LiqwiDAO 1st: a web3 model for good governance.
Website/Twitter/Discord/GitHub/Whitepaper
For an analysis on Liqwid please read our opening intro series post.
When our core team started Liqwid, we didn’t form a company, we started a DAO or decentralized autonomous organization.
We debated the tradeoffs as a core team internally, also weighing in input from strategic advisors. Should we form a Delaware c-corporation? Should we start a limited liability company (LLC) in Wyoming (considering they’ve become the model for friendly cryptocurrency regulation that encourages innovation)?
This video from Charles Hoskinson, founder of Cardano, certainly helped guide our direction. Cardano’s commitment to transitioning to a completely decentralized governance path meant our organizational governance model should push along the innovation curve even further. We do this by adopting a community-led DAO approach from Day 1.
And this sent us down the tunnel of experimentation to determine the governance and tokenomics structures that would align with our long term mission & vision for the protocol.
We looked into the Compound tokenomics and analyzed how they use their governance token to subsidize borrower cost & supplier interest as a function of the market’s utilization in addition to the liquid democracy voting system that enables COMP holders to introduce proposals, vote or delegate their vote to community experts. Our team also discussed risk management measures such as allocating a small percent of borrower interest paid to support a healthy reserves ratio (5–10%). In this respect we are borrowing a bit from the Compound tokenomics & voting system design while introducing our own DeFi concepts derived from proven CeFi features current DeFi protocols have not implemented.
For example, our protocol design is utilizing Cardano’s low transaction cost to introduce a passive income dividend tokenomics model for $LQ as well as optimizing for early research & development by re-investing protocol revenues in the LiqwiDAO Treasury. For dividends this means Liqwid enables a predictable cash flow to all LQ holders (very similar to staking ADA or holding dividend paying stocks in CeFi) as a function of the protocol revenues. This also means analysts can measure the $LQ value using the dividend discount model.
At the same time as hashing out these concepts we went through the prescribed process of starting a new venture. We spoke to our internal advisors, accountants, consultants and lawyers in our core team’s network. We fully understood how unorthodox the DAO first approach would be received by these groups especially with most individuals coming from traditional corporate or CeFi roles. This tweet from Kain Warwick, founder of Synthetix perfectly sums the current dilemma of pursuing organizational structure advice from legacy players when building a web3 protocol.
At the end of the day we stayed true to our vision. We went DAO first.
What does a DAO first organizational model mean?
“DAO first” means that Liqwid, has never been, and never will be, a traditional organization (C-corp/LLC). Alternatively, Liqwid will be a protocol that is governed by the LiqwiDAO.
The first thing we did when we started Liqwid was divide governance between the “core team”. The core founding team consists of co-founders Dewayne Cameron, Josh Akpan, Tashoma Vilini and Florian Volery. The core dev team is headed by lead developer Emily Martins alongside development partners MLabs.
We next allocated a percentage of governance for Liqwid strategic advisors helping our team realize early growth targets pre-launch. The majority of the LQ governance tokens are set aside for distribution to the community (75% of total supply). Our project is not VC-backed and this token distribution is not beholden to pre-seed investors like most other DeFi protocols. As long term believers in the Cardano ecosystem our team is financing protocol development through Cardano’s Voltaire decentralized funding rounds (introduced in Project Catalyst) until our v1 launch on Plutus mainnet. You can review the details of our proposal here. Our team has designed the introduction of LQ governance tokens to set a new standard in fair-launch & governance distribution in the DeFi space. To further gain the trust of the Liqwid community the release of the core teams governance tokens will be locked in a vesting contract with 1% of tokens released each epoch to the core team’s multisig wallet post-launch.
The allocations for the “Community” & “Yield Farming” will be gradually distributed to members in the Liqwid ecosystem via modern web3 concepts related to fair launch & governance distribution. The 5% DAO Treasury will also be managed by the LiqwiDAO meaning it will be voted on by the community to select proposals to implement with LiqwiDAO Treasury funds.
70% of $LQ tokens will be distributed to the community, another 5% will go to the LiqwiDAO Treasury (whose management and implemented proposals will be voted on by the community), 24% will be distributed to the core team (protocol creators, lead devs, product/strategy lead) and 1% for the strategic advisors.
Distributing governance from Day 1 helped our core team make effective early decisions with equal weighted votes so that no one individual or single party could swing a decision without collective agreement. We felt this was key especially in the early phases for Liqwid’s organizational governance distribution. By adopting a Gestalt approach since the start that prioritized group consensus over unilateral decision making we effectively mitigated the “founder’s dilemma” where early founders/investors with complete governance power introduce proposals that benefit a single party at the expense of all other network participants. With no VC capital or pre-seed investors, our core team and technical/product leads form the base of the Liqwid governance distribution in the pre-build Liqwid protocol. Long nights and early mornings is how every member of our core team earned their seat at the Liqwid voting table and in short order this will be an open protocol hosted on Cardano anyone can join and begin participating in to earn their seat at the Liqwid voting table.
Deciding to go DAO first also gave everyone both incentive and a voting voice. There has never been a leader, there was no CEO or Board of Directors. It started as a community of three early in Cardano’s Project Catalyst fund1 focus group and grew to a community of more than three, quickly.
In short order (utilizing voting components from Cardano’s Voltaire functionality) the entire Liqwid community will be able to vote. The protocol founders, core team and advisors will no longer have the authoritative vote on the LiqwiDAO. It’s our responsibility to work in tandem with the Liqwid community in a unison approach with aligned incentives via LQ voting power to drive the protocol’s future value. LiqwiDAO first means more community members can be involved in what we are building (at the end of the day it’s all open source anyway). It also allows you the community to keep us as founders honest, now and into the future. It enables the Liqwid community to keep future VC’s & investors honest as well and this is a major unsolved issue in the current DeFi solution model on Ethereum. It also enables us to build innovative web3 products & services as a global team of $LQ stakeholders.
To future Cardano DeFi protocols weighing governance design models: the LiqwiDAO first approach we are opting for is only possible if your founding team is committed to optimizing for quickly establishing a distributed governance without the recognition or greed that traditional web2 founders demand. The LiqwiDAO first model combined with no VC, no pre-seed investor equity and a fair launch token is designed to organically align incentives for founders, future VC’s, Liqwid protocol users, $LQ holders, developers, the greater Cardano community, Liqwid community members and anyone who wants to participate in the Liqwid ecosystem. We believe the whole of our Liqwid ecosystem will always be considerably greater than the sum of its parts, meaning we value all users equally because we understand what it takes to successfully establish an ecosystem. $LQ is not designed to enrich the few.
The LiqwiDAO first approach is designed mathematically and philosophically to distribute & radically democratize, rather than centralize and consolidate, control of the protocol’s governance and future vision.
We genuinely hope that the results of Liqwid’s governance distribution experiment allows for future founders to distribute governance to their ecosystem, more efficiently & equitably, and that VC’s & traditional investors will over time appreciate the value in our LiqwiDAO first approach. In several ways our decision to go LiqwiDAO first can be considered “risky”. In most ways, for a proven team with a long time track record as Cardano community members, it’s safer. And to us, safety is critical to the Liqwid mission & vision for the protocol’s future.
The final form of the LiqwiDAO Treasury will utilize Goguen & Voltaire functionality to enable voting and capital distribution to developers innovating on the Liqwid platform. Currently our core team is managing the governance decisions and we are quickly transitioning this over to the community (in line with product delivery). Once Goguen & Voltaire have launched, smart contracts linked to voting mechanisms will enable approved proposals to be directly enforced on chain following LiqwiDAO votes.
LiqwiDAO’s sole purpose is to support & advance the Liqwid protocol in the most secure method possible. To accelerate this process our team has taken early steps to include the community in our processes and we plan to increase development transparency with weekly project management livestreams anyone may join and pose questions in. Please also join the Liqwid Governance subreddit to discuss LiqwiDAO topics in depth or review current proposals.
For the interim governance mechanism pre-LiqwiDAO launch our team will utilize a multisig script in a Cardano wallet to authorize and process the required transactions to hold the $LQ tokens. Multisig means the assets stored on a multi-signature address can only be accessed by using 2 or more signatures. Therefore, the use of a multisig wallet enables users to create an additional layer of security to their funds by using an m-of-n scheme where any m private keys out of a possible n are required to move the money. $ADA distributed from Project Catalyst funding will also be held in the multisig wallet and released to core developers & development partners each month based on billed hours.
During the interim governance the multisig wallet will hold the $LQ tokens and service funding transactions through Liqwid v1 launch but this will not include all of the incentives, protocol rules, and voting capabilities required for the LiqwiDAO.
The final form LiqwiDAO will need functionalities beyond what the interim governance structure offers, we have unpacked some of these above. Using Plutus to create upgradeable smart contracts will allow the DAO to include additional features, update, or remove as the community votes on proposals to determine the protocol’s future path.
The LiqwiDAO will become the foundation of the Liqwid Finance platform as it facilitates decentralized decision making to enforce actions according to the interest of the community.
- Estimated time to build, test and launch on testnet: 9 weeks
Internal & External audits will require an additional 4–6 weeks before a Plutus mainnet launch.
Our team has discussed the timing of LiqwiDAO and decided the LiqwiDAO will be released closer to our first product, the Liqwid Pools.
The entire LiqwiDAO design is complete and on rails to begin development alongside Liqwid Pools. This is the first DeFi product of LiqwiDAO and these voting components enable any community member to vote on core parameters and introduce new proposals.
Since the DAO’s control the entire protocol, this means the community decides how the system will be used, the parameters for the LiqwiDAO voting system will be in part determined by the community. Each of the protocol parameters can be voted on and other parameters including the oracle price feed system implemented and potential updates to access the most accurate price data (e.g. Marlowe price feed oracles with exchange public key signatures, Oracle Pools, or a combination).
The long and short of it all means when the Liqwid pools product is released on Plutus mainnet the community will govern the Liqwid Finance protocol entirely.
Open source since Day 1
Since the start of the project our team has committed to a policy of open source code and transparent development processes. We believe in the network effects linked to composable open software anyone can build on top of and we are keen to explore this further on Plutus mainnet. During the recent IOHK-United Nations sponsored hackathon (Team Liqwid won!) our lead devs created templated versions of the contract functions that underpin Liqwid pools (e.g. deposit, borrow, repay, redeem, liquidate) in Marlowe playground, including an extension of the Haskell data structure within Marlowe’s source code to include additional functionality related to the deposit & redeem smart contracts (mint/burn function). All of this code is open source in line with our founding ethos of open, transparent software to drive composability network effects in upcoming DeFi protocols.
Similar to the development team behind Cardano, our core Liqwid team believes when we discuss a protocol’s “value” we’re not talking about just code, community and token are at the core foundation of the web3 value creator & capture model. This is the key concept in the new web3 operating model and it’s a drastic shift from the web2 traditional software measures where “value” accrues to a combination of the protocol and application layers. It’s still *only* the software that is valuable in web2 models (and by design the companies that control the software’s source code). Cardano and Liqwid’s dedication to open source is in many ways the antithesis to the enterprise software closed source code in the current Silicon Valley web2 model (walled gardens).
In web3 crypto-economic protocols, it’s the community and infrastructure built around the code that is the most valuable. The $LQ token is the epitome of value created within and captured by the Liqwid ecosystem. As a result, the $LQ token will govern LiqwiDAO enabling the community to vote on protocol level decisions.
“The token is the asset in web3, not the software… the token is the community.”
This core tenant to the community cements our dedication to transparency and open source software. Our core team is borrowing from models DeFi pioneers who came before us experimented with, and in many ways, we’re building Liqwid on the shoulders of these early pioneers combined with Cardano’s sound infrastructure. To pay it forward, we are fully committed to open-sourcing all of our software; streamlining the process to launch similar products on Cardano and to accelerate the inevitable, an entire DeFi sector of protocols launched on Cardano’s open software stack.
Our core team and development partners (Appinventiv & Tweag) both agree an open-source policy will also incentivize the community to analyze the entire system and feel more secure using the Liqwid platform. By making everything transparent from the start, we are actively uncovering risks and discussing them within the ecosystem of $LQ stakeholders instead of a walled garden of stakeholders and insiders. The Liqwid community members will likely hold the $LQ token and vote on the LiqwiDAO. Our core team’s primary focus is decentralizing governance to the community. Liqwid is the $LQ community’s protocol, you all make the rules.
LiqwiDAO is only as strong as its community. Together let’s build, we are all team $LQ.
