Oct 12, 2022
Sowing Oats
Creating a new paradigm through the $OATH ecosystem
Since May, Byte Masons have been adapting to a new market environment. The evening of Luna’s crash, Goober and I decided to shift our focus from retail products toward infrastructure and delta neutral products, and shortly thereafter our marketing strategy shifted from B2C to B2B. Thus we began building new foundations for stability and longevity.
With this change in strategy came a change in timelines. Where in 2021 the prevailing strategy for projects was release first, iterate toward profitability later, we’ve had to re-think how we approach product design and marketing. Without speculative forces driving huge demand for every update, sustainability becomes a much more important system attribute.
From this new mindset spawned a simple idea: protocols should fund their own incentives.
The goal here is to have a zero-sum baseline to grow our ecosystem from, wherein revenue ≥ token emissions. Instead of speculators funding our incentives, the protocol itself funds them, with any excess being saved. In this way, incentives can be wrapped up into a structured budget and projections can be made more reliable.
Put simply, our goal is to create software that’s both profitable AND competitive. The challenging part here is we’re competing with projects that don’t care about being profitable, and without significant innovation it’s questionable whether we could take DeFi where it needs to go to be sustainable.
Quite simply, revenues must increase and the cost of acquiring capital must decrease if DeFi is ever going to thrive. This might seem obvious, but look hard at the table above to understand the mountains we need to climb for our industry to be competitive, then keep on reading to see where our team has progressed.
The first important piece in understanding our approach to the $OATH ecosystem is understanding Reaper’s role in it. Moving beyond its simple yield aggregator roots, we’ve slowly been transforming Reaper into a highly secure asset management protocol, giving us the power to generate yield on formerly dormant assets in a purely DeFi way — with low risk smart contract rails.
You can probably see the benefits to stakeholders and LPs here, but I’ll spell them out anyway:
- More competitive interest rates
- Longer time horizons for liquidity providers
- More revenue for the protocol
Putting the power of these asset management rails on full display will be our new stable-asset protocol Ethos Reserve, a highly efficient stablecoin system which can take on arbitrary collateral types and rehypothecate reserve assets with Reaper. Ethos Reserve’s capital efficiency will be on par with traditional finance, creating massive yield opportunities for ecosystem participants without excess risk exposure.
At around the same time as Ethos, Reliquary will make its debut and soon after Granary V2. I’m not going to bore you with more diagrams, but each design roughly works the same — maximizing usage of AUM while minimizing risk. Powered by Reaper, each of our DeFi protocols can become a self-sustaining, elastic scaling value distribution machine.
So we’ve sorted out revenue. Great. I’ll dig deeper into our solutions for low borrow-side demand in my Granary V2 fundraising article next week. In the meantime, let’s talk Moon, our answer to high onboarding costs in DeFi.
User acquisition in this space is often in the range of 4-figures per head, and referring to the table in img-2, the cost of revenue is nearly 10x compared to tradfi’s 0.1x. This doesn’t make business sense to me.
The Moon team has spent the past 8 months working on a wallet, an app store, and all sorts of payment, social, and advertising rails to bring web2 powers to the web3 world. We want to give users the seamless experience that our predecessors have nearly perfected, underpinned by the transparent, positive-sum tech that only blockchain can deliver. Expect more news in early 2023 as development achieves critical mass.
We learned a lot building Reaper, and we’ve learned a lot watching the space expand and contract over the last 2 years. One thing has remained true since the beginning: “in software, the tortoise always beats the hare.”
In an effort to rapidly scale, companies are burning assets to the point of harming their longevity. I understand wanting to find product-market fit quickly and race all the competition, but I’ve always said “why shovel your money into a fire with incentives when you can just hire engineers?”
Those engineers have worked hard for 2 years, managed $300mm native AUM, and advised billions more. In that time we’ve held our chips close to our chest — less than $20,000 in incentives with over $4mm in revenue. Now, comfortable with our progress, we’re preparing to start placing them on the table.
Thank you, as always, to our supporters.
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