DYCO v2.0— The Next Stage for Dynamic Coin Offerings
Many in the DAO Maker community are familiar with the Dynamic Coin Offering (DYCO). We created this framework to present a new way of token sale, one that gives power to the token buyers and makes teams accountable.
For those who are hearing this word for the first time, here’s a quick overview.
A Quick Overview of the DYCO Framework
The DYCO creates USD-backed utility tokens that have limited downside but unrestrained upside. The USD-backed status allows the original buyers of a DYCO to claim refunds over a period of time. This creates confidence to calmly hold on to tokens and see the project execute on its roadmap, and then assess product viability.
If the buyers feel the project has under-delivered, they can refund their tokens, which are burned. This adjusts the project valuation to a new token supply and comes with a wide array of other benefits, including reduced circulation, fresh capital into the secondary market, a reliable buy-side pressure, mirror flips, and more.
Another incredible benefit is that DYCOs build long-term interest from token buyers as it’s in their best interest to stay up to date with project success, as otherwise, they can initiate refunds. As a consequence of this, a strong tribe builds out, and such positive community environments are incredibly important for successful tokens.
Of course, all the above advantages require a step 0: projects having enough confidence in their ability to deliver, that they can accept to make their token refundable.
The DYCO framework premiered with Orion Protocol. The ORN token has experienced stellar success, delivering market-beating results through an enviable community. At the same time, the ORN token has highlighted room for improvement in the DYCO system.
DYCO v2.0: Welcoming the Toll Bridge
The DYCO’s confirmed refunds are very effective at delivering a secure environment for primary market buyers. However, the secondary market is important too, especially as the project moves toward growth.
The secondary market needs to be confident in the legitimacy of a token’s price. Viable price discovery can take time, as primary buyers’ release schedules dilute supply slowly.
Primary buyers’ supply is reduced over time to align a growing circulating supply with product growth and roadmap deliveries.
The DYCO, in its present state, is able to build confidence for primary buyers. The DYCO v2 is designed to build trust in both the primary and secondary market.
What Stays the Same
All the positives of a DYCO are part of DYCO v2. USD-backed utility tokens, burning of refunded tokens, mirror flips — all the good stuff remains.
The release schedule of DYCO v2 is “flexible,” at the advantage of the secondary market. The participants of a DYCO are committed to a token release schedule which involves some release at TGE, and then smaller releases over the course of many months.
In a DYCO v2, the deployer contract that distributes tokens to buyers acts as a Toll Bridge. DYCO participants can claim their entire purchased allocation on day 1, day 100, or any other day of their choice. Essentially, they can remain committed to a long-term token release or they can cut things short, but at a toll.
The Toll Bridge requires primary buyers who want an instant release to burn a portion of their allocation. This burn reduces each day, and it becomes 0% once the final token distribution is complete. The advantage of this system is that primary buyers who are only interested in a flip and those who have a lower average exit price can pay the burn and exit their positions early.
This reduces extreme price volatility as surges in secondary market demand are fulfilled with primary buyers who want to capitalize on their purchase as fast as possible. Meanwhile, the holders can remain committed to the long-term release schedule.
The advantage of this is that any market price can never be extremely distorted from the target exit price of primary buyers. Typically, if the price exceeds the target price of flippers or those who have a low exit value, they have to wait for future distributions. This limits a token’s secondary market’s action to also wait out future releases, reducing secondary market confidence.
With a Toll Bridge, there’s strong certainty that any market price is not going to be too distorted from future releases as primary buyers don’t need to wait for a release to sell; they can sell at will if the price is already attractive for their individualized goals.
An Additional Benefit
The refund system of a DYCO is rigid, and that is good. Teams are not allowed to move refund dates around.
This also means that teams are bound to a timeline for accessing more capital for growth. The path of a startup can be unpredictable. There can be unprecedented growth at a timeline shorter than expected, and this has been the case with Orion’s ORN token.
Early growth cannot have a maintained acceleration if a considerable portion of funds is locked. The DYCO, in its original format, does not account for this. It frontloads the greater portion of growth.
The DYCO v2 does account for this.
If there is considerable early growth, there are more holders tempted to exit early, at the expense of burning their tokens at the Toll Bridge. As tokens have been burned, fewer tokens need to remain USD-backed, thereby unlocking more resources for the startup to maintain its acceleration.
Summing up, the DYCO v2 is a win-win-win-win scenario. Those who want to exit early can do so; secondary market has confidence in price discovery; long-term holders benefit from the burns of the flips; the project can access some early funding if people want a quick exit because early growth is more than expected.
A Visual Example
In the table above:
- The y-axis is the amount of tokens received, in percent
- The x-axis is the numbers of days since TGE
- The blue line shows the natural distribution of tokens, for a project with an unlock schedule of 20% at TGE and 16% per quarter
- The yellow line shows the amount of tokens received if a token buyer wants to exit ahead of schedule; if a person claims early, the yellow line shows the maximum amount of tokens he/she can ever have
- The red line shows the fee paid for the early exit
The yellow and red lines are in synchrony. Those who want to exit early pay a fee. The yellow line shows the maximum amount of tokens they receive, and the red line shows the amount of tokens they burn for their early exit.
The key difference between the blue line and yellow lines is that the blue line does not show final token amounts. The blue line shows the natural distribution so it just shows how many tokens a person has already received and how many are locked and will be received later.
The yellow line shows the final maximum amount a person receives. Once a person claims early, that is their final received amount of tokens, as the rest of their locked tokens are burned.
There is no enforcement on early exits. These are voluntary decisions of token buyers who are comfortable enough with a token’s market price, that they are happy to exit early at the cost of burning future token distributions.
DAO Maker DYCO
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