TL;DR
- Existing DeFi treasury models have largely failed due to misaligned user incentives and inefficient usage of their funds.
- Root has developed a novel treasury management strategy to solve these problems and deliver DeFi’s first genuinely sustainable treasury model.
- It revolves around its unique Root & Stem model, which applies multiple flywheel effects to put its treasury assets to work.
- The $ROOT Token Generation Event takes place on Saturday 28th October and will be your chance to buy $ROOT tokens.
The Treasury Management Model Backing DeFi’s First Comprehensive Operating System
The $ROOT Token Generation Event (TGE) launches on Saturday 28th October and will provide the first chance for the public to purchase ROOT tokens. We’ve talked a lot about Root’s vision for creating a comprehensive Operating System for DeFi in order to deliver outsized returns back to its stakeholders. Today, we’re going to dive deeper into the innovative new treasury management model that Root will be using to support this vision. Here’s how it will work…
Why Existing DeFi Treasury Models Are Failing
Existing DeFi treasury models have largely failed due to misaligned user incentives and inefficient usage of their funds. The typical incentivization structure for the first wave of such currencies was the (3,3) model. Under this system, projects accumulate a treasury comprised of assets. The treasury acts as a reserve that backs the value of the native token. Users can interact with the treasury by either staking or bonding. Staking means locking up their tokens for a period of time in return for rewards in the form of more tokens. The treasury generates these extra tokens via bond sales. Bonding is the process whereby anyone who holds liquidity provider tokens or certain stablecoins can sell them to the treasury in return for discounted native tokens. Staking reduces supply, which increases token value. Meanwhile bonding provides a revenue stream that drives up treasury reserves. All of which, in theory, is designed to uphold the value of the native token.
However, the (3,3) model has failed to deliver a stable support structure for the native tokens of the projects it backs. This is because its entire revenue model relies on bond sales. This leads to ever escalating emission of tokens that are not tied to any intrinsic value, which in turn leads to runaway devaluation of the currency. Additionally, as bond markets decline, there is no other revenue stream to support incentivizing rewards, causing mercenary capital to flee. Meanwhile, the treasury itself sits dormant, with no value to the ecosystem beyond its currency reserve function.
How Root’s Innovative New Treasury Management Model Solves This Problem
Root has developed a novel treasury management and user incentivization strategy to solve these problems and deliver DeFi’s first genuinely sustainable treasury model. The crux of its solution revolves around the interaction of the Root treasury and the broader Root and Stem ecosystem. Root’s native token is called $ROOT, which is backed by the Root treasury. The key innovation of $ROOT over previous forms of treasury-backed DeFi tokens lies in how it uses its treasury.
In the (3,3) model, the treasury is a dormant asset, providing no value other than its reserve function. By contrast, Root puts its treasury to work, transforming it into a revenue generating asset in its own right. Rather than sitting idle, Root’s Orchard Omnichain Governance Aggregator uses the treasury to generate revenue from next-generation DEXs via bribes and governance power. This creates a self-perpetuating revenue flywheel effect for the Root ecosystem.
However, this is not where the flywheel effect ends. Portions of the Root treasury are invested into Stem protocols via Bloomworks, Root’s DeFi Lab. Each Stem targets a high EV, high TVL market opportunities that delivers outsized returns back to the Root treasury. This creates a flywheel effect on top of a flywheel effect, delivering a genuinely sustainable treasury to back the value of $ROOT tokens. Meanwhile, treasury yields grow as the Root and Stem ecosystem grows, which means users are incentivized towards long-term participation. So, $ROOT does not fall prey to the twin threats of mercenary liquidity and a lack of intrinsic value that lead to devaluation and price volatility. Instead its value is backed by a viable and growing revenue model.
Get Ready For The Root Token Generation Event
Root’s innovative treasury management model makes it one of the safest bets in DeFi, whilst its vision for creating a comprehensive Operating System for DeFi makes it one of the most ambitious projects in the space.
So, make sure you keep Saturday 28th October in your diary so you can get in on the ground floor and secure your own $ROOT holding.
Until then, you can discover more by browsing our docs and joining the Root Discord community.
