KIP-2: Split-Save Mechanism

Category: Constitutional KIP - Process
Title: Split-Save Mechanism
Author: Karrat Foundation

Abstract:
This document outlines the proposed implementation of the Split-Save mechanism within the constitutional framework of KARRATco, governing the use of the $KARRAT Token as defined in this Karrat Improvement Proposal (KIP). The Split-Save mechanism is designed to facilitate the division of $KARRAT Token proceeds from the initial sale or minting of any on-chain asset between two primary destinations: the wallet address launching the collection, asset, or product, and the KARRATco Vault.

The Split-Save mechanism operates through a set of factory contracts, offering flexibility to users by allowing them to choose how the proceeds are split between their wallet and the Vault. This system ensures that a portion of the $KARRAT Tokens earned is stored in the Vault, which remains under the governance of KARRATco. Future decisions regarding the transfer of tokens from the Vault will require a vote through a Non-Constitutional KIP, with a quorum percentage of 98% needed for approval.

The integration of this mechanism aims to promote a sustainable community within the KARRATco ecosystem, ensuring both immediate liquidity for asset creators and long-term value retention within the Split-Save Vault.

Key Terms:
Spit-Save: The mechanic by which minting cost or purchase is split between two wallets, the wallet address that launches the contract of the purchasable asset or product and the KARRATco governed Vault

Vault: A KARRATco governed wallet set up in a similar fashion to the Foundations Treasury but with a 98% quorum required to access the tokens vaulted

Factory Contracts: Blockchain contracts that act as “factories”, automating the process of deploying new smart contracts with predefined templates or structures. This allows developers to efficiently create standardized contracts with consistent functionality. Factory contracts streamline the deployment process, ensuring uniformity while enabling customization options, making them ideal for scalable applications that require numerous contract deployments.

Motivation:
The motivation behind the split-save is to create a mechanism for long term sustainability of the community by moving a portion of each transaction of minted assets into a vault. By committing these funds to a secure vault which would require a 98% quorum to unlock, we are committing a threshold that would require almost full collective decision making to unlock. This creates a unique opportunity to build community confidence and commitment, as every transaction supports the collective vision of a more sustainable future for $KARRAT. Members can feel empowered knowing that their active participation in the network contributes to the overall strength and longevity of the community, fostering a sense of unity and purpose within the KARRATco. Additionally, creators will have access to a built in and active community with KARRAT, helping bootstrap a new project or community. The potential network effect of contributing to and growing an existing ecosystem increases a creator’s opportunity for adoption and success of a project or product.

Rationale:
The primary rationale for the Split-Save Mechanism is to build a robust and sustainable economy for $KARRAT. This approach not only secures part of each transaction into the Vault but also fosters community trust by involving members in the network’s financial security. By tying proceeds to a collective vision and requiring near-unanimous consent for Vault transfers, the mechanism strengthens the stability of $KARRAT, encouraging active participation and commitment from community members and builders.

This mechanism allows for any creator using $KARRAT for minting their collections to set the threshold for splitting at whatever they percentage would like. This ensures that the creator can earn the desired amount per transaction but requires a portion to be “saved” therefore limiting the total amount of tokens that are being traded due to the near-unanimous quorum needed to access the locked tokens. The Split-Save mechanism has a mandatory 1% that must be split to the Vault, however a creator is incentivized to set the threshold higher for more KARRATco engagement.

Specifications:
The specific mechanisms of the Split-Save process are suggested to work as follows:

  • The initial sale or minting of any asset that is on chain and purchased in $KARRAT will be split between two locations. One location being the wallet address launching a collection, asset, or product and the other being the Vault.

  • The Split-Save mechanism would be a set of factory contracts that allows for the user launching a collection, asset or product to make a choice of which factory Spit-Save contract to use. This choice would indicate how much of the $KARRAT received upon mint/purchase is sent to the launching wallet address and to the KARRATco Vault, or in other words, how much is “split”.

  • The Vault would be under the governance of the KARRATco, meaning that $KARRAT tokens in the Vault could at some point be voted on through a Non-Constitutional KIP to be moved from the Vault.

  • It is proposed that the quorum percentage needed for approval to move $KARRAT tokens out of the Vault be set at 98%.

Steps to implement:
Below are the steps of the entire process for implementation:

  1. Split-Save Contracts are written and audited by a respected audit house.
  2. Upon the passing of this KIP, the Split-Save contracts will be launched

Overall cost:
It is recommended that the Karrat Foundation incur the cost of this project via the Foundations operational budget:
Smart contract development of split-save mechanism and factory contracts
Auditing of all contracts
This KIP is a constitutional proposal and in no way touches the KARRATco Treasury.

Hey KarratCo.

As a $KARRAT holder and someone deeply invested in the growth and long-term sustainability of this community, I appreciate the effort behind the Split-Save mechanism proposal. Creating a system that supports asset creators while contributing to the ecosystem’s long-term health is a noble objective. However, I don’t believe the current proposal is the best path forward without adjustments that would earn greater community trust and set us up for success in light of the challenges ahead.

My concerns with the Current Proposal

  1. 98% Quorum Requirement:
    While I understand the desire for strong governance, a 98% quorum makes the Vault practically untouchable. This rigidity may stifle the strategic use of these funds for future growth opportunities or critical ecosystem needs.
  2. Token Inflation:
    With a significant amount of $KARRAT yet to be unlocked, adding more tokens to the Vault without a deflationary countermeasure could lead to unnecessary supply pressure and dilution.
  3. Limited Incentive for Creators:
    A mandatory 1% Vault contribution may not be compelling enough for creators to meaningfully participate in the Split-Save mechanism. Currently it’s also not clear enough what other incentives they would have to increase that number.

Proposed Changes for a More Effective Path Forward

  1. Introduce a threshold Burn Mechanism:
    Allow part of the Vault’s balance to be periodically burned based on community votes or as an automatic mechanism when certain thresholds are reached. This would help counter the upcoming token unlocks and provide a deflationary element that supports token value. E.g. burn all $karrat that is sent to the vault, after the vault reached 10M tokens.
  2. OR Introduce a periodic Burn Mechanism, prior to the Vault
    Allow for a 2 or 3 year period for the tokens to be burned instead of being send to a vault. This way the largest unlocking period will be behind us, before we start storing additional $karrat into the Vault. After 3 years, all tokens affected by the split, will then be send to the Vault.
  3. Flexible Quorum Requirements:
    Set different quorum thresholds depending on the purpose of the vote — for example, a lower quorum (60-70%) for strategic ecosystem investments and a higher quorum (90%+) for token unlocks or other critical decisions.
  4. Incentivize Higher Split Contributions:
    Encourage creators to allocate more than 1% to the Vault by offering governance perks, promotional support, or reduced platform fees for those who choose to contribute at higher rates.

Why This Matters

By making these changes, we can take a huge step forward while also earning back community trust. A thoughtfully implemented burn mechanism would demonstrate that we are serious about sustainable tokenomics. Introducing flexible governance and creator incentives will show that we value participation and innovation within the ecosystem.

Let’s work together to refine this proposal and build a stronger, more resilient $KARRAT economy. I’m excited to hear what others think about these potential improvements.

@Dennis91

We appreciate your thoughtful response to our suggested proposal. A detailed, well articulated message such as this is exactly the type of engagement the Karrat Foundation wants to foster.

Let us address your concerns and suggestions:

Concern 1 - 98% Quorum Required: Is the Vault Untouchable?
We understand the concern that a 98% quorum could make accessing the Vault difficult, but this is by design. The Vault is meant to serve as a true long-term reserve, effectively functioning as a community-governed ’break-glass’ reserve. While traditional burning permanently removes tokens from circulation, vaulting them under such stringent governance preserves optionality, the tokens are inaccessible unless near-unanimous consensus is reached.

Additionally, if the community ever determines that accessing the Vault is necessary, a governance vote can be initiated to lower the quorum percentage. This ensures that the Vault remains both a safeguard against inflation and a tool that the community can modify when necessary.

In contrast, a flexible quorum system as suggested (e.g., 60-70% for investments) introduces potential governance risks. A low quorum threshold could allow a small group of holders to dictate the use of community funds, which could lead to mismanagement and deplete the Vault without the level of true consensus we hope to require here.

Concern 2 - Token Inflation: Would a Burn Be Better?
We understand the reasoning behind calling for a burn mechanism. However, burning tokens removes them from the ecosystem permanently, eliminating the opportunity for strategic use later.

The Vault, as designed, serves a similar function to a burn in that tokens are effectively removed from circulation unless a supermajority unlocks them. The key difference is preserving choice rather than making an irreversible decision now.

Moreover, delaying the Vault for 2-3 years while burning tokens in the meantime could mean missing out on the immediate benefits of creator engagement and ecosystem growth that the Split-Save mechanism offers immediately. Consider other potential initiatives like Studio-Chain and the need to prepare for growth outside of the existing network.

Limited Incentive for Creators: Is 1% Too Low?
The 1% contribution to the Vault is a minimum, not a cap. Creators have full flexibility to set their own percentage higher if they see value in deeper participation in the ecosystem.

Example: A creator wants to launch a collection on KARRAT. For this particular collection, the creator values a sell out of all NFTs in the collection over other metrics. This creator could decide to Vault 50% of the cost of the collection to the vault. This decision would engage the KARRATco in a much more significant way than the creator who only decided to vault the minimum 1%.

By building on KARRAT, a creator gains access to an engaged and thriving community, which directly increases visibility, adoption, and success potential. A strong network of active token holders who are incentivized to support projects in the ecosystem is far more valuable than keeping 100% of revenue in a marketplace with no built-in support.

Final Thoughts:
We are incredibly grateful for the feedback and the thoughtful discussion. KARRATco thrives when the community engages in meaningful dialogue about the direction of the ecosystem. That said, the original proposal was crafted with long-term sustainability in mind, ensuring that both creators and the broader community benefit.

We welcome further discussion and look forward to continuing to refine governance structures that serve the best interests of $KARRAT holders. Let’s keep building together.

Thank you for the thoughtful and detailed response.

I genuinely appreciate the effort you’ve put into addressing my concerns and outlining the reasoning behind the current proposal. It’s clear that a lot of thought has gone into designing a long-term, community-centric solution. That being said, I believe we still have an opportunity to refine this proposal in a way that will gain greater traction and support from the community.

Addressing the Feedback Points

  1. Quorum Requirements:
    I completely understand the intention behind the high quorum threshold for accessing the Vault — it’s meant as a safeguard for long-term reserves. However, I fail to see the use of the 98% quorom if we can optionally put forward a constituational vote (with a lower barrier to pass) to lower that 98% threshold later. I feel this infeasibly high barrier is what’s making a lot of holders “uneasy” knowing that the FDV is artifically high.

  2. Token Inflation and Burn Mechanism:
    I appreciate the argument that vaulting tokens retains optionality, unlike burning them permanently. However, this approach doesn’t directly counter inflation, especially considering the large upcoming token unlocks. I understand having more karrats in a later stage might seem beneficial now, but if we do not attract investors in $karrat in the short term, the longer term might not even matter at all.
    One possible middle ground could be adopting a hybrid model — introducing temporary token unlocks that burn a portion of the Vault’s balance every month or with every Split-Save action. This would help balance the need for long-term optionality while demonstrating proactive deflationary measures to boost token confidence.

  3. Incentivizing Creator Contributions:
    While I understand that the 1% contribution is a minimum, I believe we should make it more clear in the proposal how we want to additional incentivize builders. For instance, we could offer governance perks or promotional visibility for creators who choose to contribute above certain thresholds (5%, 10%, or more).


Next Steps: A Call for Real-Time Community Discussions

I think we all share the same goal: to make $KARRAT a thriving, sustainable ecosystem that benefits both creators and holders. However, given the current concerns and the apparent lack of traction for this proposal, it risks failing when it comes to a vote.

To avoid that, I suggest setting up a real-time discussion on Discord (MPH community is the largest holder of $karrat) or another chat platform where community members can engage in a back-and-forth dialogue. This would allow for deeper exploration of ideas, clarifications, and potentially the emergence of new solutions that can lead to a stronger, more widely supported proposal.

Looking forward to continuing this constructive conversation and working together to move $KARRAT forward.