Phonon DAO Launch: Overview, Resources, and PHONON Token Details
GridPlus has developed a universal system for securely and privately transferring any cryptoasset off-chain: Phonon. It is now putting it into the hands of a talented and engaged community so it can thrive.
With the Phonon network, any cryptocurrency gains the same properties as the cash you might now hold in your pocket. Asset transfers are instant, private, free, and secured using a peer-to-peer network of secure devices.
Phonon will be managed by a DAO governed via the PHONON token. There will be no PHONON token sale — majority control of the protocol is being passed onto current GRID holders via a token upgrade contract which can be accessed now via the Phonon site.
This post is meant to be a starting point to learn about Phonon and covers:
- What is the Phonon protocol?
- How does Phonon address the current limitations of sending and receiving cryptocurrencies?
- The PHONON token and the incentive mechanisms which make the system work.
- The organization that will oversee the protocol, Phonon DAO, and the long-term future of the project.
What is Phonon?
Phonon is a protocol which uses secure hardware to enable private off-chain transactions for all blockchains. This lets you securely use any cryptocurrency with all the properties of physical cash.
It is a peer-to-peer system which prevents double spends through the use of unique hardware-derived cryptographic signatures. Secure hardware isn’t just limited to hardware wallets; compatible device categories also include SIM cards and smartcards which use the same kind of chip found in today’s credit cards. Phonon works with any blockchain, but the token and protocol governance framework are built on Ethereum.
Why Do Users Want This?
Phonon is Satoshi’s “Digital Cash” vision realized. The protocol enables secure, instant, privacy-preserving cryptocurrency transactions.
Phonon is a unique primitive for both privacy and scaling. Phonon is peer-to-peer so it is highly scalable and not subject to bandwidth constraints. There is no need to maintain a network of node infrastructure for the system to work.
The initial implementation of direct P2P off-chain transactions is uniquely useful on its own, but it will be an effective foundation for more ambitious applications such as:
Instant L1← →L2 withdrawals and cross-L2 transfers. Liquidity providers with secure hardware can provide fast exits to users for a fee, without the need for challenge periods and fraud proofs. This will allow secure hardware owners to earn passive income on their holdings with low risk exposure.
This is an ideal solution for cross-chain and cross-layer communications because it does not dilute economic security or rely upon a third-party validator set. It is hardware secured and instant.
Private, fully trustless, cross-chain DEX. Using the same approach employed for cross-layer fast exits, Phonon can provide the foundation for a privacy-preserving cross-chain DEX. There is an opportunity for the DAO to develop such a DEX on its own or integrate the technology into an existing protocol.
Ethereum’s rollup-centric roadmap and the Cambrian explosion of useful scaling solutions has upended the old-fashioned focus on self-contained monolithic blockchains. This makes Phonon unique option for bridging liquidity between L2s and other chains.
PHONON Token Supply
Phonon DAO has issued 10 billion PHONON tokens for the purpose of managing the protocol, bootstrapping participation, and long-term incentive alignment among all stakeholders. 60.36% of all PHONON tokens are immediately available to current GRID holders via a conversion contract which issues 155 PHONON for each 1 GRID upgraded.
GRID’s initial token distribution was based around a deprecated use case and it is not properly balanced for encouraging active participation in a protocol DAO. To remedy this, GridPlus, GridPlus cofounders, and external investors holding non-circulating GRID have sent the majority of their holdings, 229,557,418 million GRID, to the burn address to collectively reduce their share of total token token distribution by over 71%. This portion of the supply will be allocated to PHONON holders and the new DAO.
Phonon DAO’s treasury has been directly allocated 14.64% of the total supply. 50% of this amount is locked in a vesting contract and will be released over four years via a linear vesting schedule.
In order to flourish, a DAO must be structured to reward the most useful contributors and to allow anyone who wants to participate to be able to achieve a meaningful degree of ownership in the endeavor. This is why majority ownership of the protocol has been put into the hands of the community which can allocate the DAO treasury in a way which has the greatest benefit for the entire group and the success of the Phonon protocol.
Why Convert GRID to PHONON?
GRID holders made this technology possible. This conversion clarifies the value proposition of the token and rebalances the overall distribution towards the community in order to put control of the effort into the hands of the community.
GRID’s non-circulating supply has never been used in any way since initial issuance — this provides the opportunity to structure allocation as desired while aligning incentives with the thousands of current token holders who will want to see Phonon thrive. The DAO will continuously rebalance incentive mechanisms to distribute ownership to the participants contributing the most value.
Incentive Alignment Mechanisms
The PHONON token will provide the DAO with many potential incentive strategies to bootstrap the protocol. Use of any of these options is at the discretion of the DAO itself.
Token distribution to compatible device holders. Owners of compatible hardware will be able to register with the unique cryptographic certificate their devices are provisioned with to earn a slow continuously vesting allocation of PHONON. Offsetting the upfront cost of compatible hardware will allow the protocol to quickly grow its user base as well as encourage the participation of more manufacturers of secure hardware because Phonon compatibility will allow them to boost sales since it will offset the cost to consumers. This is comparable to the approach taken by Helium to bootstrap their network.
Liquidity mining. Phonon DAO would have the opportunity to reward DEX liquidity providers of PHONON.
PHONON staking by hardware manufacturers. Participating secure hardware manufacturers will have to stake PHONON for the duration of time their cryptographic certificates are in use by the Phonon protocol. These locked funds serve as an insurance bond that would be forfeited to the DAO in the event of malicious behavior on their part — this serves as an economic deterrent against bad actors beyond the loss of hardware sales.
The DAO will retain the ability to actively set the size of the bond in order to reflect network growth and other variables as it sees fit. Interest earned on the secure deposits while held will accrue to the DAO.
Opportunities for DAO Participants
Secure off-chain transactions are a powerful tool for individuals to retain their financial sovereignty and enjoy censorship-resistant private transactions. The DAO will guide the evolution of this technology and commission the building of new tools to leverage Phonon which will provide the organization with many options.
PHONON as DeFi Tool for Collateral and Yield
The yields from incentives created by Phonon DAO endeavors will provide an attractive opportunity for individuals as well as major yield aggregators. This minimizes risk for yield aggregators because the deposited assets will be protected via best-in-class hardware security. The many opportunities to earn income from Phonon DAO incentives will make it an attractive option for yield hungry investors and subsequently become suitable for use as collateral in systems such as MakerDAO, Compound, and AAVE.Decentralized Exchange Fee Revenue
Phonon can function as a framework for linking liquidity pools across multiple scaling solutions and chains while preserving user privacy. It would be possible to work with an existing DEX to integrate this technology in exchange for an ongoing percentage of taker fees.Integration of Phonon into Telecommunications and IoT Networks
Any device with a compatible secure chipset will be able to leverage the Phonon Protocol for fast, private, secure P2P value transfers. Future iterations of the protocol could support cellular telephones via existing networks or via a P2P mesh.Additionally, Phonon was originally conceived to support cost efficient IoT micropayments and even the initial iteration of the protocol combined with Lattice1 hardware opens up a host of possibilities for automated pay-as-you-go payment streams.
Governance
At launch, governance will be handled via Snapshot voting and governance forum discussion. Formalizing a governance structure will be at the discretion of the DAO.
The Phonon token is based on the ENS token, which was inspired by the UNI token. This allows for Alpha/Bravo style delegation and snapshotting which means there is a flexible starting point for applying the community’s desired framework.
This token model allows for delegation of voting power to representatives. This is important because token holders can align with more active DAO members who best match their perspectives.
Many ideas are emerging for better rewarding the most valuable contributors to this collective effort. These include factoring in non-transferrable reputation in voting to balance non-financial contributions to the DAO, deploying a governance staking contract that weights voting power towards participants which demonstrate long-term commitment to the organization via longer lockups, and much more.
DAO Stewards
Phonon DAO is in charge of the Phonon token and developing the network which uses the Phonon protocol developed by GridPlus. As such, GridPlus is not directly involved in the development of the phonon token or network, although we remain open to helping out in an engineering capacity should the DAO contract with us.
Phonon DAO stewards are leading efforts with Phonon DAO in the bootstrapping phase as full control is handed off to community governance. Their work thus far has covered everything from smart contract development and review to providing guidance on governance and tooling based on their experiences.
Initial Phonon DAO Stewards:
- Alpaca Fan — Anonymous DeFi protocol founder and long-term GridPlus community contributor.
- Mariano Conti —Angel investor, former MakerDAO Head of Smart Contracts.
- Tim Coulter — Founder of the Truffle blockchain development suite.
- DeFi Dad —Fourth Revolution Capital, DeFi educator.
- Dan Mueller — Long-term GridPlus community contributor.
- Jonny Rhea — Element Finance CTO and Co-Founder, Former ETH2 Researcher.
- Evan Van Ness — Starbloom Ventures, Week in Ethereum News Founder.
- Anthony Sassano — Founder at The Daily Gwei, Co-Founder at EthHub.
- Cyrus Younessi — Former head of risk at MakerDAO, Former Trader at Cumberland and Scalar Capital.
What Comes Next
The Phonon alpha works today. The idea for Phonon was first shared by Dr. Karl Kreder two years ago, last summer we declared the plan to launch Phonon DAO in 2021, and in January of 2021 GridPlus allocated multiple full time developers to the development of Phonon itself. GridPlus has been actively nurturing this new technology and the time has come to set it in motion.
The initial implementation of the Phonon spec is a developer-focused alpha that works with smartcards and any third party USB card reader. Github repositories for a Phonon client and the Phonon Javacard applet are now public.
With these starting points, developers will be able to begin experimenting with their own implementations and uses for the protocol. After sufficient testing and scrutiny, the DAO’s Github repository will be the source of the canonical protocol spec and a full release version will be made available. GridPlus will no longer lead development efforts with the protocol, but will make an easy to use Lattice1 client for the system a top priority.
Conclusion
The measure of success for a blockchain project is setting a collective endeavor into motion which has a larger impact than could have been achieved by working alone.
The ability to securely and privately transact with crypto off-chain will strengthen the censorship-resistance of all major blockchains. Couple this primitive with flexible smart contracts and other DeFi primitives and the sky is the limit. Phonon is GridPlus’ contribution to the broader blockchain ecosystem and we anticipate a future where everyone with blockchain hardware security devices from all different manufacturers will put it to use.
If privacy, security, and personal financial sovereignty are important to you then get involved with Phonon DAO to help ensure a resilient censorship-resistant future for crypto.
Additional Resources
- Phonon Website
- Phonon Governance and Technical Discussion Forum
- Phonon DAO Twitter
- Phonon DAO Discord
- Phonon Token Contract
- Phonon Redeemer Contract (For Upgrading from GRID to PHONON)
