After going through a rabbit hole encompassing twitter, reddit, and tons of articles I thought building out a rough tokenomics and governance system would be a more enriching task rather than regurgitating the case for why a DAO needs a token. The two points of interest that I found.
Tokens mean an ability to have skill/competence based voting systems avoiding loopholes of plurality based voting systems like democracy. This allows for quicker responses, See Hypothetical tokenomics section for details.
One significant challenge of having a DAO is to align the interests of all members. If you don’t have a token based system you can’t solve the crucial principal agent problem. If you have any other system of rewards that aren’t tied to the value of the community itself the principal agent problem will rear its ugly head and individual interests will dominate. For example a bounty based reward system. In this system since bounties are one off transactions/games and there is no downside to doing the bare minimum to get the bounty instead of putting in optimal effort keeping best practices in mind, which would have occurred if you are invested in future growth. This assumes a community member is both rational and lazy. Even if the supply of the list of tasks is based on the community. Each reward is an individual entity with no ties to the value of a community as it would be in a token based system. A token incentivizes each community member to contribute to the growth of the community - if I put it in very simple terms for a centralized company it is akin to an equity vs salary debate, the very basis of the principal-agent problem.
Issuance Schedule - The schedule follows a progressive decentralization approach. Where the issuance of tokens is directly proportional to the size of a community with a decay factor. The decay makes sure we eventually reach an asymptotic limit where even when the number of community members grows we reach a hard limit of the number of coins. This helps create scarcity with a finite maximum limit. It however also allows for higher circulating token counts at the beginning to make mainstream adoption possible to bring in network effects.
Token Issuance and Allocation - Each member is issued a single token when they join the community which solves the cold start problem. Further Issuance of tokens occur whenever a new person solves a problem from a common pool of tasks. Tasks are added to the pool using consensus. Tasks proposed should have rewards backed by internal tokens a proposer stakes from his/her share of internal tokens. This allows for a virtuous cycle of incentive for community growth. If the community is filled with talented people, external and internal actors want internal tokens which increases demand, which increases token value. Cyclically if the community token increases in value, more talented people want to join the community.
Governance Protocol - Voting power is directly proportional to the number of tokens you hold. Where each token you hold gives you one vote. Since token issuance is based on completion of tasks that directly benefit the community, people with the best interests/highest competence hold maximum voting power. Since community growth is the driver of token value, even if there is a stake holder with a theoretical majority (Highly Unlikely and Extremely Improbable) Since the underlying interests are aligned, the majority always wants what is best for the community.
After going through a rabbit hole encompassing twitter, reddit, and tons of articles I thought building out a rough tokenomics and governance system would be a more enriching task rather than regurgitating the case for why a DAO needs a token. The two points of interest that I found.
Tokens mean an ability to have skill/competence based voting systems avoiding loopholes of plurality based voting systems like democracy. This allows for quicker responses, See Hypothetical tokenomics section for details.
One significant challenge of having a DAO is to align the interests of all members. If you don’t have a token based system you can’t solve the crucial principal agent problem. If you have any other system of rewards that aren’t tied to the value of the community itself the principal agent problem will rear its ugly head and individual interests will dominate. For example a bounty based reward system. In this system since bounties are one off transactions/games and there is no downside to doing the bare minimum to get the bounty instead of putting in optimal effort keeping best practices in mind, which would have occurred if you are invested in future growth. This assumes a community member is both rational and lazy. Even if the supply of the list of tasks is based on the community. Each reward is an individual entity with no ties to the value of a community as it would be in a token based system. A token incentivizes each community member to contribute to the growth of the community - if I put it in very simple terms for a centralized company it is akin to an equity vs salary debate, the very basis of the principal-agent problem.
Issuance Schedule - The schedule follows a progressive decentralization approach. Where the issuance of tokens is directly proportional to the size of a community with a decay factor. The decay makes sure we eventually reach an asymptotic limit where even when the number of community members grows we reach a hard limit of the number of coins. This helps create scarcity with a finite maximum limit. It however also allows for higher circulating token counts at the beginning to make mainstream adoption possible to bring in network effects.
Token Issuance and Allocation - Each member is issued a single token when they join the community which solves the cold start problem. Further Issuance of tokens occur whenever a new person solves a problem from a common pool of tasks. Tasks are added to the pool using consensus. Tasks proposed should have rewards backed by internal tokens a proposer stakes from his/her share of internal tokens. This allows for a virtuous cycle of incentive for community growth. If the community is filled with talented people, external and internal actors want internal tokens which increases demand, which increases token value. Cyclically if the community token increases in value, more talented people want to join the community.
Governance Protocol - Voting power is directly proportional to the number of tokens you hold. Where each token you hold gives you one vote. Since token issuance is based on completion of tasks that directly benefit the community, people with the best interests/highest competence hold maximum voting power. Since community growth is the driver of token value, even if there is a stake holder with a theoretical majority (Highly Unlikely and Extremely Improbable) Since the underlying interests are aligned, the majority always wants what is best for the community.
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