Thanks @Ignacio and @Franbuzz1. Both posts raise the right objections. I share the goal: LAVA must stay economically connected to network activity. The disagreement is mainly about how.
Why USDC for provider pay
A token the recipient has to sell on receipt creates gross turnover, but little persistent net demand if most of it is sold back to the market.
Providers have said this plainly. Avi (Kleomedes): “we definitely need to sell tokens to cover costs.”
Under 70/30, the flow is:
protocol revenue → buy LAVA → pay providers in LAVA → providers sell for OPEX
That round-trip adds FX and timing risk for providers without necessarily creating long-term holders.
In SSBL+, LAVA demand is tied to revenue in two places: one that never returns to the market, and one that remains economically locked while the provider is required to maintain collateral.
- Protocol value capture: protocol take is used to buy LAVA and burn it.
- Provider collateral: required LAVA collateral is sized to provider payouts and SLA exposure, so it grows with PAR.
So “revenue grows but LAVA demand doesn’t” should not be the outcome. The demand mechanism moves from pass-through to sink and lock-up.
Chainlink: the value-capturing leg is buy-and-retain
I re-read the Chainlink Reserve announcement from 7 August 2025. Payment Abstraction converts offchain enterprise and onchain fee revenue into LINK, and that LINK goes into the Chainlink Reserve. Withdrawals are not expected for multiple years, and the Reserve contract has a multi-day withdrawal timelock.
It also says that 50% of staking-secured SVR fees, originally intended for node-operator rewards, are now planned to help fund the Reserve.
My interpretation is that the value-capturing part of that model is:
revenue → buy LINK → retain LINK
rather than:
revenue → buy LINK → pay operators → operators sell
SSBL+ keeps the same economic principle, using burn and economically required collateral rather than a reserve alone.
Two caveats: the announcement does not describe Chainlink’s entire operator-payment structure, and LINK’s much deeper liquidity absorbs operator selling far more easily than LAVA’s would.
Numbers
Illustrative case: PAR $100k/month, LAVA $0.014, SSBL+ Tier 2 (60% providers / 40% protocol).
|
70/30, providers sell 100% |
70/30, providers sell 75% |
SSBL+ Tier 2 |
| LAVA bought / month |
7.14M |
7.14M |
2.86M |
| Persistently removed / month |
2.14M to Fund, treatment pending governance |
3.39M, including 2.14M to Fund |
2.43–2.86M burned |
| Required provider collateral stock at this PAR |
not specified as revenue-linked |
not specified as revenue-linked |
≥ ~8.6M LAVA (~$120k, lower bound) |
Lower-bound illustration assumes 20 providers with roughly equal payouts, before additional SLA exposure and QoS effects.
The honest reading: 70/30 removes more LAVA from immediate circulation only if providers voluntarily retain a meaningful part of what they receive. SSBL+ keeps that option through LAVA opt-in; it simply does not force the round-trip.
Formulas
- Bought under 70/30:
B = PAR / P
- Persistent demand under 70/30:
0.3·B + (1 − s)·0.7·B, where s is the share providers sell.
- SSBL+ burn:
protocol take × PAR / P × burn share. At Tier 2, the protocol take is 40%; 85% of it is burned while the USDC reserve is filling, assuming the LAVA Fund is already full; 100% is burned after both reserves are funded.
- Collateral lower bound:
20 providers × max($2k; 2 × payout_i) / P, with payout based on the 60% provider share of Tier 2.
A middle ground: collateral-first payout
If the Foundation wants LAVA to remain directly involved in provider compensation, I would support a hybrid.
A share of each provider payout, say 25%, could accrue in LAVA at the actual execution price and go directly into the provider’s self-bond until the required collateral C_i is met.
Eligible existing bonded LAVA could count toward that requirement after migration into the new collateral system.
Once the requirement is met, the provider chooses USDC or LAVA for future payouts.
At today’s PAR, aggregate collateral is roughly ~$42k. Directing 25% of ~$21k/month of provider compensation into collateral is ~$5.25k/month, implying roughly eight months to reach that level from zero.
The flow becomes:
provider work → revenue → LAVA purchase → collateral lock
instead of:
forced LAVA payment → immediate sale for OPEX
The first creates economically useful demand and lock-up. The second creates turnover and predictable sell pressure.
@Franbuzz1 on CEX volume and delisting risk
Delisting risk is real, and I should be explicit that it also threatens SSBL+ itself.
A thin LAVA market degrades:
- price discovery;
- the reliability of the 90-day TWAP;
- collateral valuation;
- buyback execution;
- and ultimately the usability of LAVA as an economic-security asset.
But we should distinguish volume from liquidity.
A token can report trading volume and still have poor depth and wide spreads. Conversely, good market-making can preserve usable liquidity without manufacturing unnecessary turnover.
Scale also matters.
At ~$30k/month of Gateway revenue, the protocol generates about:
~$1,000/day of purchases
Under 70/30, if providers sold their entire 70% allocation, that would add:
~$700/day of sells
So even the full pass-through loop is only:
~$1,700/day of gross buys + sells
That alone is unlikely to sustain listing-quality liquidity on major exchanges. Most exchange activity would therefore still need to come from traders, arbitrageurs, market makers and other market participants.
And SSBL+ does not eliminate the buy side: protocol-funded buybacks remain real CEX/DEX market purchases.
I would therefore add a fourth component to SSBL+:
Market Liquidity & Exchange Access Policy
The objective should be to preserve healthy CEX/DEX liquidity and reduce delisting risk without using provider compensation as a synthetic volume generator.
The policy could define:
- minimum market depth around the reference price;
- maximum acceptable spread;
- minimum quote uptime;
- support across multiple independent CEX/DEX venues;
- transparent professional market-maker mandates;
- public monitoring of volume, spread, depth and venue concentration.
Market makers should be evaluated primarily on:
depth + spread + quote uptime
not simply on reported volume.
I would keep the SLA reserve and Assistance Fund completely outside this mechanism. Those should remain insurance mechanisms.
Funding should preferably come from a separately approved treasury/MM budget.
Once the reserves are funded, governance could also allow a small, capped allocation from the incremental buy-and-burn share, for example up to 5% of protocol take, but only while predefined liquidity thresholds are breached and without taking burn below the existing 75% governance floor.
Conceptually:
healthy liquidity → MM allocation = 0
depth/spread breach threshold → temporary support activates
liquidity recovers → allocation returns to buy-and-burn
That makes liquidity support counter-cyclical rather than permanent, and avoids paying providers in a volatile token simply to generate exchange turnover.
On 70/30: it is not meant to be fixed.
SSBL+ already assumes a dynamic protocol take tied to PAR and network health, and the governance range for the provider share is 50–80%, so 65/35 is inside the design.
A step-up should happen only while QoS, provider count, capacity and provider cost coverage remain healthy. If those conditions deteriorate, the tier should step back down.
The metric that should settle this
The useful question is not whether every payment uses the native token, but:
How strongly does each additional dollar of PAR translate into LAVA demand, lock-up or permanent removal?
I would report four figures monthly:
- PAR-funded LAVA purchases
- PAR-funded LAVA burns
- growth-driven collateral locks
- price-maintenance collateral top-ups
That would make the economic connection between real network usage and LAVA directly measurable.
One data request
@Ignacio, could the Foundation publish, even in aggregate, what share of LAVA paid to providers is transferred to known exchange addresses within 7, 30 and 90 days of payment?
If providers mostly hold the LAVA they receive, paying providers in LAVA has a much stronger economic justification, and I will say so.
That was the “what would change my view” point in post #5.
The objective is not to reduce LAVA utility. It is to replace weaker utility based on forced payment conversion with stronger utility based on:
economic security + collateral + revenue-linked value capture + sustainable market liquidity.
