting the stablecoins, redistributing the fees, automatically assigning validation requests, etc.
Now there is an important question:
Why would destroying real-world assets and minting tokens (=stablecoins) in response lead to an inherent value of those tokens? What mechanism forces a transfer of value from the physical to the digital world?
Truth is that we can't know for sure until the ETOR is online, but I suspect it will play out exactly as I've described.
The sacrifice shows several things: 1), willingness to prioritize a digital ecosystem over physical goods. This is a vote of confidence. It also shows the **willingness of users to interact with the digital ecosystem** rather than physical goods.
Digital ecosystems can be worth hundreds of billions of dollars.
Instagram, Snapchat and other platforms have shown that the **willingness of users to interact with the digital ecosystem** can lead to billions of dollars in valuation.
This is why I'm confident that the mechanism I propose works and the minted stablecoins will retain their value.
Q2: What will be the market cap of the governance token (=ETOR token)?
This can be estimated in various ways:
For example, by adding the valuations of all CEX tokens such as BNB, LEO, OKB and dividing by 100 (because we assume that the ETOR will settle one hundredth of all CEX on-rampings). This would result in a valuation of roughly 1 billion.
Another way to estimate the value of the ETOR token is to assume that the ETOR should be at least 1/20th as valuable as Monero because it's a solid privacy tool as well (2.8B/20=140M).
Even by the most conservative estimate, the market cap should be 80 million or more.
*****This means that those who will build the ETOR will likely be millionaires, which acts as incentive to create this software in the first place.***** Another option is to fund the development of the ETOR by gradually selling a non-functional token (essentially an ETOR memecoin) and later on offering a 1:1 replacement with the actual governance token. For example, if there will be a total of 10 million governance tokens, a memcoin with a supply of 10 million tokens could be sold off incrementally.
In the end the method doesn't matter, everything that works is fine.
Of course, legal aspects should be considered, but there is little to change in the fundamental aspect.
Different approaches are possible, from staying completely anonymous to setting up the ETOR-development as company or non-profit and implementing KYC-mechanisms but open-sourcing everything so that a permissionless system can be set up as well.
Another approach (this is my favorite) is to only develop the software but not deploying it into a functional smart contract/network. As financial incentive to still develop this software, an ETOR-memecoin without governance function could be created to finance solely the software development (but not the deployment). This should nullify all legal concerns as writing software (that in the published and open-sourced version might even have KYC-mechanisms or might not even be functional because it lacks one or two critical lines of code) and creating a memecoin is not an issue.
In the end everything that works is fine, legal advice can be sought after 80% of the software is finished, which will take time anyway. In the meantime a memecoin could be launched and gradually sold off linearly to the progress of the ETOR software.
My own programming skills are unfortunately limited and experience in decentralized programming even more so, which is why I share this idea here.
Although I won't be useful programming-wise, I'm happy to provide comments on implementation-specific ideas if requested.
I've created a matrix room for that purpose:
https://matrix.to/#/#eternalor:matrix.org(I'm @mincberan:matrix.org)
Truth be told, I already launched such a memecoin of which I own 8%:
https://pump.fun/8a6G6KjKSGDD4GwTeNb59ziiy7zPggbU3gEBLMDipump (8a6G...)
If anyone is interested in actually implementing my proposal the following can be done:
1, launch a new memecoin as replacement of the aforementioned pump.fun-link (8a6G), 2, airdrop every owner of 8a6G 80% of the token amount they currently own and 3, use the remaining 20% as team-tokens for the developers.
Of course, everyone is free to work on his own as well.
