[Workstream] FOX Tokenomics

Hey foxes! :fox_face:

I’m excited to get the ball rolling on the FOX Tokenomics workstream, a group dedicated to developing the optimal economic model for the FOX ecosystem. I am not applying to be a leader of this workstream, but plan to contribute in a meaningful and ongoing capacity, and am happy to act as a de facto leader until a better leader emerges (please post on this thread if this could be you!).

As Principal Product Manager of ShapeShift, I’ve led or been involved in all FOX-related initiatives since the token was launched in November 2018. Over the past year or so, I’ve been focused on evolving FOX from its original utility as a membership token that waived fees on ShapeShift trades to the governance token of the ShapeShift DAO.

What is the future of FOX?
How will the ShapeShift DAO generate revenue?
What should the ShapeShift DAO do with revenues it generates?

:point_up: These are the questions that this workstream will answer.

If you’re interested in contributing in an ongoing capacity to this workstream…

  1. Reply to this post expressing your interest and what you can bring to the table
  2. In order to schedule a weekly 1 hour workstream-sync meeting, add your availability to this calendar poll. The first sync meeting will be scheduled for the week of August 2nd (after folks return from EthCC).

At the initial sync meeting, I’d like to share and get feedback from the community on a vision for FOX Tokenomics that I’ve been thinking a lot about over the past year. In the meantime, here’s an overview of this vision:

A future without fees
Initially the utility for FOX was simple: ShapeShift charged a small commission on each trade, but if you held FOX this fee was waived. The more FOX you held, the more volume you could trade without commissions.

This model made sense in a world where ShapeShift’s code was closed source and ShapeShift was the counterparty to each trade. Since then, we’ve changed a lot. We’ve embraced decentralized exchanges and exited the regulated the business of trading, embarked on a mission to open-source all of our code, and transferred ownership and control of the future of ShapeShift to FOX token holders.

Could we still add fees on top of decentralized protocols that the FOX token could waive? Of course. Governance has the ability now to enable fees on trades and fiat->crypto purchases as well as to enable FOX token to waive or reimburse these fees. And for many, this may seem as the obvious revenue strategy. After all, Metamask adds a 0.875% fee on all swaps executed in their interface and generates millions of dollars of revenue each month. I think this model is short-sighted, and frankly sucks. Personally, I got into DeFi to remove the middlemen, not to be one. I believe there is a better, positive-sum model in which no fees are ever added to protocols, and users can actually more by using a protocol through ShapeShift than if they interacted directly with a protocol from their own node.

In a nutshell, here’s how this model works:

  1. 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.
  2. ShapeShift incentivizes users to use these protocols through the ShapeShift interface by adding no fees and rewarding transactions with a proportional amount of FOX.
  3. The ShapeShift DAO earns revenues, and the user earns FOX tokens which can represent entitlement to those revenues.

In this model, ShapeShift can objectively be the best way to use these protocols and services.

The First Partnership

We would like to propose the first partnership is established with Yearn, whose protocol has a built-in [affiliate revenue program](https://twitter.com/iearnfinance/status/1367508483952771075?s=20). ShapeShift users will be able to deposit to Yearn vaults to earn yield on their assets with no added fees, and will even earn some bonus FOX. This will make ShapeShift the best interface for using Yearn, with a higher APR vs. using Yearn directly or through any other interface. One hundred percent of the revenue generated through users’ deposits will go to the ShapeShift DAO, and the FOX Tokens users earn will grant them governance rights over how those revenues are allocated.

Revenues

FOX Token holders can choose to distribute revenues to holders, hold or allocate them to diversify the treasury’s portfolio, buy back FOX to either burn or to continue funding community incentive programs, invest in other projects, or any other initiatives the community manifests.

This no-fee added, affiliate revenue program can be applied to any protocol, application, or service that addresses the needs of crypto users, including fiat on/off ramp purchases (Banxa), trades (THORChain or 1inch), NFT marketplaces (OpenSea), all things DeFi (refer to our list of communities being airdropped to), delegated staking for POS chains (staked.us), even physical item purchases (earn FOX when you buy a Ledger or some MetaFactory swag, and the ShapeShift DAO earns some DAI).

Network Effects

How does ShapeShift capture value in an open source, decentralized world? While open source code can easily be replicated, communities, partnerships, reputation, and the network effects these brew, cannot be.

FOX incentives can kickstart, accelerate, and solidify these network effects while also achieving the necessary, ongoing mission of distributing FOX widely, fairly, and to ShapeShift community members.

Open-Source Partnerships

For protocols, blockchains, and any project willing to share a percentage of their revenue.

Blockchains

Blockchain projects will be able to add support for their own chains and tokens, with the option of sponsor bounties for any or all of the work.

Protocols

Protocols or other crypto services (i.e., fiat ramps) that need an interface, web3/blockchain provider, and/or wallet no longer need to build this themselves; rather, they can integrate directly with ShapeShift at launch and gain valuable exposure to a growing user base and not worry about added fees or the risks and dependencies inherent with closed-source technology.

Any project that is willing to share a percentage of the revenue generated by ShapeShift users is eligible for bonus FOX incentives, as determined by governance.

Goals

1. FOX token is most widely distributed governance token 2. The ShapeShift DAO is breakeven, and ultimately profitable (revenues greater than expenditures) 3. FOX is a top 10 governance token by market cap and/or volume

Success metrics (KPIs)

1. # of FOX token holders 2. DAO Revenues; ratio of revenues:expenditures 3. FOX market cap and volume ranking

Thanks for reading! Looking forward to hearing your thoughts, feedback, and other ideas for maximizing FOX utility :slight_smile:

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Woa, this is amazing @willy !

I’m more than happy to contribute in any capacity to this work stream. I’ve been engaged on the centralized treatment of the FOX and all the finance implications, but I’m looking forward to seeing what is coming for it in the decentralized world.

The model to generate revenue through partnerships is fascinating. I will check Yearn protocol to get a better understanding of it, but it looks promising! :rocket:

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This is a very important workstream, thank you for putting this together! I hope to see some more posts from users about any ideas related to Fox tokenomics.

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Hi Willy,

I believe your approach is in the right mind-set, avoiding being another middle-man makes a lot of sense in a now decentralized protocol.

I think the success of this strategy will largely depend on the possibilities of landing the partnerships you mention. There are ways we can discuss of how to achieve this in the best of our abilities: presence on blockchain events, meetings, calls, but most of all we need a knowledgeable team that can carry out this conversations.

I have been in the blockchain space for a while, working on different protocols and blockchains, I would like to contribute in whatever I can. I also have a background in finance and economics so discussing the token economics is something I would find nurturing.

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Great to see the interest in this very important workstream. This is a vital one to develop and always having lots of brains generating new ideas of how to make FOX more effective and give it even more power to the benefit of all token holders.

I look forward to being a contributor to this workstream as it gets going!

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Hello ladies and gentleman. This may be one of the more impactful workstreams to participate in. Glad to be here.

I’m sure there are several points worthy of discussion pertaining to tokenomics, but as a first order I will comment my thoughts on the initial proposal. While I think it is important to stay on topic and not discuss other projects - sometimes it helps to make comparisons.

Fees don’t have to be inherently a “bad” thing. Having fees would entice others to own FOX for the described benefits and using those fees to buy Fox to burn would put healthy economic pressures on the value for token owners. I’m not sure how much revenue goes through Shapeshift or what other discussions have been had with protocol partners - as that probably informs your perception and inspires how you see a product you are more familiar with than I.

Stellar is a technology that I like quite a bit and Stellar has a transaction fee, but it is nominal. See. Although the purpose of the fee and the utility of the fee might differ, it is still a fee from a “middle man.”

Will discuss this further in due time, but here is my initial thoughts on this.

  1. :+1: This is all fine - nothing to add/detract/question.
  2. Use a protocol for free and rewarding free tokens??? This is a bit perplexing. Again I do not know how many people use Shapeshift - I used it in the past, but transparently I use Metamask quite a bit for many things? Are we begging people to use Shapeshift? That just seems like a poor economic model doomed to fail.
  3. The DAO earns revenue :ok_hand:, the user gets a free trade (an economic value) and Fox tokens (more economic value) to get an entitlement to the DAO revenue. (more economic value)

This just doesn’t jive for me, but I would be interested in understanding what numbers Shapeshift does now and what your projections are within the scope of this line of thinking. The only reason I could imagine all these incentives is to get more users, but in business this has a term - customer acquisition. What revenue is being forgone and what capital layouts are you committing to acquire each new participant using the Shapeshift protocol.

As a side note, a question I would have - is your perspective shaped as such because your frustration of being out competed by a competitor - namely the one mentioned by name, Metamask?

Maybe something like 70% of the revenue generated buys back Fox to burn and 30% goes to funding community initiatives? What I’m suggesting is that it doesn’t have to be this or that, and proposals can be made to alter how funds are used at any point it is deemed necesarry

I won’t comment on the rest, but I would like to make a proposal - instead of the tokens going to the DAO treasury that don’t get claimed by October 13th, could we burn them instead.

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Thanks for your comments @goodfaith. Hope you’ll join us at the FOX Tokenomics Workstream kickoff call this next Monday at 2pm ET (add to calendar) where we can discuss this model as well as alternatives in more depth.

In the meantime here are some responses to your points:

Fees also aren’t inherently a “good” thing. Adding fees only equates to revenues if users are willing to pay those fees. I am not anti-revenue at all, just believe that the path to maximum revenues does not involve adding fees on protocols.

I’ve never argued against protocol-level fees, such as the fees charged by DEXs nor the fee charged to compensate miners/validators of a blockchain. I’m saying that as an interface to these protocols, I really don’t think we should monetize by adding additional fees on top of protocols, as this would not only be lame, but also opens the gates for competitors to fork our open source code and charge slightly lower fees (or no fees) while encouraging users to seek alternatives that do not charge extra, easily avoidable fees.

To use your Stellar example, do you think we (an interface) should add fees when a user sends Stellar (a protocol)? I think the DAO will earn far more revenues if ShapeShift instead charges no additional fees when a user sends, and instead works out a deal with Stellar to offer a free and open source interface and be compensated in other ways by the Stellar ecosystem for the value that we add.

In this open source world, especially in a world where the majority of protocols already offer their own free interface, adding fees is not a winning strategy and will add direct friction to the network effects that are imperative to the success of our mission. If we can instead add no fees and reward revenue-generating user activity with FOX, we can cultivate powerful network effects that cannot simply be forked.

I can’t help but smile when reading this :slight_smile: The fact you think this model is so doomed to fail only makes me more bullish on it. Although it’s admittedly quite different than the legacy business models you’re accustomed to, I actually think the craziest thing to do is try and apply legacy business models in this new web3 world. If users’ activity generates revenue for a DAO, why shouldn’t they receive governance tokens as a reward? Not only is this a powerful user acquisition strategy (as evidenced by 57% of Uniswap’s TVL being transferred to SushiSwap within a week), but it’s also one of the most effective ways projects have figured out how to distribute governance tokens widely and fairly. If you prefer not to reward users with governance tokens, what do you think would be a more effective way to distribute these governance tokens widely and fairly to community members? In what way does burning tokens help us achieve decentralized community ownership?

Lol, no. I use MetaMask too, but I would never swap through it. I believe the world deserves an alternative to MetaMask; one that is open-source, community-owned/decentralized, multi-chain, and free. This is what we’re building.

MetaMask users will be welcome to connect their wallet to ShapeShift to access the same protocols for free, and FOX will be a compelling method to entice them.

Do you use MetaMask’s built-in swaps? Why or why not?

For you or anyone interested or skeptical of this crazy concept of not charging fees and giving out tokens to your users, please check out this talk I gave recently at the Ethereum Magicians conference: ETH ÉCOLE 2021 (Paris): Building a Future Without Fees - YouTube

And all of the above said, I promise to be open minded :slight_smile: looking forward to hearing other ideas too.

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Hey Willy. Based on some of the conversation on Discord and what I heard else where, I think the experience the Shapeshift team has gone through over the years perhaps sets the sails in a way I would sail differently.

Government is historically slow to change. Policy and regulation always plays catch up to innovation, but a significant portion of innovation is directly traced back to government investment. That said - I’m not too fond middle men or overly compensated executive pay either. I am bullish on tech to constrict the workforce all across the board.

I think our system is imperfect, but it strives to improve - and I think (and actually the data proves) that the world is a better place than it ever has been in the history of mankind. Our progress has had unintended consequences. I think those problems can be solved/reversed - or at least mitigated to the point there is no solution, because that is a reality.

I’m fan of - Universal Income. I’m a fan of taxing artificial systems: Ai for customer services, robots for manufacturing, transportation and logistics, so on and so forth… fees you see, play into this hypothetical/theoretical funding mechanism for Universal Income. Taxing automated systems to provide basic income. People would still work, but like in a “jury duty” lottery system based upon our skills and interest. Kind of how THORNode rotates out Validator nodes. (I had to throw that in there, get it?) The system is the way it is, I sense the frustration to flip that - whereas, flattening that would be more optimal.

I realize that the world is working through a very transformative era. Technology levels many barriers that were inherent to geography and other man-made interfaces such as language.

If the world could work towards a unified system that automation funds to provide Universal Income and distribution was equitable. If institutional investors made moves to gradually shift percentages of their investments into these automated systems that would be ideal. Social services: Social Security, Medicare and Medicaid are already stressed and strained in the US. We would benefit from this type of transition just as would underdeveloped places in the world would.

This isn’t just a financial discussion. I’ll try to stay as close to finance as I can, but sometimes it requires painting an appropriate vision.

Some things to ponder - the complexity of the fabric of society, and all the costs related to maintaining the lifestyles in each of our existence, but who is so grandiose they wouldn’t humble themselves to a lesser abode? An AirBnb for simi-permeant living???

I do, but maybe because I’m not concerned about knowing any better and it’s convient. But I’ve used Uniswap also. The 10% fee in Atomicwallet is outrageous though.

You guys know your product better than I do. Maybe I’m shooting for the stars, but maybe the Shapeshit protocol could play a part in a different kind of transition.

Governance tokens, huh? I suppose somewhere though all the fog there is a bank account/wallet that is funded through the taxation of automated services for people internationally. A service like Shapeshift that works within the confines of a regulatory environment to achieve that type of vision. Institutional funds capitalize a protocol as such - through policy, leveraging even traditional securities, at this point people would be wondering how a tokenized security - or that organizations DAO, which has real profit/loss statements could ever be valued less than anything speculative and doesn’t turn a profit — uh, hmmm - bitcoin, but perhaps the protocols are amended in such a way to divert revenue to a general international treasury - to be distributed equitably - through code.

All automation and optimization doesn’t occur through finance though - as mentioned previously. (Ai, Robotics and other forms of automation - generally Ai and Robotics though)

Side note - for the Ai side of things there are already comparable “token” price models for OpenAi GPT-3

Starting 1 October 2020:

  • Explore : Free tier: 100K tokens, or 3-month trial, whichever is shorter
  • Create : $100/mo, 2M tokens/mo, 8 cents per additional 1k tokens
  • Build : $400/mo, 10M tokens/mo, 6 cents per additional, 1k tokens
  • Scale : Contact Us
    The FAQ answers “What does 2M tokens equal in terms of number of documents/books/etc” with:

This is roughly equivalent to 3,000 pages of text. As a point of reference, Shakespeare’s entire collection is ~900,000 words or 1.2M tokens.

However, there’re additional sustainability, even decentralized - componets:

  1. Food Security
  2. Energy Security
  3. Sustainable Housing
  4. Transportation
  5. Water security

There is a path to achieve all the above - internationally.

That said - all this would take time and coordination - not only at the policy level, at the IT level too. More experimentation “in the wild.”

Hopefully that type of vision won’t take the 27 years Biance projects it will take to burn half of their token supply to optimize it’s offering, which a similar “tokenomics” plan for the owners of the Shapeshit DAO would benefit from too.

A proposal to burn is about optimizing for today, and relinquishing even more control later. Like a Shapeshift DAO v2, but rejoining the ranks of working with policy makers and regulators.

A new law in Germany could open up as much as $415 billion in crypto investments | Currency News | Financial and Business News | Markets Insider (businessinsider.com)

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Tokenomics Workstream Kickoff call scheduled for August 16th at 2pm ET! If you’re interested in contributing to the Tokenomics workstream in any capacity, you should attend this meeting!

Add to Calendar

Hope to see you there @darwinmvr @huntthewick @chitty @jonisjon @goodfaith!

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