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The Ultimate Tokenomics — Diamond Hands Staking Model (DHSM)💎🙌
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Current issue: Tokens keep dumping. Long-term believers are punished and short-term speculators ruin themselves and the whole party. We need to introduce a staking model to allow people to lock their tokens up in a smart contract and benefit from weak hands who exit early.
We MUST reward long-term believers of a project.
Premise: The ultimate act of commitment to a project is to lock your tokens up through a smart contract for many years. You show the world that you cannot sell, even if you wanted to. Short-term gratification is sacrificed for the Greater Good. Your reward is a greater share of the rewards.🥇
This article of friendship has been authored to convey the best tokenomics for your project. I urge the Crypto space to emulate this Diamond Hands Staking Model. It is the HEX token staking model which is currently working & successful.
I have observed just about every single tokenomics model in crypto; they all suffer from the same problem. Before we go into the problem, you must be aware of the parabolic upside benefits of this Diamond Hands Staking Model (DHSM):
The current problem:
Your project wants to distribute rewards (inflation rewards or revenue share) to shareholders: how do we optimise to reward long-term believers but punish short-term weak hands?
The solution:
The Diamond Hands Staking Model (DHSM) — the HEX 10-year staking implementation.
This long-term model is simple and has the following components:
1. Staking Component — Diamond Hands are Rewarded
2. End-Stake Penalty — Toilet Paper Hands are Punished
Staking Component — Diamond Hands 💎🙌
- Introduce long-term staking where a user can lock in the token anywhere between 1-day and 10-years. (This is flexible down to 5yrs).
- The Longer the Stake, the higher the rewards. Each year that the token is locked up extra receives +20% bonus rewards than the previous year. Staking for maximum 10-years would receive a max 3x reward share compare to 1 day. This is what the traditional “certificate of deposit” model currently does because it works.
End-Stake Penalty Component — Toilet Paper Hands🧻
- A user may choose to “emergency end stake” their commitment, but it comes at a great cost.
> If they have served less than 50% of the duration of commitment, they will pay penalty from the principle of stake which scales along time.
> If they have served greater than 50% of duration, they keep their principle but they lose the interest (rewards) and this also scales towards time. If they end 1 day before their commitment end date, they still lose -50% of their interest/rewards accrued. - All penalties are given to the remaining stakers who are committed.
> Diamond Hands are given more profit at the expense of Toilet Paper Hands who quit.
Long-Term Pumpamental Benefits (DHSM):
1. Turn community into Diamond Hand Believers & boost Network Effect
2. Allow community members to take a long-term view (5–10yrs as opposed to 5–10 months)
3. Reduce token gambling and speculation by weak hands (this will always exist, but we can lower it)
4. Prevent shareholders from being their own worst enemy — when their tokens are locked up, they cannot sell the lows in panic.
5. Shift rewards to Token Holders with 10yr view, instead of benefiting short-term dumpers
Quick Questions ⏰
Q: Why isn’t this done already?
A: We are still in the early birthing days of cryptocurrency experiments. HEX token has community websites which observe the staking behaviour of participants.
As people got more comfortable with the project, they started to stake longer and longer. The average duration of user staking is lengthening over time, and people become more involved in the community. We now have a successful case of the Diamond Hands Staking Model. It is 2 years old and it’s time to take it seriously.
Q: Why don’t more projects use this to share revenue already?
A: Many projects (such as large DeFi projects) do not want to share revenue because they fear the SEC and label of being a security. This model can still be done if a project wants to distribute inflation rewards. However, the strongest use-case is if a Profitable Protocol is distributing revenue to holders via the DHSM.
Q: Isn’t 10 years too risky?
A: Users do not have to stake their whole bag for 10-years. They may choose to ladder 1 stake per year or even many times per year. This will distribute risk but also force users to take a long-term view. A protocol may also opt for maximum 5 years duration. Any staking is better than no staking. Lock the temptation up into a smart contract and turn some people into Long-Term Believers.
Q: What rewards can a project distribute?
A: A token can distribute inflation of itself as the reward. Bitcoin distributes itself as reward to miners who are free to instantly dump the price.
The DHSM would shift rewards to the long-term believers. How high would Bitcoin’s price be if the miners were able to commit 10yrs lock-up where they can’t sell their rewards? Protocols that have user demand and make a profit, such as many DeFi BlueChips, can benefit from this model because they can distribute inflation and/or fees generated by the protocol.
Other projects may distribute any reward they choose. For example, token “PAID” distributes inflation + lottery tickets to its IDO launchpad. It has chosen a 5-year maximum length. Users who stake their lottery ticket for max 5-years will receive a 5.5x multiplier odds on their lottery ticket. Immediately after this option, 33% of users chose to go long-term. We sacrificed short-term ‘liquidity exit’ for the chance of higher upside longer-term.
Q: My token has a capped supply, how could I distribute rewards?
A: If your token generates revenue or fees, it may enter into a treasury (e.g. ETH or USDC or the token does a Buy-Back off the market). The staking model will still work, and those stakes with 10-year view will get a bigger ‘share’ of the treasury reward versus the short-term stakers. The treasury may choose to buy the token off the market and distribute as staking rewards to shareholders.
More ideas: If your project is gaming related, you may give extra features and benefits to long-term stakers.
The result is the same: Give people an option to lock their supply up with a penalty to exit. Those who wish to exit will reward the believers and only sell a reduced token amount.
Q: What if we have to move blockchains in the future?
A: Axion (AXN) is a HEX fork which recently migrated from Ethereum Layer 1 to Polygon. They paused the contract for a day and migrated everyone over smoothly. The snapshot went smoothly and demonstrated what is possible if the community wants it done.
Q: How can this be exploited?
A: It can’t be gamed but there are Community Decision Risks. You cannot control competition to your protocol or the long-term success of your project.
This may sound scary, but it also introduces a decision tree for project founders to think about very long-term sustainability instead of potentially exiting in ‘the next bull market around the corner’. This will improve the crypto space overall.
Users will start to ask their Project Leaders, “Why should I lock up my tokens for 5-years when you haven’t given me a proper 5-year plan?”
Q: Will this make my token price go up?
A: Only the ratio of new-users to old-users growing will increase token price. However, this staking model will lower volatility on the downside because tokens are locked up, and also accelerate the parabola action on the way up.
It will also encourage better decision making and nurture the growth of the protocol because Long-Term Believers are being rewarded at the expense of Short-Term Quitters.
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You have read my article and you are now my friend.
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