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A collective, per the Meriam-Webster definition is; ‘a cooperative unit or organization, marked by similarity among or with the members of a group (the collective interests of the town). In sum, a collective is a;
Group of cooperative people
Collaborating for a larger, incentivized goal
Unified in their actions
But how does this definition translate over to companies, and now, DAOs? Ultimately, they both aim to function as aligned collectives, but how efficiently do they achieve it? Let’s find out;
Traditional companies are structured hierarchically, with different positions garnering different powers. Take for example, a paper sales company, wherein there are 2 basic hierarchal levels.
Management are the actors that are responsible for the employees’ actions, aiming to benefit them and aid them to work more efficiently. The manager’s role is to aid the employees in whatever way is most efficient — for this, they are paid a salary, a direct incentive for preferable action (managing employees).
Employees are the actors that drive revenues to the company, they sell paper, manage logistics at a small scale, and handle customer service, but for simplicity’s sake, lets hone in on salesmen. Salesmen are not paid directly in a salary like a manager, rather their compensation is split between salary and commission, incentivizing them to sell more paper.
This two-partied system creates a simple incentive structure, managers are incentivized to help salesmen sell more paper, and salesmen are incentivized to sell more paper to earn more money.
A collective, per the Meriam-Webster definition is; ‘a cooperative unit or organization, marked by similarity among or with the members of a group (the collective interests of the town). In sum, a collective is a;
Group of cooperative people
Collaborating for a larger, incentivized goal
Unified in their actions
But how does this definition translate over to companies, and now, DAOs? Ultimately, they both aim to function as aligned collectives, but how efficiently do they achieve it? Let’s find out;
Traditional companies are structured hierarchically, with different positions garnering different powers. Take for example, a paper sales company, wherein there are 2 basic hierarchal levels.
Management are the actors that are responsible for the employees’ actions, aiming to benefit them and aid them to work more efficiently. The manager’s role is to aid the employees in whatever way is most efficient — for this, they are paid a salary, a direct incentive for preferable action (managing employees).
Employees are the actors that drive revenues to the company, they sell paper, manage logistics at a small scale, and handle customer service, but for simplicity’s sake, lets hone in on salesmen. Salesmen are not paid directly in a salary like a manager, rather their compensation is split between salary and commission, incentivizing them to sell more paper.
This two-partied system creates a simple incentive structure, managers are incentivized to help salesmen sell more paper, and salesmen are incentivized to sell more paper to earn more money.
Manager helps salesmen sell → salesmen sells more paper → company’s revenue grows
→ Each party’s piece of the pie grows proportionately.
This is an example of a properly aligned incentive structure — each party is individually incentivized to take part in a unified action, and are each rewarded for their unique role in achieving it.
Ultimately, DAOs aim to function similarly to traditional companies, simply injecting decentralization into the system to create equitability between hierarchal levels. To simulate a level playing-field, DAOs generally implement governance tokens, where DAO members are defined by holding said governance token, entitling them to a proportionate number of votes in the DAO.
The DAO structure generally fails here, where governance becomes a difficult, inefficient, and limiting action. To prevent this, most DAOs pivot to an unideal structure that looks something like the following;
The issue here lies in that major control of the larger system remains in the hands of the team, and DAO members’ power is miniscule despite their capital investment. There is nothing inherently wrong about this model, and there are numerous advantages to building privately rather than completely openly, but the issue lies in the team’s closed-off nature. Say the team consists of 10 members, an 11th member cannot be added without being directly recruited, this may be via scouting (largely luck-based), applications (can be closed off), etc., but DAO members aren’t able to openly and easily become part of the team.
This ultimately leads to an inherently misaligned incentive structure within the DAO, where team members want to build the protocol (wherein they need to cater to the DAO members), while DAO members wish to either gain power and influence (diminishing under this team-centric model), or sell their governance tokens to extract value from the project. DAOs with misaligned incentives like this cannot function efficiently, as none of the participating parties are working for unified action.
Apeiro seeks to create a DAO that can align it’s respective parties to function as a unified collective, creating a streamlined and efficient cooperative structure (analogous to traditional companies), while injecting decentralization without compromise.
To do this, Apeiro uses a weighted-revenue-share model, in which DAO members are defined by not only holding AERO tokens, but by locking them into two escrowed derivatives, geAERO and reAERO. To learn about geAERO and reAERO specifically, see our docs here. Through reAERO, DAO members can earn a share of the DAO’s revenue, which is then weighted versus their governance and ecosystem participation.
Relating this back to first-principles, imagine the weighted-revenue-share model as a salary + commission based compensation structure for a salesman. 50% of value accrual for reAERO lockers is direct, no incentives, think of this as a salary. The other 50% is split between governance and ecosystem participation (35% and 15% respectively), think of this as commission, the same way a salesmen is rewarded for unified action (selling paper), a DAO member is rewarded for its unified action (governance and ecosystem participation).
Apeiro combats closed-off team structures through the Apeiro page, an ERC-1155D token with a max supply of 100, used as the entry token into the Apeiro Council. This contrasts the typical closed-team structure, as the Apeiro Council governs Apeiro and its ecosystem holistically, open to any purchasers of the Apeiro page. Open, yet private.
Olympus DAO’s OHM was an experiment to create a reserve currency for DeFi, unaffected by the USD’s fluctuations. A core component to OHM’s structure was it’s staking, boasting massive yields (1000%+ annualized). Staking was meant to counteract the net-inflationary aspects of OHM’s protocol design (i.e., bonding). Non-stakers’ share of supply would diminish, while those who did stake would increase their share of total supply. This action of staking was dubbed (3, 3), the best possible action a player could make in the Olympus game.
OHM opted for a ‘free-floating peg’ mechanism, rather than stablecoin pegs ($1, dwindling purchasing power). The free-floating peg entailed OHM backing up to $1, "OHM is backed, not pegged”, thus, OHM price would reflect an increase in demand, but OHM would never fall below $1. In summary, OHM created a system where;
Price was directly correlated to demand for OHM
OHM could not fall below $1
Most players would stake their OHM and compound their balance
So how did OHM and (3, 3) fail? As more players staked, perpetuating (3, 3), OHM’s demand could not sustain infinite momentum, so while stakers’ OHM balances kept increasing, demand-centric incentives failed.
Above is a simple illustration of how OHM failed; as stakers’ OHM balance increased exponentially (compounding yield), demand momentum could not keep up, even if demand was perpetually on an upward ramp, eventually, staking balances would overtake it. Although OHM aimed to act as a reserve currency for DeFi, its vast price fluctuations showed that it was still a risky asset, thus, we can imagine OHM price-exposure as risk, and staking yield as reward.
Once balance overtakes price (demand), (3, 3) becomes economically risky, as yield flips price growth, yield becomes negligible and OHM’s incentive structure skews. Players are no longer incentivized to stake, and as such, sell their already-inflated token balance, destroying OHM’s price and causing its >99.5% drawdown.
We can describe this entire structure as risk-on incentivization, where incentive structures are inextricably linked to risk (in this case, exposure to OHM price / demand). Risk-on incentives fail, in that the moment risk outweighs reward, players become economically un-incentivized to take risk, and the entire system collapses.
Apeiro builds risk-free incentives, rather than compounding reAERO lockers’ yield, we mitigate their risk by redistributing our revenue to them on an epochal (3-day) basis. Contrary to OHM, Apeiro does not generate yield in AERO, rather, we distribute yield in ERC-20 tokens decided via governance (i.e., WETH, WBTC, USDC, etc.).
While staking OHM creates more OHM, inevitably magnifying OHM’s sell pressure, locking into reAERO creates risk-free real-yield on a regular basis, paid in whichever assets you desire — incentivizing players to lock into reAERO without an eventual net-harmful action to the protocol (inflated sell pressure).
Manager helps salesmen sell → salesmen sells more paper → company’s revenue grows
→ Each party’s piece of the pie grows proportionately.
This is an example of a properly aligned incentive structure — each party is individually incentivized to take part in a unified action, and are each rewarded for their unique role in achieving it.
Ultimately, DAOs aim to function similarly to traditional companies, simply injecting decentralization into the system to create equitability between hierarchal levels. To simulate a level playing-field, DAOs generally implement governance tokens, where DAO members are defined by holding said governance token, entitling them to a proportionate number of votes in the DAO.
The DAO structure generally fails here, where governance becomes a difficult, inefficient, and limiting action. To prevent this, most DAOs pivot to an unideal structure that looks something like the following;
The issue here lies in that major control of the larger system remains in the hands of the team, and DAO members’ power is miniscule despite their capital investment. There is nothing inherently wrong about this model, and there are numerous advantages to building privately rather than completely openly, but the issue lies in the team’s closed-off nature. Say the team consists of 10 members, an 11th member cannot be added without being directly recruited, this may be via scouting (largely luck-based), applications (can be closed off), etc., but DAO members aren’t able to openly and easily become part of the team.
This ultimately leads to an inherently misaligned incentive structure within the DAO, where team members want to build the protocol (wherein they need to cater to the DAO members), while DAO members wish to either gain power and influence (diminishing under this team-centric model), or sell their governance tokens to extract value from the project. DAOs with misaligned incentives like this cannot function efficiently, as none of the participating parties are working for unified action.
Apeiro seeks to create a DAO that can align it’s respective parties to function as a unified collective, creating a streamlined and efficient cooperative structure (analogous to traditional companies), while injecting decentralization without compromise.
To do this, Apeiro uses a weighted-revenue-share model, in which DAO members are defined by not only holding AERO tokens, but by locking them into two escrowed derivatives, geAERO and reAERO. To learn about geAERO and reAERO specifically, see our docs here. Through reAERO, DAO members can earn a share of the DAO’s revenue, which is then weighted versus their governance and ecosystem participation.
Relating this back to first-principles, imagine the weighted-revenue-share model as a salary + commission based compensation structure for a salesman. 50% of value accrual for reAERO lockers is direct, no incentives, think of this as a salary. The other 50% is split between governance and ecosystem participation (35% and 15% respectively), think of this as commission, the same way a salesmen is rewarded for unified action (selling paper), a DAO member is rewarded for its unified action (governance and ecosystem participation).
Apeiro combats closed-off team structures through the Apeiro page, an ERC-1155D token with a max supply of 100, used as the entry token into the Apeiro Council. This contrasts the typical closed-team structure, as the Apeiro Council governs Apeiro and its ecosystem holistically, open to any purchasers of the Apeiro page. Open, yet private.
Olympus DAO’s OHM was an experiment to create a reserve currency for DeFi, unaffected by the USD’s fluctuations. A core component to OHM’s structure was it’s staking, boasting massive yields (1000%+ annualized). Staking was meant to counteract the net-inflationary aspects of OHM’s protocol design (i.e., bonding). Non-stakers’ share of supply would diminish, while those who did stake would increase their share of total supply. This action of staking was dubbed (3, 3), the best possible action a player could make in the Olympus game.
OHM opted for a ‘free-floating peg’ mechanism, rather than stablecoin pegs ($1, dwindling purchasing power). The free-floating peg entailed OHM backing up to $1, "OHM is backed, not pegged”, thus, OHM price would reflect an increase in demand, but OHM would never fall below $1. In summary, OHM created a system where;
Price was directly correlated to demand for OHM
OHM could not fall below $1
Most players would stake their OHM and compound their balance
So how did OHM and (3, 3) fail? As more players staked, perpetuating (3, 3), OHM’s demand could not sustain infinite momentum, so while stakers’ OHM balances kept increasing, demand-centric incentives failed.
Above is a simple illustration of how OHM failed; as stakers’ OHM balance increased exponentially (compounding yield), demand momentum could not keep up, even if demand was perpetually on an upward ramp, eventually, staking balances would overtake it. Although OHM aimed to act as a reserve currency for DeFi, its vast price fluctuations showed that it was still a risky asset, thus, we can imagine OHM price-exposure as risk, and staking yield as reward.
Once balance overtakes price (demand), (3, 3) becomes economically risky, as yield flips price growth, yield becomes negligible and OHM’s incentive structure skews. Players are no longer incentivized to stake, and as such, sell their already-inflated token balance, destroying OHM’s price and causing its >99.5% drawdown.
We can describe this entire structure as risk-on incentivization, where incentive structures are inextricably linked to risk (in this case, exposure to OHM price / demand). Risk-on incentives fail, in that the moment risk outweighs reward, players become economically un-incentivized to take risk, and the entire system collapses.
Apeiro builds risk-free incentives, rather than compounding reAERO lockers’ yield, we mitigate their risk by redistributing our revenue to them on an epochal (3-day) basis. Contrary to OHM, Apeiro does not generate yield in AERO, rather, we distribute yield in ERC-20 tokens decided via governance (i.e., WETH, WBTC, USDC, etc.).
While staking OHM creates more OHM, inevitably magnifying OHM’s sell pressure, locking into reAERO creates risk-free real-yield on a regular basis, paid in whichever assets you desire — incentivizing players to lock into reAERO without an eventual net-harmful action to the protocol (inflated sell pressure).
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