Bigcap: An Experiment in Decentralized Investing

Bigcap is a novel experiment in decentralized, collective investing, where a gamified trading model promotes treasury growth. The vision of Bigcap is to grow into a decentralized, transparent Celsius, where anybody can participate in helping grow the treasury. The $BIGCAP token provides governance rights and serves as collateral to protect the treasury. Participating in Bigcap requires users to purchase and stake $BIGCAP tokens.

Useful Links

• Link Tree: https://linktr.ee/bigcapcrypto
• White paper: https://bigcap.io/whitepaper.pdf

On-chain Info

• Launched on the Ethereum network
• Token contract: 0xE29F1241E6015A4949cb7E3f07234BA794006181
• Contract deployer: 0x61a2360447C4d1062a8b54b74AaBc12a075f43A5
• DAO-controlled treasury (time-locked contract): 0x528fB7f75384eC26c1a65C088B637F0d1bf35702
• DAO governor contract: 0x442660DDf67dd90f9a75885b2e2312F991b3027B
• Operations wallet (not DAO-controlled): 0xbF210B6CCb130C90375dc92E03Cb64Fea978795b
• Staking contract: 0x87dc49c256b87747af50f93f053A6508275A9fD4
• Liquidity lock

$BIGCAP Token Info

• Launched Nov-29–2022
• Token utility: staked collateral and DAO governance
• Token type: ERC-20
• Total supply: 100,000,000 $BIGCAP
• 100% of tokens supplied to the Uniswap V2 liquidity pair (no team allocation)
• Uniswap liquidity locked in the Signata-powered AGFI liquidity locker for one year (expires Jan 3rd 2024)
• Taxes: 6% on buys and sells—5% goes to the treasury and 1% to the operations wallet
• DAO can vote to permanently disable taxes or redirect tax revenue
• DAO governance: 1 $BIGCAP token = 1 vote

Fig. 1. An overview of the Bigcap protocol. Infographic provided by Bigcap.

The Creators of Bigcap

Bigcap was created by Congruent Labs Pty Ltd, a web3 software development and consultancy company based in Canberra, Australia. Congruent Labs is also the creator of Signata, a burgeoning decentralized identity ecosystem. Bigcap has integrated Signata’s on-chain proof of identity tools into its protocol.

Tim Quinn, Conguent Labs co-founder and project manager, is the Bigcap project lead. Tim has a diverse background in web2/web3 software development, identity management, cryptography, and IT security and has worked with many departments of the Australian government, including the Department of Defense. Among his many achievements is the pioneering development of soulbound NFTs—predating the Ethereum standards and Vitalik Buterin’s seminal paper that brought the soulbound concept to a wide audience. The Bigcap team also includes several developers that remain anonymous.

Bigcap functions as a Decentralized Autonomous Organization (DAO), with Congruent Labs serving as the DAO custodian. Such a decentralized status is necessary in order to abide to the securities regulations of the Australian government.

Bigcap Solves the Hedge Fund Centralization Problem

Passive Income Platforms Have a Trust Problem

Since the DeFi boom of 2020, passive income platforms have proven incredibly popular. They have taken on diverse forms involving lending, liquidity provision, perps funding, staking, hedge fund investing, and much more. With the exception of some robust decentralized lending platforms such as Aave and MakerDAO, most of these platforms were centralized black boxes where trusted parties held custody of users’ funds. This centralized organization introduced severe counterparty risk, the dire consequences of which have played out in 2022. The catastrophic failure of centralized platforms in 2022 has demonstrated the need for trustless platforms. Furthermore, strict regulatory measures will likely block many users from accessing centralized passive income platforms (e.g. the SEC warns Coinbase to not launch its lending program). Therefore, it is essential for future passive income platforms to adopt robust, decentralized, and trustless frameworks.

DAOs Sacrifice Efficiency For Robustness

Some of the pitfalls contributing to the collapse of centralized passive income platforms include: (1) the opaque nature of centralized implementation, (2) poor decision-making (e.g. over-leveraging, poor risk management), (3) inadequate accountability, and (4) incentives for fraud and bad actor behavior. In contrast, decentralization promotes platform robustness by enabling transparency, accountability, and collective decision making.

DAOs are a popular method to implement decentralization. However, they come with a tradeoff—in order to achieve robustness, they sacrifice efficiency. For example, a DAO hedge fund would probably fail if it required meeting quorum prior to executing each trade. Traders must be nimble and react quickly to changing market conditions; they would be greatly encumbered by the DAO constraints and, consequently, the hedge fund would perform poorly. Accordingly, crypto hedge funds tend to be fully centralized (table 1; figure 2A) or organized into hybrid structures whereby high-level governance is DAO-controlled and low-level implementation is not (table 1; figure 2B). In both cases, trading execution lacks the protections afforded by decentralization.

Table 1. A comparison of platform organizations

Figure 2. A comparison of various levels of hedge fund decentralization. A) A centralized structure whereby a trusted party makes high-level decisions and also controls the treasury. B) Purported DeFi hedge fund structure where high-level governance is decentralized, yet a trusted party still controls the treasury. C) Bigcap’s hedge fund structure, whereby high-level governance and treasury control are both decentralized.

How Bigcap Addresses DAO Inefficiencies

Bigcap is a new type of decentralized hedge fund that offers a solution to the robustness-efficiency tradeoff: the key development is a gamified trading system that allows participants to trade the fund’s treasury at their own discretion while simultaneously preserving decentralization (figure 2C). In this system, both high- and low-level governance remains decentralized, yet trading is unencumbered by DAO organization (table 1; figure 2C). Decentralization is achieved by spreading the treasury among many individuals and limiting their individual stakes, thus preventing individuals from destabilizing the protocol with risky behavior. The aggregate activity of independent traders confers robustness and treasury protection. To my knowledge, this solution is the first of its kind in the crypto space.

The Bigcap Vision

Bigcap aims to become the decentralized Celsius. Its novel design enables decentralized and scalable growth. As detailed in the next section, the protocol is designed in an expandable fashion which allows the DAO to tweak and refine the system over time. Here are some of its fundamental attributes:

• Anybody can participate in trading a portion of the treasury.
• A gamified trading system incentivizes traders to make good trades and holds them accountable for bad trades.
• The treasury is spread among a diverse group of traders.
• The treasury is protected via loss-recovery tools.
• All trades are transparent and visible on-chain.
• Users deposit $BIGCAP tokens to gain a stake in the growing treasury.
• The value of treasury growth is returned to $BIGCAP token holders.
• The DAO decides the mechanism by which value is returned to holders.
• Users can see their deposits on-chain and can withdraw at any time.
• Bigcap will utilize soulbound NFTs for tracking trader performance.

A Detailed Look at Bigcap

In the following sections, we will explore the mechanics of the Bigcap protocol (see figure 3). This information was collected from the white paper and through discussion in the official telegram chat.

Gamified Trading Is Split Into Ladder Competitions

The ladder contract is the engine running the Bigcap protocol. It receives ETH from the treasury and distributes it to ladder participants (figure 3). Participants must stake $BIGCAP as collateral in order to receive this ETH, which they will then use in trading competitions. Competitions are split into time-constrained ladders, wherein participants compete for the largest profits. Participants must stake their collateral within 3 days of the start of a ladder season. Once staked, they can open and close any trading positions at their discretion. Staking and trading are done through the Bigcap dashboard (here is a demo of the dashboard). Initially, a whitelist of high market cap ERC-20 tokens will be available for trading (hence the name ‘Bigcap’). On the backend, the dashboard will perform the swaps via DEXes.

Traders are ranked and rewarded based on performances within ladder seasons. The rewards system will be highly flexible and determined according to DAO governance. If a trader ends the season in negative profit, they must cover their own losses, either through topping up their ETH balance or liquidating their $BIGCAP collateral. Alternatively, they can carry over their trade(s) into the next ladder season. Subsequent ladders may start automatically or may be delayed, depending on DAO governance.

Ladders will be refined in an iterative manner, whereby data from prior ladders are used to improve parameters for later ladders. The overarching goal is to maximize the number of participants and the rate of sustainable treasury growth. Therefore, it is important to home in on optimal incentive mechanisms.

Figure 3. A schematic of the Bigcap protocol. Purple arrows represent the flow of ETH. All ETH that flows out of the treasury is constrained by DAO governance.

The First Ladder Season Has Unique Attributes

The initial ladder season will serve as a trial run with the purpose of gathering analytics for optimizing parameters in later ladders. The funds for this ladder have been accrued through $BIGCAP token swap fees, however, funds for later ladders will come from prior ladders. Eventually, the DAO will shut off $BIGCAP swap fees, once the ladders are self-sustaining and generating consistent treasury growth. The parameters of the initial ladder include the following: (1) the season will last one month; (2) each trader receives a 0.1 ETH allotment; (3) trading is limited to the approximately 15 tokens within the dashboard; (4) all profits must be returned to the treasury; (5) there is a total allotment of 10 ETH.

How $BIGCAP Collateralization Works

Traders must stake $BIGCAP tokens to fully cover their ETH allocation. The collateral ratio may vary depending on analytic data acquired in the early ladders. The DAO can decide if a different ratio is necessary. Furthermore, different account tiers, different types of ladders, and different market conditions may warrant different collateral requirements. For example, the DAO could designate a ladder for high-volatility tokens and the required collateral would be increased to account for the higher risk.

Traders Can Access Different Tiers Depending on Their Performance

Traders that return the target profits are minted soulbound NFTs as proof of success. Three NFTs open access to higher trading tiers with different mechanics. The tentative trading tiers grant access to differently sized ETH allocations of 0.1, 0.5, and 1 ETH. In the lower tiers, all trading is constrained to the Bigcap dashboard. If approved by the DAO, the highest tier will enable access to unrestricted trading outside of the dashboard. These traders will be able to use the ETH however they want, as long as the funds are returned to the ladder contract. Unrestricted traders must bear a Signata NFT as on-chain proof of identity and uniqueness, the purpose of which is to prevent fraud and sybil attacks.

How the DAO Works

Bigcap is organized into a DAO that controls high-level protocol governance. The DAO holds full control of the Bigcap treasury. Using treasury funds requires proposing and passing a vote (figure 3). In order to initiate a ladder, a proposal must be opened to release the allotted ETH to the ladder contract. Additionally, the treasury has a timelock mechanism in place for security purposes, adding a safety buffer in case of a DAO attack. Proposals require at least 4% of total supply participation in order to pass a vote. The DAO controls decisions such as: (1) the quantity of ETH to allocate to a ladder, (2) the reward structure for a given ladder (3) tokens to add or remove from the dashboard, and much more. So far, the DAO has passed one proposal, which used some surplus treasury funds to market purchase $BIGCAP tokens and grow the Uniswap liquidity pool.

The Dao Structure Permits Flexibility And Growth

Bigcap is a novel experiment that will require refinement as more users join and the protocol grows. In order to afford leeway and flexibility, few hard rules have been codified into the contracts. The most important function of the DAO is to allocate treasury funds to ladders. However, there are nearly endless additional ways that the DAO can modify the protocol. Below, we look at some examples of how Bigcap can grow and evolve based on DAO governance.

Infrastructure

• Permanently disable $BIGCAP swap taxes (see roadmap).
• Modify ladder parameters, such as timespan and collateral ratio.
• Set up infrastructure for a team/syndicate mode so that traders can team up.
• Add more volatile tokens to the dashboard, e.g. meme coins.
• Create multiple trading pools with different types of tokens, e.g. meme tokens, AI tokens, high volatility tokens, etc.
• Integrate new swapping platforms into the dashboard, in addition to Uniswap. For example, Yieldification could be integrated so that traders have leverage trading options within the dashboard.
• Increase collateral requirement if leverage trading.
• Implement interest on positions open across multiple ladder seasons.
• Alter the trader tier structure.
• Activate the unrestricted trading mode for top traders.

Reward Mechanics

• Distribute treasury growth to $BIGCAP holders, e.g. disperse ETH to $BIGCAP holders or market-buy-and-burn $BIGCAP tokens to raise the token price floor.
• Alter general reward mechanics for ladders, e.g. decide which top traders receive rewards and how much they receive.
• Alter ladder-specific reward mechanics, e.g. increase the reward amount or allocate a special reward (such as an NFT) for the winner.
• Change the reward from ETH to a different token.

Collaboration and Marketing

• Allocate treasury funds to a specific influencer or marketing company, if the community wills it.
• Allow other projects to use their tokens as collateral staking tokens. This could be an interesting way to cross-pollinate ecosystems and to help other projects generate ‘real yield’.
• Create a system for other projects to submit their tokens to be whitelisted for trading in the dashboard.

Security

• Force liquidations of positions in emergencies.
• Halt the protocol in emergencies.
• Force liquidations of trader positions if deemed necessary for treasury health.
• Set up a board to review suspect traders.
• Implement Dao proof of participation methods, e.g. length of token holding.
• Allocate guardian roles. Guardians will stake $BIGCAP without partaking in trading.

Roadmap

The $BIGCAP token was launched before the platform in order to raise funds for the security audit and the initial ladder season. As of now, the required funds have been met and the security audit is underway. Once completed, $BIGCAP swap taxes will be permanently disabled by the DAO. Once disabled, they cannot be reinstated. Additional expenses down the line will be funded through sustainable treasury growth. In order to deter others from copying the protocol, the ladder contract and GitHub repository are currently not available to the public. They will be released when the first ladder launches. The project goals, slated for completion in Q1 2023, are the following:

• Complete comprehensive security audit.
• Onboard 100 participants for the first ladder.
• Deploy a ladder to Goerli testnet.
• Launch the initial ladder season and collect analytics.
• Marketing efforts will soon initiate to onboard participants.

Conclusion

Recently, I have observed a new wave of (purportedly decentralized) passive income platforms cropping up. The robustness of these platforms is yet to be determined. It’s exciting to witness the resurgence of the next generation of DeFi that has risen from the ashes of a catastrophic year. From these failures we have been provided the wisdom to build stronger projects. I think Bigcap could lead this new generation of passive income platforms. I see great growth potential for the platform and its token. There is no limit to how large the project can grow and how many other projects could be integrated within it. It has potential to become a DeFi ecosystem.

Competing Interest Statement

I am not officially affiliated with the Bigcap project. However, I am a holder of $BIGCAP tokens.