necDAO: One of cryptocurrency’s largest DAOs is about to be created
Concrete tokenomics give you a firm place to stand while you implement on-chain governance.
DeversiFi, the exchange formerly known as Ethfinex, is going through a metamorphosis as it transitions from a centralised model to a decentralised one. In the process, it's forming one of the world's largest decentralised autonomous organisations (DAOs).
At a time when everyone's talking about decentralising everything, it's well worth looking closely at this formerly centralised commercial entity that is in the process of actively transitioning to a fully decentralised, token-powered, community-governed model.
It's a journey that many other entities may have to take someday.
Before and after
DeversiFi was founded as Ethfinex, an arm of the Bitfinex exchange, with a token model that distributed the exchange's native Nectar (NEC) tokens to traders based on their share of the marker making, while pledging 50% of exchange trading fees to NEC holders. There was no cap on the total number of NEC tokens.
The reasoning behind this system was dual-purpose.
- It was intended to incentivise users to provide more liquidity faster (earn NEC by providing liquidity fast to maximise one's share of the trading fees later) in order to grow the exchange faster in its nascent stages.
- It was intended to distribute NEC tokens to a wide range of users, pre-selected for a reasonable degree of trading and industry experience, proportionate to their involvement in the exchange.
While this model suits a growth phase, it's not so suitable for a completely decentralised exchange.
The end goal here is to program a largely autonomous exchange platform that will be surrounded by a community of users who can take an active role in its use and development. The point of this autonomous exchange platform goes beyond simply offering exchange services. It will also offer margin trading, tap into other DeFi services such as lending and so on.
The NEC token needs to serve as a unifying force in all this, holding the community together, finding purpose and preventing centralisation, all without a central managing entity.
This is the rationale behind the latest batch of sweeping changes to the NEC token.
|DeversiFi is burning 80% of its own NEC token holdings – 400 million out of 500 million.||DeversiFi loses much of its own power and decentralises itself out of the system.|
|The NEC token is turning deflationary. 50% of exchange revenue will automatically buy back and burn NEC through a smart contract auction process and no more NEC will be minted.||The token gains more reliable monetary value, allowing it to serve as an effective community foundation, and the DeversiFi community is incentivised towards exchange growth to boost NEC value.|
|45% of exchange revenue will be allocated to the necDAO.||The necDAO has an ongoing source of funding for collaboratively growing DeversiFi.|
|Token holders will receive governance powers.||The DeversiFi community is able to start running the decentralised show.|
Also in line with its function as an exchange token, each NEC token someone holds can deliver them up to 4 cents in savings per month, in the form of exchange fee discounts.
As such, this new tokenomics system is a concrete way for a diverse range of users to mutually agree that the NEC token is valuable. On a brief tangent, it's also worth noting that the diversity part is actually quite important.
Appreciating the value proposition of Bitcoin, for example, requires certain views (filthy fiat, government collapse, digital gold, greater fool, etc). But anyone, no matter who they are, can agree that something like NEC can be mathematically shown to have at least some value in its own right, under certain conditions.
Either way, with that tokenomics foundation, necDAO has a place to stand while it implements features such as on-chain governance.
DeversiFi has been using on-chain governance dapps for a while now, including Kleros for evaluating token listings and DAOstack to allocate funds for its community bounties. These kinds of processes have been successful enough that it's ready to take the next step soon.
"New models based on prediction markets for decision making, via DAOstack, are now mature enough to be used and make it possible to coordinate thousand person organisations," DeversiFi says in its whitepaper.
necDAO will be an independent but synergistic side of DeversiFi, and in more tangible terms, the necDAO will consist of the approximately 2,000 current NEC token holders, who will be given several million dollars' worth of ETH and an economic incentive to go forth and multiply.
Applications like Kleros and DAOstack help facilitate their collective decision-making as they do.
necDAO will be spinning up in the coming months, with an initial bootstrap phase beginning 7 November. In this time, NEC holders will not be able to exercise any governance powers, but they will be able to accrue reputation points to use in the necDAO once it's live.
Then, on 7 December, NEC holders will be able to claim tokens and start exploring the decision-making tools available to them, although no votes can be passed. Things come to life a week after that, with live governance commencing on 14 December.
And the rest, as they say, is history.
Disclosure: The author holds BNB and BTC at the time of writing.