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Originally published 25th July 2022.
This article has been updated since Breadchain migrated to Gnosis Chain.
One of the major problems with our economy today is that the needs of working people are subordinated to the pursuit of profit. Within blockchain-based governance mechanisms, standard token voting practices rely on the neoliberal notion of “voting with your dollar.” Like the capitalist market, this means wealthy investors can simply purchase large amounts of tokens on the market in order to hoard voting power. This system allows these capitalist robber barons, or “whales” to greatly influence the outcome of proposals submitted on “decentralized” applications. In other words, financial power becomes directly correlated with political power.
At Breadchain, we believe that this standard governance system does not reflect the core values of our project. Our approach instead seeks to keep financial influence limited in governance. In this blog post we will illustrate our method of leveraging the technical standards pioneered by the Ethereum blockchain, specifically as utilized on Gnosis Chain, to build what we call the Bread Crowdstaking Application – a core funding engine for the project.
A little while ago, we published the second in a series of articles on how we see blockchain and its potential for building Dual Power. In that article we announced the soft launch of our Bread Crowdstaking Application which is the first attempt to build what we’re calling solidarity primitives uniquely afforded by the use of blockchains and smart contracts. We define solidarity primitives as a rethinking of what is commonly referred to as financial primitives in web3. Rather than using blockchains for profit maximization, solidarity primitives use them to help forge solidaristic relationships between individuals and collectives.
The application is essentially a UI for a smart contract on Gnosis Chain, a side chain of Ethereum, that converts crowdstakers’ xDAI (a US Dollar pegged stablecoin) into sDAI, a constant yield bearing asset earning from Maker DAO. In return, Crowdstakers receive a token called BREAD in the same quantity as they gave in xDAI. We call this baking BREAD. The token acts as both a form of collateral as well as a digital local currency which will be used within the Breadchain Network of projects and broader ecosystem. Digital as in crypto and local not as in geographic locality, but local as in to the community which supports, shares and shapes the mission of the network.
BREAD acts as a form of collateral not only because it represents the exact amount of xDAI they staked, but also because Crowdstakers can burn their BREAD tokens at any time to receive an equal amount of xDAI back. In this way, Crowdstakers are not donors but actually co-conspirators for post-capitalism. By staking xDAI, crowdstakers grant Breadchain permission to collect the interest generated to fund the cooperative projects in its network. Crowdstakers have two fundamental financial modes of interaction with the cooperative: funding the cooperative (baking BREAD) or defunding the cooperative (burning BREAD), either posing a stark contrast to their counterpart modes of investment and divestment.
The BREAD token is similar to a US Dollar pegged stablecoin in that it is given in the same quantity as the xDAI provided and can be redeemed at any moment in a 1:1 ratio. It is essentially wrapped xDAI. The implications of this are deeper than what you may initially think. We can think of the Breadchain Network as a digital town in which its citizens are people who align with the Breadchain principles. The BREAD token serves as a digital local currency for this town and can be used by its citizens. It can even be used by those who aren’t citizens but by doing so will support the project. It can be transferred and traded just like any other ERC-20 token all while keeping a stable value of roughly $1.
The Bread Crowdstaking Application acts like the exchange for building and interacting with a post-capitalist economy within the confines of present-day capitalism. With the combination of 24/7 access to burning your BREAD for xDAI and a clear price point, it’s always possible to bake or burn BREAD as long as you have access to Gnosis Chain. BREAD is also available to be swapped through liquidity pools on DEXs like Curve.
Additionally, all of the interest earned from sDAI is also distributed to Breadchain member projects based on a 30 day vote cycle by BREAD holders. By holding BREAD in the previous 30 day cycle, crowdstakers accumulate voting power which gives them the right to distribute their vote among the member projects. The smart contract counts all of the votes from users and aggregates them based on their voting power to determine a final proportion to the accumulated yield at the end of the 30 days to be distributed. Half of the yield is shared equally among all projects and the other half is distributed based on the vote. Therefore only half of the yield is determined by one’s BREAD holdings. More can be read about it here.
One downside to fundraising through crowdstaking is that it can be a slower process compared to traditional fundraising models that would compromise our values. Crowdstaking depends on the APR (Annual Percentage Return) of sDAI on Gnosis Chain. This means that in order to maximize returns to Breadchain, it’s in our best interest to make it worthwhile for Crowdstakers to either hold or circulate their BREAD.
BREAD is a stable community currency that represents your solidarity with the mission of Breadchain: to fund projects building post-capitalism for crypto.
As mentioned, the BREAD token is an ERC-20 token deployed on Gnosis Chain which can only be created by providing xDAI to the crowdstaking contract which is more easily accessible through the UI of the application. All development of the smart contract and UI of the application is open source and can be found on our Github page. You can also see the amount of BREAD minted through Gnosis scan here.
When we first introduced the crowdstaking application, we had the intention of deploying it on the Ethereum mainnet, but we realized that fees were too costly to be practical for our purposes, whereas using the app on Gnosis Chain consistently costs below $0.01 to make basic transactions. The risks of deploying on a side chain do not elude us, but the benefits outweigh them in our view. We have seen Gnosis Chain take an active approach in decentralizing the chain and we have encouraged supporters to become validators. As well, sDAI yields have offered sufficient returns for our purposes.
There are a few major functions in the contract crucial to understanding its operation: mint, burn, and claim.
The mint function is how crowdstakers bake BREAD, and requires xDAI as an input. The xDAI is subsequently converted to sDAI. There is no function for borrowing any of the xDAI, so no leverage is possible to be taken on with funds you would provide.
The burn function requires BREAD as an input in which the equivalent amount of xDAI may be retrieved. In other words, so as long as you have BREAD, you have a claim on the xDAI that is being lent out at the time. When BREAD is burned, it is sent to the 0x00...000 burn address so it cannot be recovered. This maintains the equivalency between the supply of BREAD and the amount of xDAI in the contract.
The claim function is how the interest generated from the xDAI goes to Breadchain member projects. This function can only be activated after the 30 day voting cycle has finished and we have utilized PowerPool to automate this. The amount that each project gets is based on the outcome of the vote by BREAD holders.
With the recent de-pegging and crash of the Terra ecosystem, we also want to assure that BREAD does not share UST’s risk profile. The difference with UST is that xDAI, which backs BREAD, is an over-collateralized stablecoin that runs on MakerDAO whereas UST was an algorithmic stablecoin with very little collateralization. Of course there is always a risk in anything financial, but the basics of BREAD token solvency relies ultimately on 2 things:
Solvency of Gnosis Chain – one of the oldest side chains of Ethereum with various consumer products built on top of it
Solvency of DAI / Maker DAO – the first decentralized stablecoin system which has withstood several moments of extreme volatility
Given those two assumptions, BREAD is solvent.
This is just the beginning. Now that we have the first solidarity primitive operable, we need to put it to good use toward its designated purpose. Here is a taste of some of the next steps we are working on.
Publish an instructional article and video to help beginners interact with the application - Done
Design a new homepage consistent with the style introduced in the application’s own UI - Done
Make improvements to the application page (e.g., expand wallet compatibility, a governance page for voting, etc.) - Done and always improving
Build a Safe App to more easily allow organizations to interact with the crowdstaking application - Done, try it out with your Safe!
Encourage BREAD as a reserve or remunerative currency for other projects, and much more* - Always looking for partnerships like we have with Gnosis DAO*
Once you have baked some BREAD, you can join the token-gated channel of the discord server (#bread-holders) by joining the Breadchain Guild. You can also provide feedback about your impressions of the app in the “#bread-feedback” channel. In the meantime, check out if you can vote on the governance page.
Our network includes projects like the Crypto Commons Association, an organization producing research and events on decentralized tech and the commons, LaborDAO, a project for exploring the use of web3 tools to assist the labor movement, and Symbiota Coop, a collective of organizations including the Dandelion events platform devoted to new forms of culture and enquiry. These are just some of the projects in our growing network, and we are extending an invite to those who share our goals to apply here and join us.
If you’re looking for another way to support, you can do so by giving to our Open Collective, purchasing the NFT associated with the piece. If you want a closer look at the application or to contribute to its development, check out our Github page. Or just to drop us a line, email us at breadchaincoop@gmail.com.
