Streamonomics: Streaming Tokens as a Community Incentive
The term tokenomics is used in Web3/crypto to refer to token economics, a set of rules are the distribution of tokens for a protocol or service, whether they are sold, traded, airdropped, or claimed as rewards for performing certain actions.
Tokenomics is the study of how cryptocurrencies work within the broader ecosystem. This includes such things like token distribution as well as how they can be used to incentivize positive behaviour in the network. — Decrypt
While developing Degen Dogs, I started using the term streamonomics to refer to same things, but for streaming token economics. While both are concerned with distribution of tokens and behavioral incentives, the time-vesting aspect of streaming tokens has significant implications for both. When you receive the token reward slowly over time, how does that affective your behavior in the ecosystem?
Superfluid Finance: Token Streaming Primitive
Degen Dogs used the Superfluid protocol to stream rewards to NFT holders. Superfluid enables real-time stream of tokens from one address to another, with balances updating every second. A single transaction starts a flow of tokens at specified “flow rate”, the number of tokens to send every second/minute/day/month/etc. Another transaction is required to end/stop the stream at the appropriate time. For Degen Dog holders, this happens automatically.
Structuring Streamonomics Rewards
Streamonomics rewards have the potential to incentivize community behavior, but what is the best way to structure token streams? While each ecosystem is different, there are two key dials that can be tuned:
- How much to stream (quantity)
- How long to stream (duration)
Degen Dogs Streamonomics
The key objective of streamonomics for Degen Dogs is to incentivize NFT holder to be active in the communication and to promote future auctions for both their personal (direct) benefit and the benefit of the entire community, in a way that strives for balance between the two.
How much to stream?
The first question for Degen Dogs is how much to stream to holders? Since the source of token is the proceeds from each auction, this is expressed as percentage of the “winning bid” of each auction. While a health debate could be had on this question, inspired by airdrops like ENS, Degen Dogs implements a “50% for the past, 50% for the future” approach. In the context of Degen Dogs, “the past” means holders of previously-minted Dogs. Degen Dogs are minted and sold via auction: one-at-a-time. As such, 50% of the proceeds of each auction are shared with existing Dog owners.
50% of the proceeds of each auction are shared with existing Dog owners
The remaining “50% for the future” is split between a charitable donation for future of humanity (10%) and the future of the DAO (40%).
Which past Dogs receive a share of each auction?
The next question is deciding how the “50% for existing Dog owners” gets divided.
The simplest method might be to divide it equally between all past Dog owners. A harder question is whether or not that would be optimal in terms of incentivization. In that scenario, as each new Dog is auctioned, the percentage share for previously Dogs shrinks. For example, Dog#10 proceeds would be shared amongst 10 dogs, or 5% each — whereas Dog#1000 proceeds would be shared by 1,000 Dogs, or 0.05% each. While this approach provides a strong “get in early” incentive, it fall short in terms of fairness and community incentives over the longer term. (As an aside, there is also a technical limitation here, as splitting an amount among 1,000 recipients would cost a lot of gas and likely exceed other technical on-chain limits)
As such, the initial streamonomics for Degen Dogs tries to balance “get in early” incentives with the need for sustainable incentives for those who join the club later. After all, those who do get in early rely on those who get in later as that is where their reward streams will come from. The Degen Dogs streamonomics effectives sets a cap on the number of future auctions any Dog owner will share. There are actually three separate rules that define the streamonomics
- 10% to the previously Dog. For example, 10% of the proceeds for Dog#13 will get streamed to owner of Dog#12.
- 10% to the Dog ten before. For example, 10% of the proceeds for Dog#13 will get streamed to the owner of Dog#3.
- 30% will be shared by up to 20 previous Dogs, counting every 5th Dog. This rule is a little more complicated. Basically, we create a list of Dogs by counting backwards by 5 from current Dog, until we have a maximum of 20 Dogs in our list. And then we take the 30% share and divide it by the number of Dogs in the list, and stream accordingly. For example, 30% of the proceeds from Dog#130 would be shared with Dogs# 125, 120, 115, 110, 105, 100, 95, 90, 85, 80, 75, 70, 65, 60, 55, 50, 45, 40, 35, and 30. But also note that 35% of the proceeds from Dog#13 will get split equally between Dogs# 8 and 3 … so there is definitely still a strong incentive to get in early. Turning it around, another way to describe this rule is that an auction winner stands to earn a share in 20 of the next 100 auctions — provided they continue holding the NFT.
Of course, the amounts of each stream will depend on winning bids of each auction. The winning bids of future auctions may be higher or lower than the winning bid of the current auction. Only time will tell, on that front, but an important things to note is that it doesn’t matter how much or how little you pay as a winning bidder, the streaming rewards depend entirely on the winning bids of future auctions.
How long to stream the rewards?
There are many different possible answers here. If the duration of the stream is too long, it could provide very little incentive. As an extreme example, suppose I offered you $1,000,000 but paid $1 per year for a million years. On the other hand if the stream duration is too short, then there isn’t much difference compared to paying a one-time reward (without streaming). So finding balance between these two extremes is important. A key objective is ongoing community engagement: we don’t want a scenario where rewards are collected and then community members leave. In an attempt to provide incentives in balanced way, all shares described above will be streamed over 365 days.
Are the Degen Dogs Streamonomics Optimal?
Probably not. Hopefully they are close to optimal. This an experiment where we can learn how these streaming-token incentives affect community building and engagement. Over time we will hopefully learn some of the answers.
Streamonomics can be changed by the DAO
Finally, it should be noted that Degen Dogs streamonomics are not hard-coded. Dog owners may decide to submit a proposal to the DAO to change the streamonomics rules. A successful vote would change the streamonomics for future auctions. Perhaps the DAO will fine-tune the streamonomics over time. Either way, I am excited to find out.
None of the above has been “advice”, financial or otherwise. You can learn more in the Degen Dogs Docs. Afterward, if you decide to join the club, you can bid in the latest auction at https://degendogs.club.
