At the heart of the Bisq DAO is the BSQ token. The BSQ token is a colored coin based on the Bitcoin blockchain. It enables stakeholders (BSQ holders) to participate in the Bisq DAO in many ways such as making proposals and voting. The main purpose of BSQ tokens is to transfer value from Bisq traders to contributors who improve Bisq.
The Bisq software contains a script for coloring and uncoloring the tokens as well as a BTC and a BSQ wallet. There are two ways of issuing BSQ tokens: through the genesis transaction and through decentralized issuance.
Upon the Bisq DAO launch, the Bisq developers will create a Bitcoin transaction and label it in the Bisq source code as the genesis transaction. The Bisq network will be aware of this label while the Bitcon network won't differentiate it from any other Bitcoin transaction. All the subsequent outputs stemming from this transaction will now be colored on the Bisq network. You can read more about Bisq DAO transactions here.
Any contributor can issue new BSQ by filing a compensation request at the end of each month for the work done in that month. If the compensation request is approved via voting, the amount of BSQ requested appears in the contributor's BSQ wallet.
BSQ can also be uncolored. The uncolored BSQ is interpreted by the Bisq network as BTC and is used as miner fees. Uncoloring BSQ benefits stakeholders since the BSQ supply is decreased making BSQ more scarce. There are several ways in which BSQ can be uncolored.
Upon the Bisq DAO launch, traders can buy BSQ tokens and use them as trading fees which will be heavily discounted compared to trading fees in BTC. Whenever a trader uses BSQ as fees, that amount is uncolored.
In order to participate in the voting process, a stakeholder needs to pay a voting fee in BSQ which gets uncolored.
Certain high stake roles require a bond in certain amount of BSQ (the amount varies with the role) which is locked for the duration of that role. If a contributor holding the bonded role abuses their role, the stakeholders can vote to burn that bond, i.e., uncolor the BSQ in the bond. This is done in extremely rare cases and should not affect the BSQ supply significantly.
There will be an initial supply coming from the genesis transaction. The subsequent supply will depend on the amount of compensation requests and the usage of BSQ in the form of trading fees. The compensation requests will increase the BSQ supply while the trading fees will lead to its decrease.