Introducing the SIGMA Pool: AlgoDAO’s Special-Purpose Reserve Pool
Venture capital funding for crypto and blockchain companies set new records in 2021. Blockchain startups raised over US$9 billion in the first half of 2021 and set a record for the highest funding raised in a sector in any full year of fundraising in history.
Institutional investors are now becoming increasingly active in crypto assets, and this is a welcome development. However, there are concerns that increasing institutional participation might leave little room for smaller investors and individuals interested to fund new crypto projects. AlgoDAO addresses this concern by democratizing access to funding rounds for exciting new projects within the Algorand ecosystem.
AlgoDAO is a DAO-governed accelerator through which you can participate in the funding of high-quality projects being built on Algorand. Depending on your membership, AlgoDAO provides access to the seed and private rounds, as well as IDO rounds of new projects.
In this post, we introduce our SIGMA Pool, a unique mechanism that further enables us to democratize access to new projects by empowering AlgoDAO members to acquire the tokens of projects incubated on AlgoDAO.
An introduction to SIGMA pool: AlgoDAO’s tokenized liquidity pool
AlgoDAO’s SIGMA Pool is a specially-designed liquidity pool funded with project tokens every time a new project completes a successful seed financing or IDO through AlgoDAO. The SIGMA pool can be described as a reserve of all the project tokens incubated through AlgoDAO. It is collectively owned and operated by members of the AlgoDAO community. And the best part, AlgoDAO members can claim these project tokens but we will get to that in a bit.
How does the SIGMA pool work?
When projects are about to be incubated on AlgoDAO, they commit to contributing a percentage of the total tokens to be sold during the IDO towards supporting the SIGMA Pool.
On the successful completion of a seed funding round on AlgoDAO, the project will deposit 10% of their project tokens sold during the seed funding into the SIGMA pool. Similarly, when projects successfully complete an IDO round on AlgoDAO, they deposit 30% of the project tokens sold during the IDO in the SIGMA pool.
For example, if a project wishes to raise US$200,000 during an IDO by selling 400,000 tokens (at an effective token price of US$0.5), 30% or 120,000 tokens will go to the SIGMA Pool. However, it is important to note that both the 10% and 30% are DAO-governed parameters subject to change.
Now, let’s talk about $SIGMA tokens
The SIGMA Pool is filled with different project tokens and in different amounts based on the number of tokens that each project sold during their seed or IDO funding rounds. It is, therefore, important to have a uniform standard of accounts to represent the value of the different tokens in the SIGMA Pool.
We represent the value of the SIGMA Pool through $SIGMA tokens, which is modeled after the ETF (exchange-traded fund) structure in traditional finance. $SIGMA tokens are backed by all the tokens in the SIGMA Pool and, as such, each $SIGMA token represents indexed exposure to all the project tokens that have been deposited in the SIGMA Pool.
And since $SIGMA tokens represent an index basket of all the project tokens deposited in the SIGMA pool, $SIGMA tokens are transferable and will be traded on the secondary market. Therefore, an increase or decrease in the value of the project tokens backing the SIGMA pool will be reflected in the price of the $SIGMA token.
The final supply of $SIGMA tokens is 100,000,000 tokens that is released every block over a 10-year period with a per-epoch decreasing emission rate. The emission rate function slows down the release rate of the tokens to ensure an even distribution over the years.
Claiming your $SIGMA tokens
$SIGMA tokens are collectively owned by all AlgoDAO members and the process of claiming your $SIGMA tokens is a dual-step process called SIGMA farming and minting.
SIGMA farming
SIGMA farming is simply the process of staking $ADAO tokens to farm $SIGMA tokens. You need to stake $ADAO tokens to qualify for SIGMA farming. AlgoDAO members who stake $ADAO tokens can expect to receive a pro-rata distribution of $SIGMA tokens, which are released at fixed time-step (block, hour, minute, second…). The more $ADAO tokens you stake, the more $SIGMA tokens you can farm as the farming function pro-rate your $ADAO stake relative to the $ADAO staked by other users and the amount of $SIGMA tokens due for distribution based on the rate emission rate.
SIGMA minting
SIGMA minting is the process of claiming the project tokens accruable to the $SIGMA tokens that you have farmed.
Remember that the SIGMA Pool contains project tokens from all projects that successfully completed a seed or IDO funding round on AlgoDAO. The $SIGMA tokens farmed represent an index basket of the projects incubated on AlgoDAO. After you have staked $ADAO to farm $SIGMA tokens, SIGMA minting is how you convert the SIGMA tokens into the actual project tokens.
To “claim” the project tokens you need to burn your $SIGMA tokens. Burning $SIGMA tokens is simply the process of executing a burn function that removes them from circulation by sending them to an unusable wallet address, where they can never be accessed again.
Once you have successfully completed SIGMA minting, you will receive a pro-rata percentage of all the project tokens sitting in the pool at the time of the minting based on the number of $SIGMA tokens you have relative to the ADAO members.
Ultimately, claiming your $SIGMA token is like a chain reaction:
- You stake $ADAO tokens to farm $SIGMA tokens
- You claim the $SIGMA tokens through the minting function
- You burn $SIGMA tokens to release your pro-rata share of the projects incubated on AlgoDAO
Benefits of the SIGMA Pool to the AlgoDAO community
AlgoDAO is on a mission to accelerate Algorand’s ecosystem to dApps, DeFi, Web3, and NFTs through increased community participation in funding rounds. Before now, the early funding rounds of new projects are often powered by institutional investors who have access to large funds and that can afford to take the risk of early-stage startup funding. These funding rounds also open up for a short period of time, and smaller investors or community members may find themselves priced or timed out of funding opportunities.
AlgoDAO already democratizes access to the funding rounds of projects being built for Algorand. Depending on your membership tier in AlgoDAO, you get a chance to participate in private, seed and IDO funding rounds of projects.
But beyond participating in these funding rounds, the SIGMA Pool ensures that AlgoDAO community members get an additional chance to acquire the native tokens of the amazing projects being incubated on AlgoDAO. Hence, if you miss the private, seed or IDO funding rounds due to any reason whatsoever, you can count on the SIGMA pool mechanism to offer you another chance to acquire the project tokens.
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We are excited to be at the forefront of catalyzing Algorand’s Web3 ecosystem and we invite you to come along for the ride.
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