DXD and DXtrust
Intro
In the fall of 2019, DXdao hired Level K, Corkus, and dOrg to develop a fundraising dapp that DXdao used to launch its continuous fundraiser, the DXtrust, in May of 2020. Branded OpenRaise and using Fairmint’s smart contracts, the fundraising dapp is open sourced and free to be used by any DAO.
The Basics
DXD can be minted and burned through a linear bonding curve. The goal of the DXdao is to generate revenue from its products and investments, and route all revenue to the bonding curve, thus sending ETH to the buyback reserve and supporting the sell price of DXD. By this mechanism, a continuous token model, DXD represents financial interest in the DXdao. Currently, DXD conveys no governance rights. 100,000 DXD were pre-minted to a lockup contract, are continuously unlocking over three years, and can be released to the DXdao treasury by calling a public function. When DXD is bought and therefore minted, 90% of the ETH sent goes to the DXdao treasury and 10% goes to the buyback reserve. When revenue is sent to the bonding curve by executing the pay function, the current configuration directs 10% into the buyback reserve and the rest to the DXdao treasury. This percentage can be increased, but not decreased, by the DXdao. The curve can also receive ETH directly which will be added instantly to the buy back reserve. The curve issuance as of this writing is 41943.0251 DXD.
Notes on the Curve
Buy and Sell Price
While the interface labels the actions “buy” and “sell,” it is perhaps more accurate to call it “mint” and “burn.” Both the buy and sell price “curves” are determined by linear functions with origins at zero. The buy function relates price to the amount of DXD issued, whereas the sell function sets price based on the total supply and the amount of ETH in the buyback reserve. At the time of writing, the buyback reserve only has ETH from 10% of the buys into the curve, and thus, the sell price is very low at about 2.95% of the buy price.
Secondary Markets
As just described, the sell price is very low on the curve. Therefore, if someone wants to sell DXD, it makes sense to try to sell it on the secondary markets ( Uniswap, Balancer, Mesa, Loopring, etc. ). Since traders always have the option to mint DXD at the buy price of the curve and the option to sell DXD at the sell price of the curve, it follows that rational trading on the secondary market will happen at a price between the buy and sell prices of the curve. It is often better to trade on the secondary markets. Until DXD starts getting sold ( i.e. burned ) on the curve, one can equate the buy price of the curve with the all time high of DXD. Thus, for the time being it only makes sense to buy off of the curve when the market price is pushing up into the territory of new all time highs.
Relationship of Price and Supply
The DXD curve “bonds” the price to the supply. On the interface the supply is shown on the x-axis and the price is shown on the y-axis. The shape of the “curve” is actually linear, which means for any given amount of issuance X, the price goes up a given amount Y, regardless of how much has been issued. As the price of minting goes up, issuing new DXD costs more, and thus the DXdao treasury raises ever more ETH per DXD issued. Note that the slope of this line has no material impact except to change the nominal supply of DXD. For example, if a steeper slope had been chosen, for a given amount of ETH buying on the curve, the market-cap would be the same while the supply of DXD would be higher and the unit price of DXD lower.
For as long as there has been no meaningful selling on the curve, the amount raised by the curve can be calculated as the integral of, or in other words the area under, the curve. Since the “curve“ is a straight line, the area under the curve is one half of the current mint price times the current curve issuance. As of this writing, the amount raised is:
(1/2) * 41943.0251 * 0.8738 = 18,324.9077 ETH
The curve-issued supply (i.e., excluding the pre-mint) has a market-cap equal to the market price times the curve issuance. Whenever the market price is the same as the mint price on the curve, the market-cap at that time is simply double the amount raised by the curve.
What this relationship on the curve also dictates is that an increase in ETH-denominated price corresponds linearly to an increase in curve-issued supply. This means that the factor by which the market-cap rises is a square of the factor by which the price rises.
Market-cap = Price * Supply
When the curve price increases by a factor of M, supply also increases by a factor of M:
Market-cap = ( M * Price ) * ( M * Supply ) = M² * Price * Supply
In other words, the factor by which the price rises is a square root of the factor by which the market-cap goes up. This presumably dampens the rise of the price. Some have even called DXD “pump resistant.” The benefit to the DXdao is that the minting of new DXD is raising funds for the DXdao treasury that can be used to fund product development.
Future Directions for DXD
- DXD Governance Rights
- Holographic Consensus
- DXdao Stewardship of DXD premint
- Management and Modifications
DXD Governance Rights
As mentioned before, DXD has no governance rights. Governance rights over the DXdao are currently the sole domain of DXdao REP holders. REP, which is non-transferable, was issued during the initial staking period and can be minted by the DXdao through proposals. Since the initial staking period, REP has been earned by participants contributing value, such as product development or liquidity provisioning, to DXdao.
DXD holders are thus entrusting their interests to REP holders. At this stage, this seems reasonable as REP holders are very much dependent on the well-being of DXD in order to ensure funding can continue to be raised for DXdao product development. While the goal of the DXdao is to generate revenue with the DXdao product suite, the products are new, still being established in the marketplace, and revenue is not yet being drawn from them. However, if DXdao is successful in the long run at generating revenue, then REP holders would no longer be dependent on DXD holders for funding. Therefore, in order to protect DXD holders over the long term, it is important their interests are properly represented in DXdao governance. DXD and REP interests must be fully aligned for long-term harmony of DXdao. This could be achieved by having voting power be resultant of a combination of both REP and DXD, or perhaps by giving DXD veto power over key issues.
The uniting of REP and DXD in governance will require serious exploration and potentially significant technical work to achieve. In the short term, some avenue or avenues should be established for DXD holders to actively engage in governance. Two approaches have been discussed thus far:
Locking for REP
The first approach is called “Locking for REP.” Here, DXdao would deploy a governance plugin and a front-end which would allow DXD holders to lock their DXD up and generate REP. One way the distribution could be structured is to generate REP in proportion to the amount staked and time locked. In this case the DXD holder could move their DXD but they would have generated non-transferable REP which would remain theirs.
DXD Guild
The second approach is to establish a “DXD Guild.” This would be a new voting system which would receive a certain amount of REP from DXdao. Then token voting of DXD holders on this system would decide how the REP votes in whole. A variation on this approach would be to allow the Guild to submit votes both for and against a proposal in accordance to each individual DXD holder’s vote. With the Guild approach, a clearly defined allocation of REP for DXD holders could be established. In addition, the Guild could generate its own proposals and votes which could serve to clearly represent the will of DXD holders.
Holographic Consensus
Besides DXD holders having some say in governance through voting rights, another possibility is that the DXD token could be introduced as a staking token for holographic consensus. Holographic consensus is the system used by DAOstack DAOs to filter proposals and allow scalable decision-making. By default, proposals require absolute majority (i.e. > 50%) to pass. Alternatively, participants can “boost” proposals by staking GEN, the native DAOstack token, allowing the proposals to pass by relative majority (i.e. “For %” > “Against %”).
The governance system of DXdao could eventually be upgraded to either support both GEN and DXD or to switch entirely to DXD.
DXdao Stewardship of DXD Premint
DXdao has options on how to best utilize the DXD pre-mint of 100,000 DXD which is unlocking continuously over three years. It can use this DXD to compensate workers. It can use it to incentivize partners or incentivize utilization of its product suite. And it could also sell the DXD to raise money, or even simply burn some of it to help reduce total supply.
Management and Modifications
The DXD curve serves as a continuous fundraising tool for the DXdao. While the price does rise with the supply, there is currently no limit to this. Recently, there has been debate on whether the current set-up is desirable and what might be done to change it. This section explores some of the ideas put forward so far, but the design space is not limited to the ideas presented here.
DXD Curve Management
The DXdao has the ability to manage several configurable parameters of the bonding curve, including the beneficiary address, the revenue share sent to the buyback reserve, and the minimum investment.
By setting the minimum investment parameter very high, the DXdao could essentially pause minting from the curve. This could make sense if the community feels that DXdao has secured enough ETH in its treasury, and it could benefit DXD holders, which includes the DXdao treasury itself.
Pausing the DXD buy/mint would mean the only way to get access to DXD will be through secondary markets and DXdao will stop fundraising. This could be sub-optimal in the event DXdao has opportunities to grow which require more capital. While unpausing the curve is possible, it could cause an abrupt and negative impact on the market price.
Besides having direct control over some configurable parameters, DXdao could also build an intermediary contract to enable additional logic. For instance, the DXdao could institute a treasury reserve limit. If the amount of ETH in the treasury is at the maximum, then the intermediary contract could send additional investments to the bonding curve’s buyback reserve, supporting the sell price. In effect this allows DXdao to manage what portion of raised funds are used for product development vs. supporting the sell price of DXD.
The intermediary contract could also aid the DXdao in burning DXD, selling DXD, or in managing how revenue is sent to the curve. Governance of the intermediary contract could also be assigned to DXD holders.
Modifications to the DXD Curve
Suggestions have also been made that the bonding curve should be updated.
One idea which emerged from a long DAOtalk forum debate is to implement pause and resume functions such that when the curve resumes the curve price will be set to the current market price. This avoids the aforementioned issue of a negative price impact.
Others have suggested that the linear curve be replaced with an exponential one.
