Create a Tokenomics Workstream, Install a Workstream Leader, and Fund the Workstream
This proposal relates to the creation of a ShapeShift DAO Workstream dedicated to tokenomics. The workstream would focus on a broad range of issues related to treasury management and FOX value-accrual (as outlined and scoped below). Also defined are the workstream’s initial structure, budget, and success metrics.
This proposal, if passed, would also install a Workstream Leader and set aside funding through March 31st, 2022. This initial phase will allow the community to assess whether the workstream’s activities, leadership, and budgetary outlays are a net positive for the DAO.
What’s this about?
Currently ShapeShift has an ad hoc workstream focused on tokenomics, with vibrant discussions already taking place–primarily around treasury management questions. These discussions are already bearing fruit (for instance, around the creation of a treasury management committee), but could benefit from additional structure and strategic direction.
Following community approval of this proposal, a tokenomics Workstream would be created, existing alongside other workstreams in ShapeShift’s org chart. The workstream’s leader would be Kent, this proposal’s author. The tokenomics leader would be tasked with bringing clarity to the current ambiguous structure and strategy, as well as providing guidance and direction to other community members operating in the workstream.
Why is this important?
-
Tokenomics is the lifeblood of most successful DAO’s. When a DAO has its own token (a governance token, in the case of ShapeShift), it unlocks a host of exciting possibilities, including:
Funding for the DAO via its treasury
- Sustainable business models that were previously not possible
- Value-accrual mechanisms for holders of the token, of which a subset are users of the ShapeShift platform
Clearly defining the Tokenomics Workstream and a cohesive strategy will enable the ShapeShift DAO and FOX Token to achieve its greatest potential. The current workstream, operating as a placeholder until something official could be built out, has already made great strides in terms of a.) engaging community members and b.) contributing to discussions and decision-making around topics such as treasury management and engagement with novel DeFi protocols.
In light of the progress that’s already been achieved without a fully-funded and clearly-defined Tokenomics Workstream, it’s easy to imagine how much could be accomplished once these elements are in place. Equally important, a workstream budget would incentivize more community members to spend their time, effort, and brainpower on these issues. Additionally, these economic incentives might also bring invaluable new talent to the DAO.
What will the workstream do?
-
The Tokenomics Workstream will focus on two broad questions:
How should the DAO manage its treasury?
- How will value accrue to FOX and holders of the token?
Core Tokenomics Focus #1: Treasury Management
My suggested approach to treasury management is described in my posts
- on the DAO forum’s discussion about the newly-created Treasury Committee, of which (as of this writing) it appears I will be a member. As the leader of the Tokenomics Workstream I would take the initiative in defining broad strategic goals for the FOX treasury, and play an important role on the Committee in terms of providing suggestions and guidance. (Note, however, that final decisions with respect to treasury allocations will require approval from the Committee itself.)
I envision treasury management pursuing two separate important goals: a.) hedge against the possibility of a protracted downturn in the value of FOX, and b.) unlock the latent energy of FOX, through carefully-considered positioning, in order to grow the overall value of the treasury. (Astute readers will note that this second function of treasury management actually contributes to the other broad goal of Tokenomics: value-accrual to FOX).
There are myriad tools at our disposal to pursue these hedging and growth goals, including but not limited to:
Simple token exchanges
- Token swaps with other projects
- Lending and borrowing
- Layer-1 staking
- Novel DeFi projects built specifically for treasury management
With such a vast array of choices, each with its own set of trade-offs and risk/reward profile, how should we decide our course of action? I suggest the following:
1.) Set clear goals for both hedging (e.g. how much stablecoin exposure do we need, and how many months of runway do we require), and growth (e.g. we seek to grow the treasury by XX% in the next 3-4 months).
2.) Weigh the various options for achieving these goals, with an unwavering eye on risk management.
Step two will require some serious DeFi expertise–especially with respect to evaluating novel growth strategies. The right minds in the Tokenomics Workstream could pay major dividends!
3.) Execute the strategy.
This is the step where positions are entered, managed, and exited–ideally, with minimum negative impact on the price of FOX. This would be a great role for a seasoned DeFi trader. (Position maintenance is especially important with collateralized loans, which can be at risk during wild market swings.)
4.) Periodically revisit the overall treasury position and adjust accordingly.
This should be done on a regular basis, perhaps quarterly. Should gains be taken off the table? Should losing positions be cut loose? Are there new risks or market dynamics that render our prior assumptions obsolete? In the fast-moving crypto space, it’s inevitable that the landscape will shift under us. A steady hand on the tiller requires constant adaptation.
Core Tokenomics Focus #2: FOX Value-Accrual
Why does FOX have value? The simple answer is that as a governance token, it provides its holders with the ability to exert some degree of control over the DAO. However, in order to make those governance powers matter, the ShapeShift platform needs to actually generate value.
- of FOX Tokenomics this summer, Willy outlined a clear and effective way this could happen:
ShapeShift establishes partnerships with protocols and services willing to share a percentage of the revenues generated from ShapeShift users. Many protocols and services already have built-in affiliate models, including 1inch, Yearn, and OpenSea.
- ShapeShift incentivizes users to use these protocols through the ShapeShift interface by adding no fees and rewarding transactions with a proportional amount of FOX.
- The ShapeShift DAO earns revenues, and the user earns FOX tokens which can represent entitlement to those revenues.
- This remains the DAO’s bread-and-butter. Without a kickass platform, there’s not much value being added. As such, it’s imperative that we increase the number of partnering DApps and blockchains. However, one thing has changed since the summer; FOX has been more widely distributed through both the fairdrop and trading, and now lives in nearly 38,000 wallets. Assuming one-third of those addresses are the same entity, that’s still roughly 26,000 users and potential users.
To date, benefits have accrued to users via Rainfall Rewards, FOX Fuel, discounted trades on the platform, and via LP’ing on Uniswap and staking with the DAO. While these have proven to be effective strategies, there are several questions that emerge as the DAO moves out of its initial “startup” phase:
Can this incentive model be improved?
- How else can holders benefit from holding FOX?
- How can we improve the “stickiness” of FOX, and encourage more holders to use the token on the platform?
- How can we encourage a more vibrant network effect?
- Do new technologies such as cross-chain bridges offer new partnership possibilities?
- How can the recently-proposed FOX Chain contribute to value-accrual?
- These are core questions for a Tokenomics Workstream to ponder!
With respect to actually distributing DAO profits to holders, there are a few tools at our disposal:
Issuing FOX dividends–perhaps by distributing to FOX stakers
- Token buybacks
- Token burns
- Diggy’s excellent Product Manager job description.
In terms of tactical operating logistics, a handful of weekly hour-long meetings would be a good place to start:
Weekly office hours
- Weekly or Bi-Weekly treasury management discussions (this would involve the entire Treasury Management Committee).
- Weekly Tokenomics team meetings or one-on-ones
-
For this first four-mouth term, initial deliverables will include:
1.) Creating a “State of the FOX” snapshot that provides an updated view of our treasury, current partnerships, and value-accrual strategies. With a clear picture of where we are now, we’ll be better-positioned to execute on our strategic objectives.
2.) Creating strategic treasury management diversification goals, for consideration by the Treasury Management Committee.
3.) Moving into diversification positions such as stablecoins (pending Committee approval).
4.) Building a team of multiple tokenomics contributors.
5.) Contributing to the creation of new value-accrual mechanisms for FOX.
Potential tokenomics KPI’s include number of FOX holders, “stickiness” of holdings (i.e. average number of days the asset is held), and of course the price of FOX.
While FOX offers clear insights into the market’s perception of ShapeShift’s business model and value-accrual mechanisms,it does raise a few problems:
Focusing on the price of FOX raises the danger of encouraging treasury moves that will pump the price in the short-term, with less regard for its long-term performance. The tokenomics workstream should never prioritize short-term gains over the long-term interests of ShapeShift users and FOX holders.
- As with most crypto assets, the price of FOX and its market cap is highly influenced by the movement of the overall crypto market.
Each of these has potential advantages and disadvantages. However, a good case can be made that any of these discussions about profit distribution are premature; currently the DAO needs to invest in itself, improve the platform, increase its user base and revenue-sharing partnerships, and bolster this nascent community with new talent.
Governance itself also falls under the purview of tokenomics. Although the current governance model seems to be working well in the DAO’s early days, it’s important to note that this relatively simple system isn’t set in stone.
Value-accrual is a deep topic that deserves deep consideration. The Tokenomics Workstream is the ideal place for these discussions to happen.
What are the core responsibilities of the Tokenomics Workstream Leader?
1.) Define the strategic goals of the Workstream.
2.) Build a team of contributors who can help make those goals a reality.
3.) Work alongside that team as the Workstream devises and employs the tactics necessary to achieve its goals.
4.) Revisit and revise the strategic direction as necessary.
For a more detailed view of how this position will exist in the context of the DAO, I have shamelessly stolen and repurposed
What constitutes success?
To avoid conflating FOX’s performance with broader macro trends, I suggest the FOX/ETH ratio as a useful indicator. This would help provide a better sense of how FOX is performing relative to the market–again, with the caveat that the workstream should never make decisions solely to increase the short-term price of FOX.
Who is this guy, and why should he lead this workstream?
I (Kent) humbly submit myself to the community as the proposed leader of ShapeShift Tokenomics, owing to my relevant background and experience.
From September 2018 until August of this year, I served as Head of R&D at (centralized) ShapeShift. (Previously I worked at ShapeShift as a marketing strategist–a position I started in February 2017.) In R&D I had two main areas of focus. I believe both are relevant to the tokenomics role:
1.) Helping to incubate Microtick, a decentralized short-term options trading protocol that can also serve as a censorship-resistant oracle.
This led to some deep learnings about how Cosmos works, as well as complex thinking around price discovery, options, and oracles. I also played a role in building out the tokenomics of Microtick’s native token, TICK, including deliberations about its overall supply, staking mechanics, and in-protocol rewards.
Here’s a Chorus One podcast where I discuss Microtick, along with its Creator/Founder.
2.) Strategic research and analysis around all things crypto.
Part of my job was to help ensure that ShapeShift was never caught flat-footed in the fast-changing crypto world, and was better-positioned to spot risks and take advantage of emerging opportunities.
To this end, I carried out research around various relevant topics, such as new blockchains, NFT’s, DeFi, Layer 2, and cross-chain bridges. The resulting reports were disseminated for internal use. Several were also repurposed for public-facing “thought leadership” pieces:
I believe this knowledge of the crypto world, in all its various facets, would be invaluable in my efforts to lead the Tokenomics Workstream.
Separate from my work with ShapeShift, I’ve been active in the crypto community, both as the founder of the Ethereum Denver meetup and a co-organizer of the ETHDENVER hackathon. I’m passionate about educating the masses about crypto, and am currently working with C4 on creating Ethereum-related curriculum. Here’s an “Ethereum Explained” talk I gave at a C4 conference a few years ago.
Additionally, it appears I’ll soon be a member of the newly-created Treasury Management Committee. As described above, treasury management is one of the core functions of the proposed Tokenomics Workstream.
How will the workstream be structured?
This proposal clearly defines only one initial position: Workstream Leader. This flexibility will allow for multiple contributors to emerge in the months ahead.
Additional roles likely include:
Degens: DeFi experts who can help surface potential new opportunities for treasury diversification and growth, help to accurately assess their risk/reward profile, and advise on (or actually execute) the entries and exits from those positions.
Tacticians: Community members who can jump in to help execute our strategy and manage projects, where necessary.
Outreachers: Tokenomics entails constant liaising with other DAOs and crypto projects. Whether we’re talking with a DeFi protocol that offers new diversification options, or talking to a blockchain that would like to integrate with the ShapeShift platform, building and cultivating close relationships are an important function of this workstream. (An interesting question is how these functions will overlap with a separate business development workstream).
How much will this cost?
Should this Workstream be created, it’ll need funding for bounties, salaries, and operating costs as follows:
Workstream Leader: 0 FOX (salary), $45,500 (conditional performance bonus)
The Workstream Leader has no associated salary for this first term. However, should the Workstream meet its goals over the following four months, the community will have the option of rewarding its Leader a $45,500 performance bonus. This bonus equals four months of the standard Workstream Leader compensation package, multiplied by 0.7 to compensate for the fact that it’s unclear exactly how much work this will entail. (In other words, it would be unfair to other Workstream Leaders if this position paid the same amount for less work).
Issuance of the performance bonus will be tied to the accomplishment of all the success factors outlined above. To reiterate, these are:
1.) Creating a “State of the FOX” snapshot that provides an updated view of our treasury, current partnerships, and value-accrual strategies.
2.) Creating strategic treasury management diversification goals.
3.) Moving into diversification positions such as stablecoins (pending Committee approval).
4.) Building a team of multiple tokenomics contributors.
5.) Contributing to the creation of new value-accrual mechanisms for FOX.
Bounties and salaries: $50,000
Given the emergent nature of a brand-new workstream, it’s likely that we’ll want to initially employ bounties for specific projects and/or duties, rather than create salaried positions right off the bat. As the workstream gains clarity, we may consider adding salaried positions later in this initial four-month term. Performance bonuses could also be considered for Degens and other trading-related activities.
Note that the total requested for contributor bounties and salaries may not be necessary; leftover funds could be rolled over to the subsequent workstream term or moved back to the DAO, with that decision left to token holders.
Total requested funding: $95,500
What are the potential drawbacks of this proposal?
One could argue that if the DAO were very budget-conscious, it could continue to operate Tokenomics on an ad hoc basis, without a leader and a budgetary outlay, and still make progress on important related issues.
What exactly does this vote do?
“FOR”: 1.) Create the Tokenomics Workstream as described above. 2.) Install Kent as the Workstream Leader. 3.) Fund the Tokenomics Workstream with $95,500.
“AGAINST”: Do not adopt the changes described in this proposal.
1f680