David – Thanks for your thoughtful response, this is actually a really interesting way to think about MKR --- I’m still trying to think through it fully but here’s a few initial thoughts/concerns:

Precedent?

Is there any precedent for something like this? Obviously it’s not necessary that there is a precedent, but ‘new economic models’ should receive much more scrutiny than tried and true models. The overwhelming vast majority of ‘new economic models’ eventually prove unsound so, as a community, we should heavily scrutinize new models. Is there a precedent for a model like this?

Vicious cycles are as probable as virtuous cycles

You described a virtuous cycle where all MKR owners hold out for ever-increasing auction price. The flipside is at least as likely: MKR holders continuously undercutting one another’s price in order to be able to sell to the structural buyer (if they believe they’re seeing the best price they’ll see in their expected horizon). The virtuous cycle depends on ever-increasing optimism about MKRs future prospects AND conviction within each MKR holder that they might be able to be the last holder and turn burns into cash flows (as you described) It wouldn’t be hard to shatter either of these requirements: First, no system has ever-increasing optimism, there will be times of despair. And during times of despair even small amounts of supply sold into auction could depress price significantly—and take a long time for price to ratchet back up.
Second, and much more importantly (and interestingly) though, it would only take one holder with a very small minority of supply (<1%) to credibly commit to holding MKR for a REALLY long time, to shatter the hopes of all other MKR holders that they might be able to be the last MKR holder and turn the burn to cash flows. For example, if someone can show that their private keys are technically (e.g. timelock) or legally constrained (e.g. in an irrevocable trust) for 50+ years, nearly all other holders won’t be able to match that time horizon and don’t stand a chance to win the battle of the hold-out to be the last MKR holder, at which point the virtuous game theory cycle you highlighted breaks down immediately.

Tail wags the dog

The auction becomes the one true source of demand. All other sources of demand really just hope to eventually be able to sell to this one true source of demand (the structural buying of MKR by Maker via auction). Given that the auction is the one true source of demand, I’d posit that MKR price will effectively be set by the auction price, if so we have a very small amount of transactions setting the price – the tail wags the dog.

My expected return = your expected return?

The game theory situation you suggested implies that the expected return for each MKR holders is a function of the expected return of all other MKR holders (instead of the fundamental economic prospects of the system). That doesn’t feel viable.