The Success Token (scFOX): What is it?
ShapeShift DAO recently launched its Success Token, also known as scFOX. With such an exciting release and development, a large portion of the ShapeShift and surrounding crypto community ended up wondering what a Success Token actually was, being a relatively new phenomenon in the Web3 space. In this article, we will thoroughly explain what a Success Token is, how Success Tokens work, why you should care, and why the scFOX Success Token is such an exciting development for not only the ShapeShift community but the larger Web3 community as well.
What Problems Success Tokens Solve?
In the past, DAOs that were trying to raise funds through Venture Capital (VC) funding would give those VC funds a discount on tokens over a period of time. Community members disliked such a method as there was a perception that these VCs would buy the tokens at a discount and then dump them on the open market for an immediate profit. The idea behind the Success Token is that the coins are not sold at a discount. Instead, what a VC gets is additional upside if the Token does well. This means that investors cannot just dump the tokens right away but must wait for the dictated timeframe. With scFOX, that timeline is two years. This long-term holding period aligns with the community incentives of token stability and growth as those tokens will be locked for that period. Through Success Tokens, VCs are now seen as collaborators and not competitors — meaning, they succeed if we (the DAO) succeed. Success Tokens offer a good solution for strong, and resilient projects that are here for the long run.
What Is A Success Token?
Most DAOs are highly dependent on their own token price as their treasury is usually 100% composed of that asset. Success Tokens aim to attract venture capital investments basing their profits on the success of DAO. They use UMA’s Optimistic Oracle for resolution, which offers DAO treasury management the tools and flexibility to query precise pieces of data and trust they are accurate.
The advantage of Success Tokens over its conventional version of a call option is the bonuses released to its holders when reaching certain metrics. For each Success Token, holders are guaranteed to get one token back plus a call option. Using traditional finance concepts, UMA Protocol structured the Success Token as a call. By pre-setting parameters in smart contracts, developers establish a strike price for the governance token. Upon reaching this value at the strike price, instead of providing the right to purchase, the smart contract releases one token plus the value of the call option denominated in FOX. Buyers of the Success Token, i.e, large VC cooperatives or other groups and individuals, purchase the Success Token at a determined price to receive the token and a promise for an additional reward if the project rallies.
How Do Success Tokens Work?
Success Tokens are a simple, three-step process:
- The DAO (or organization) configures the Success Tokens’ option, depending on its own objectives and requirements.
- The Success Tokens are then minted and sold at the current price of the DAO’s token. This can be through a public exchange, OTC, etc. )
- At the expiration date, the price of the Success Tokens will depend on the price of the DAO’s token.
Success Tokens in Practice
After going through ShapeShift DAO’s governance process in September, the proposal to mint FOX Success Tokens was as follows:
On February 22, 2022, ShapeShift collateralized 11,290,090.5 FOX Tokens一the native governance token of ShapeShift一to mint 5,645,450.25 scFOX (a FOX Success Token). Each scFOX is backed by 2 FOX. The first wave of Success Tokens was earmarked for sale to strategic investors一such as Coinbase Ventures, Chapter One, and others. A total of 1,764,482.25 scFOX was sold in this manner. After this initial sale, 1,290,322 scFOX was added to Uniswap v3 on a range from 0.355 to 0.42 USDC. For scFOX, all holders are guaranteed to receive at least one FOX Token, with an additional bonus of 1 FOX Token, for a maximum of two FOX Tokens (should the price exceed the strike price of $0.80). In this instance, the strike price for the Fox Success Token is $0.80 FOX/USD. At expiry, if FOX/USD is worth less than $0.8, each Success Token is worth 1 FOX. If FOX/USD is worth more than $0.80, each Success Token is worth 1 FOX + (expiry FOX/USD price — 0.8)/expiry price. scFOX’s strike date is about two years from mint, which denotes an official strike date of March 1, 2024.
Why Should I Care?
Success Tokens align the incentives of the DAO community and the people buying Success Tokens through the collateral that is embedded within the contract. The holders of scFOX can be rewarded with up to two FOX on the strike date depending on the price of FOX一essentially getting the FOX Tokens for more than half off in that instance. This strike price goal incentivizes both the communities and groups investing in the Success Token to work together to make the DAO and product great. Essentially, when the DAO wins, everyone wins.
Success Tokens are an innovative and Defi-native tool used to align larger VC investors with a DAO community as well as individual investors. They are distributed via on-chain transactions where interested individuals and/or entities can purchase Success Tokens for stablecoins. To review: scFOX is available to anyone for purchase not just large entities, which means anyone with capital can participate in this active funding tranche with ShapeShift. In an effort to enable inclusion, ShapeShift provided the opportunity for everyday Token holders, traders, and investors to obtain their very own scFOX by delegating a portion of the Success Tokens minted during the initial VC round to be available for purchase on Uniswap.
scFOX is one of the first examples of a major VC一such as Coinbase Ventures一doing a DeFi native deal like this where there is no centralized entity or contracts at all. This all relied on a crypto-native smart contract in place of a legal contract, which is typically a “SAFT,” or Simple Agreement for Future Tokens. SAFTs require accountable legal entities, such as foundations or team founders, and are paid out under legal requirements.
The implementation of these Success Tokens has a larger implication and impact on the broader Web3 world. These tokens are a concept many more DAOs and protocols can adopt moving forward to raise funding and diversify their treasury holdings. ShapeShift is one of the bigger examples of using Success Tokens to diversify a treasury.
Why Is scFOX Exciting?
scFOX Success Tokens are a community-lead diversification effort of the ShapeShift treasury. Currently, the treasury has over 203 million (and increasing) FOX Tokens in its treasury. The DAO released scFOX as a way to diversify that treasury to other stable tokens to help weather any bear market and fund all of its operations as needed. This is a way that DAOs — such as ShapeShift — can diversify their treasury without selling a large portion of their native token immediately and negatively impacting the open market valuation.
The Future of Venture Capital
We predict that a year from now, there might be hundreds of ways to do something just like this. As of this moment, very few legitimate and easy to implement options一like UMA一exist for communities and DAOs to use. As DAOs continue to grow at increasing rates and continue to form, there will be an even larger market need to serve the needs of massive DAO treasuries. This will lead to a VC competition in the space battling for the attention of these DAOs and their capital.
Learn More:
Jon ShapeShift Talks About Success Tokens
https://medium.com/@ShapeShift.com
