Background

The KILT Protocol maintains a deposit system for several key operations:

• Decentralized Identifiers (DIDs): 2 KILT
• Attestations: [Current deposit amount needed]
• AssetDIDs: [Current deposit amount needed]

This deposit structure serves as an anti-spam mechanism across the ecosystem but requires evaluation given current market conditions and ecosystem developments.

Current Ecosystem Context

Base Parameters

• Current DID deposit: 2 KILT
• Historical value (ATH): ~$30
• Current value: <$0.3
• Purpose: Anti-spam and network commitment mechanism

Ecosystem Partnerships

• Strategic partnerships (PayPal, Deloitte) provide FIAT onramps
• Partners absorb initial token requirements for users
• Reduces effective barrier to entry while maintaining security

Market Analysis

Current System Strengths

1. Multi-layered spam protection:

• Deposit requirements
• Transaction costs
• Partner-assisted onboarding

1. Token distribution effect:

• Spreads tokens across more holders
• Encourages long-term ecosystem participation

1. Flexible entry points through partner networks

System Challenges

1. Value volatility in FIAT terms
2. Manual adjustment overhead

Comparative Analysis Other Identity Solutions

• Some projects require no deposit
• Others implement dynamic deposit systems
• Few use fixed deposit amounts

Proposal Options

Option 1: 'Dynamic' Manual Adjustment System (Recommended)

Target value pegged with a margin of 20% to e.g.:

• 0.3 DOT equivalent +— 0.6 DOT
• $1 USD equivalent +— $0.2

Characteristics:

• Keeps spread tokens across holders
• Requires skin in the game
• Maintains protects against spam DeID creation
• Regular governance reviews
• Manual adjustments through voting
• Slow changes as it requires a voting and proposal enactment period
• No code changes
• Based on current conditions it will increase the deposit ~10 fold of the current deposit

Implementation:

• Regular governance check-points
• Quarterly create a proposal for adjustments

Option 2: Deposit Removal

• Complete removal of deposit requirement

Benefits:

• Lowest possible barrier
• Easier onboarding
• No code changes
• Attesters will need to pay for the transaction costs

Risks:

• Reduced spam protection
• Loss of token distribution mechanism
• Potential system abuse

Holistic Deposit Structure

Consider unified approach across all deposit types:

1. DIDs
2. Attestations
3. AssetDIDs

Recommendation: Apply consistent scaling logic across all deposit types while maintaining relative ratios between them.

Implementation Path

Phase 1: Initial Adjustment

1. Discussion Period (1-2 months):

• Community feedback
• Partner consultation
• Technical assessment

1. Technical Review (2 week)
2. Referendum (1 week)
3. Deployment (1 week post-approval)

Phase 2: Monitoring and Adjustment

• Regular review periods (quarterly suggested)
• Predefined triggers for governance proposals
• Impact assessment on ecosystem metrics

Considerations

1. Migration path for existing DIDs.
   1. deposit recovery mechanisms
   2. locked tokens when increased/decreased deposit requirement
2. No immediate code changes required for manual adjustment system
3. Communication strategy to stakeholders
4. Clear migration documentation for users and partners

Recommendation Details

I recommend Option 1 ('Dynamic' Manual Adjustment) because:

1. Maintains system security without code changes
2. Keeps spread of tokens across holders and will distribute even better as we grow
3. Allows community governance participation
4. Can adapt to market conditions through regular reviews
5. Preserves existing partner integration models
6. Provides stability through measured adjustment periods

Future Considerations

1. Potential automation of adjustment mechanism
2. Integration with additional FIAT onramps
3. Partner-specific deposit structures
4. Cross-chain value pegging mechanisms