Economy Spotlight: Boson Protocol

Our Thoughts:

The Boson Protocol utilises the token to create a decentralised and self-sovereign ecosystem that allows users to tokenise and exchange assets in a safe and secure environment.

Albeit it seems that the $BOSON token has no real utility, given it’s used as a medium of exchange and for governance, in actuality it has a fundamental purpose in the economy: incentive alignment. In the case of Boson, a peer-to-peer marketplace, that is incredibly important given that the token acts as collateral in case of a required penalty for bad behaviour, as well as an incentive mechanism for useful behaviour (governing the DAO).

The necessity for the $BOSON token is crucial to its decentralisation, given that trusting another currency to be used as collateral, be that currency the 2057th token on CoinMarketCap or Bitcoin, brings with it additional problems, primarily the risk of that token/coin rugging, going to $0, being illiquid, or anything else.

By having its own token, which isn’t particularly designed to accrue nor retain value but merely transfer and store it (for the short term), Boson successfully decentralises itself and remains self-sovereign, alienating itself from all counterparty risk.

Moreover, it gives users and invested token holders full ownership of the ecosystem, which is something that cannot happen when you use an external currency which is used by other people elsewhere.

All of that being said, as mentioned above, $BOSON isn’t designed to accrue or retain value, hence, its price performance has been relatively poor recently. Moreover, the bigger concern is that the price is greatly affected by the speculative market, meaning that it can rise and collapse very quickly, causing problems for buyers and sellers who have their money locked up in escrow. This simply cannot be overlooked, as this fluctuation in price is directly linked to the product, thereby making the product problematic to use.

Overall Rating: Amber

Protocol Explanation

Boson Protocol is a decentralised protocol which enables the trust-minimised, automated execution of off-chain actions; which in turn can be seen as a general-purpose solution to the physical asset oracle problem.

The $BOSON token serves three primary purposes: 

• Incentivisation - $BOSON tokens are used as collateral, thereby disincentivising bad behaviour, and also as rewards, thereby incentivising good behaviour.

• Governance - $BOSON tokens are used by participants to govern the Boson Protocol, ensuring consensus around critical decisions and the issuance of funds from its DAO Treasury. 

• Fees - Boson implements a minimally extractive fee that can be activated or amended by the Boson Protocol DAO through the protocol fee switch. Fees accrue to the DAO treasury. 

Economy Flow

The Boson Protocol Economy consists of two different elements. The trading element and the governance element. The trading element consists of different phases. The Offer Creation Phase, The Commit Phase, The Redemption Phase and the Fulfilment Phase; in rare instances, a Dispute Resolution Phase is also present.

Trading Element

A. Offer Creation Phase

1. A seller inputs details of an item which they intend to sell. They, in essence, create an offer. 

2. The offer includes a link to some metadata containing the contractual agreement between the Buyer and Seller, and a description of the terms of the Offer including: the Buyer Payment Amount which also includes a Buyer Deposit element, the Seller Deposit, and the details of the Dispute resolver.

B. Commit Phase

1. If a Buyer agrees to the terms of the Offer, they may proceed via the Commit function which locks up the Buyer’s Deposit amount into the protocol, together with the Seller Deposit.

2. At this stage, the Buyer receives an NFT which is redeemable for the off-chain asset, from here on referred to as a Redeemable NFT (rNFT)

3. The Buyer may then choose either to transfer or trade the rNFT, before ultimately moving to the Redemption Phase.

C. Redemption Phase

The Redemption Phase is the phase in which the holder of the rNFT may choose to redeem the Offer as defined in Offer Phase. 

1. The holder of the rNFT can choose to Redeem by interacting with the Redeem function in the protocol. This includes the Buyer paying the full amount.

2. If a Buyer Cancels their commitment instead of redeeming the rNFT, they will incur a cancellation penalty equal to the Buyer Deposit (aka Buyer Cancelation Penalty). Similarly, during this period, the Seller may Revoke the Offer, thus forfeiting the Seller Deposit. 

D. Fulfilment Phase

After Redeem is called, the protocol progresses to the Fulfilment Phase. This is the phase where the Seller needs to fulfil the promises made out in the Offer. 

1. When the Redemption Period is over, the protocol optimistically assumes that the Seller has fulfilled their obligations under the contractual agreement, and enables the Seller to withdraw the Payment and Seller’s deposit.

2. Alternatively, in the event that the Buyer calls the Dispute function before the end of the Redemption Period, the exchange moves into the Dispute Resolution Phase.

E. Dispute Resolution Phase

The Dispute Resolution Phase comprises of two sub-phases, the Mutual Resolution phase and the Escalated Dispute Resolution phase.

1. If a Buyer raises a dispute, the protocol provides a path for the parties to resolve the conflict via a mutual resolution game, whereby Buyer and Seller negotiate off-chain and ultimately send an on-chain compromise proposal for the division of the escrowed funds.
   
   If mutual resolution succeeds, the protocol automatically divides the escrow as per the mutual agreement.
   

2. If mutual resolution fails, the protocol escalates to an external Dispute Resolver (DR). The DR reviews the agreement, claims, evidence requirements and evidence provided. The DR then decides on how to split the funds held in the protocol for the given exchange, based on payout guidelines specified within the Offer contractual agreement

F. Finalisation Phase

The Finalisation Phase encompasses the set of states that signal that a given exchange has come to an end. There are a number of different finalisation states. Each one of the end states has its own label and comes with its own set of rules governing the payout of the funds committed to the protocol.

Governance Element

G. Governing Fee Redistribution

Protocol fee revenue will be collected by the DAO treasury, where, ultimately, $BOSON holders will vote on how funds are allocated. This is essential to sustain and grow Boson Protocol itself, and the ecosystem of applications and tooling leveraging Boson.

Early Supporters

H. On top of this, the Boson Protocol DAO will distribute $BOSON tokens to early users to incentivise early adoption of the protocol. This incentivisation will continue until Boson Protocol has achieved strong network effects.

Protocol Revenue

The main source of revenue for the Boson Protocol is the protocol fee. 

The Protocol fee (𝑃𝐹) is levied on the item Price (𝑝) and is charged for successful exchanges only. 𝑃𝐹 is between [0,100] and represents the percentage number of the Item Price that is taken as protocol fee. The fee charged is calculated as 𝑃𝐹 = 𝐼𝑡𝑒𝑚 𝑃𝑟𝑖𝑐𝑒 * 𝑃𝐹 / 100 The Protocol fee is set to 0 if Offers are priced in $BOSON. Protocol fee revenue will be collected by the DAO treasury, where, ultimately, $BOSON holders will vote on how funds are allocated.