Art Triumphs at Diffusion Hackathon!
Trojan: DAO 1st prize in Token Engineering and 2nd prize Overall
On 19–20 October 2019, Factory Berlin hosted Diffusion Hackathon, a developers’ conference promoted by Outlier Ventures which focused on applications of blockchain technologies. Trojan had the honour of competing in the Token Engineering track, which required participants to model a crypto economy and to study its allocation dynamics. We are thrilled to have been awarded the 1st prize in the TE track and the 2nd overall prize in our first Hackathon.
Background: the Challenge of Funding Art
Trojan DAO was started by a group of Athenian artists and cultural organisers in order to create a community-driven model for the creation and funding of artistic projects. The urgency of finding novel funding in the midst of Capital Controls and after years of debt crisis encouraged us to think creatively and to explore unconventional solutions in the field of blockchain.
Autonomous art is an example of a common good that struggles to secure sustainable funding sources and to protect shared resources. Cultural projects are most frequently dependent on donations or public/private foundations in order to get off the ground. However, the positive externality intrinsic to donations to the community results in art projects being chronically underfunded, since donations depend exclusively on donors’ appreciation. Furthermore, reliance on public/private foundations exposes art collectives to the whim of institutions and reduces their embeddedness in the social environment which they are part of.
It is in this context that DAOs (Decentralised Autonomous Organisations) could possibly offer a viable solution to coordinate individual engagement in the creation/financing of collaborative projects. Based on a cryptographic mechanism which prevents individuals from reneging on their commitments and guarantees the execution of contracts, DAOs are sets of protocols which use the blockchain as verification mechanism and act as “incentive-aligning mechanisms” to coordinate the deployment of shared resources.
To attain these goals, one of the tools a DAO can use is the issuance of a token which is minted/burned in exchange for Ether or other assets. The token consists in a representation of the value produced and stored within the organisation, as a result of certain specific actions which are considered productive of value by the DAO’s participants. Paraphrasing Smith and Nietzsche, we could say that the goal of token economics is to design an artificial Invisible Hand, after the death of God has crippled our faith in that moved by Divine Providence.
The building blocks: bonding curves & Moloch DAO
The issuance of a token on part of the DAO poses questions on the price (denominated in a currency, such as Ether, which act as reserve) at which it burns/mints new native tokens and another. There is a trade-off between predictability of the token price and the flexibility of the monetary policy in maintaining incentives aligned. One of the most effective solutions has been to employ bonding curves to regulate the token supply.
Essentially, a Bonding Curve is a way to fund and coordinate work around an objective, expressed in a smart contract. A bonding curve works as an automated market maker, that sells tokens at a price (generally denominated in ETH) which is a function of the number of tokens already sold. Namely, the bonding curve guarantees instant liquidity of DAO tokens, as long as a price, denominated in a reserve currency (namely ETH) is met.
Trojan is built on the Moloch DAO standard, which offers a minimal DAO structure with the potential for substantial customization. Basing ourselves on Moloch, we created an open-source “extension pack”, providing fundraising capabilities to the DAO. The code powering this DAO fundraising mechanism is open source and we encourage other teams to develop it further, also with our collaboration.
Mechanism Overview: taxes and incentives
The DAO fundraising mechanism we developed is composed of a funding mechanism and the DAO’s digital vault to store tokens.
The bonding curve contract issues ERC20 tokens which are the practical means of distributing funds to artistic projects chosen by the DAO.
Two kinds of taxation provide the DAO with financial resources while incentivising early adoption. Incoming and outgoing funds are taxed under a “DAO tax” and token transfers under a redistributive tax, resulting in a redistribution in favour of existing token holders.
Tax revenues are held in a vault controlled by the DAO, and are used to provide grants to fund the proposals accepted by the DAO.
Simulating the token economy using cadCAD
In Diffusion Hackathon we wanted to understand if the token economy we designed would effectively yield the results we designed it to deliver. To do so we ran a simulation of system in order to test the assumptions with which we created the token economy. We used cadCAD, a computer-aided-design tool for complex systems created by BlockScience, which is used to test token economies and guide their design process.
We programmed our cadCAD model according to the token economy of Trojan, making several assumptions: applying rates of 1%, 2% and 3% for redistribution, incoming and outgoing tax respectively and we modelled for a constant bonding curve, namely the token supply price is invariant to the number of outstanding tokens. Furthermore, we capped the number of token holders at ten including DAO pool and Guildbank. Below you can see the token held by each of the 8 token holders in time:
Below you can see the token distribution between 10 users, including the Guildbank and DAO pool as it changes across time.
As highlighted by the graph above, in this scenario, the “DAO pool” is accumulates value, as the users interact.
The future milestones are to run more refined scenarios testing for different assumptions of user behaviour and examining how the results would change due to a modification of the bonding curve and tax rate parameters. A further phase will involve analysing scaled-up scenarios, using a greater number of users and time-steps to search for emerging properties, rich-get-richer dynamics and long-term trends. This will guide the development of an ecosystem which will effectively promote art as a common good.
Thanking Contributors: James Simbouras & JoshAFairhead