From inception, RealT’s goal has been to decentralize its ecosystem step by step, in conjunction with the community to gradually self-organize the management of the “RealToken” protocol through a special partnership with Commutatio Holdings Limited, a British Virgin Islands Holding Company It steadily worked toward this goal and by the end of 2021, RealT publicly announced its intention to launch REG, the first building block in its decentralization roadmap. This was an exciting concept, and to further explain the vision of the DAO and its concept, RealT published an article in 2021, which you can find here.
In 2021, like many other projects, RealT could have gone for something simple to take advantage of the “hype” surrounding the previous Bull Run. It’s worth remembering that at the end of 2021, RMM and YAM hadn’t been launched, and there was no business model to enable the protocol to create a recurring revenue stream — still a major problem for many projects today In the absence of this ecosystem, in early 2022 the second option would have been to put part of the REGs up for sale. Already at that time, regulators were considering reclassifying all “Initial Coin Offering” (ICO’s) as “Security Token Offerings” (STO’s). Following initial feedback from the community, the first stage of this decentralization was postponed until a later date.
With hindsight, it would appear that the choice to delay further refinement of the concept was a winning one. At the same time, a large number of protocols launched their tokens prematurely. Today, when we listen to interviews with these founders, they admit that they probably launched their token too quickly. Like RealT, they had validated their proof of concept and “product market fit”, but monetization and residual cash flow creation had yet to be defined, which disappointed a large part of their community.
For some time now, you, as a RealT client, might be asking yourself the following question: Why has RealT written over 20 pages on RealT’s achievements when now you are preparing another document with the main purpose of this new document is to present you with REG and the roadmap for gradually decentralizing the “RealToken” protocol through a DAO?
The different stages
As Marc Zeller, founder of the Aave Chan Initiative, a leader service provider of the AAVE DAO, explains so well in this series of articles, to succeed in decentralizing a protocol, a DAO must follow several phases depending on its degree of maturity:
- Autocracy;
- Oligarchy;
- Mature DAOs — Liquid Representative Democracies;
- Stateless Stage — The Holy Grail.
Had RealT moved forward with launching the DAO at the beginning of 2022, these past two years would have been a perfect illustration of the autocracy described by Marc. His analogy of comparing a governance token to a simple fan club ticket would have in our opinion, been the perfect illustration. During this autocratic stage, Zeller recommends starting this decentralization phase by issuing non-transferable tokens to reward “early adopters”. In fact, this is the strategy RealT implemented with the creation of the SOON token. To date, over 1,300,000 SOONs have been distributed to its community.
In the next episode, we take a closer look at the process of converting the SOON to REG.
In executing this option, after a few months, it’s highly likely that a handful of the clients of the community would have wanted us to move too quickly to this phase 2 which Zeller calls oligarchy.
According to the articles, phase 2 of the oligarchy begins when:
1. The protocol has found its PMF (Product Market Fit) and is generating its first revenues;
2. The VCs and early investors still have significant power.
This next phase led to the development of the RMM, which RealT launched on April 14, 2022. Today, the protocol has found its first PMF and is generating its first revenues with RMM. Later, with the development of the YAM and other applications, additional revenues will be generated for DAO. In previous writings, RealT has explained the growth and traction of these products. In due course, DAO will be able to activate currently non-existent fees on YAM, for example. However, RealT is working to ensure that this modern billboard complies with current regulations and creates an exponential new revenue stream for the protocol.
Throughout this phase, the original stakeholders will be progressively diluted to the benefit of other Token Holders in order to have a progressive complete decentralization.
RealT’s intention is to launch this DAO directly while in this second phase. To begin, RealT will need a leading service provider to keep the momentum going, before smaller groups can organize themselves to become complementary service providers to the DAO. RealT will initially take on the role of service provider and as such, we feel it is important to highlight the technological and operational progress made over the past five years since the launch of RealT.
In our opinion, DAOs such as Maker DAO, AAVE and CURVE are reputed to be the protocols that have achieved the greatest degree of decentralization. For Zeller, Aave took two years to go from an oligarchy where:
1. The protocol was developed by the Aave Companies, renamed Avara in 2023;
2. The governance was controlled by the Aave Companies and a few investors.
To where Zeller believes that Aave now is close to entering its 3rd phase of maturity, as a Mature DAO. Since the end of 2023, Aave had more than 8 different service providers paid for by the protocol’s revenue:
The AAVE DAO allows for voting directly on the budget and the re-election of these service providers. For Zeller, the Aave DAO will fully enter this new phase of decentralization when at least half a dozen delegates have reached a certain quorum (several hundred delegations).
This Aave case study allows us to project the financial and temporal cost of successfully decentralizing the RealToken protocol.
REG: RealToken Ecosystem Governance
Today, the “RealToken” protocol is at the crossroads of several sectors and skills:
1. Real-world assets: We need local experts in each type of tokenized asset (starting with real estate, but not limited to such, as the range of assets to be tokenized is diverse);
2. DeFi: A number of experts are needed to defend the protocol’s interests and create links with other key protocols;
3. Governance: Community leads who are motivated to take an active part in internal governance, with the aim of informing all Token Holders of important upcoming decisions.
Benefits designed and voted by the DAO
It is planned that RealT’s REG Token Holders will be able to put forward proposals and take part in votes to add new use cases and modify the balance of REG uses. We believe that the community’s creativity will help shape the expansion of the uses of tomorrow. A few examples we are considering in our discussions include the following, but are not limited to:
- Modification of borrowing rate curves on the RMM;
- Boosted deposit yield on the RMM based on the number of locked REGs and RealToken NFTs held (the role of these NFTs is explained in detail later);
- Boosted yield on new products offered by RealT based on the number of REG and NFT RealToken held;
- REG collateral deposit on the RMM, once there is sufficient liquidity on the secondary market;
- On YAM, if fees are activated and inspired by Mt Pelerin’s operation (with MPS), it would be possible to reduce fees according to the volume and number of REG/RealToken NFT. The impact of bots, believed to be decried by many, could diminish or be beneficial to the ecosystem, as they would need to have a significant quantity of REG;
- Creation of a RealToken Club giving early access to primary market sales, wild sales or upcoming face-to-face events;
- Modify Airdrop conditions, budget, and composition;
- Modify provider/provider authorization parameters for DAO;
- Vote various budgets granted by the DAO.
It is important to note that the examples mentioned above are purely illustrative and in no way constitute a commitment to their implementation. It’s up to the community to imagine, discuss and find new applications and use cases that are beneficial to the ecosystem, and therefore to REG owners. For any modifications or additions, it will be important to discuss and understand the issues at stake, so as to maintain a balance that prioritizes collective rather than individual interest, thus guaranteeing the DAO’s ability to function in the long term.
In the future, the DAO could offer a “tokenization as a service” product and/or white-label services. Some professionals wish to tokenize their assets either with their own infrastructure (White Label) or by integrating into the RealToken ecosystem using tools developed by the DAO (YAM, RMM, future DEX, etc.). To do so, these players will have to comply with a set of specifications, and holding a minimum number of REGs could be a prerequisite.
This REG will have to be guaranteed by these professionals, and in the event of fraudulent behavior, these tokens may be seized. Tokenization as a service” may also create a new source of recurring revenue for the DAO, while white labeling will enable more substantial but one-off revenues.
DeFi strategies modeled and voted by the DAO
In addition to its uses, the DAO will also have to manage the cash flow and liquidity of its ecosystem.
As you will see in the section on the token economy, the various mechanisms put in place are anticipated to provide the DAO the opportunity to generate significant income and cash flow over time. One of REG’s functions will be to manage it. The DAO can allocate cash flow funds for liquidity provision, security reserves on ecosystem applications, grants, service provider payments, security, REG redemption, airdrop to NFT RealToken Holders in REG or any other token, and so on.
To kick-start liquidity, the DAO could decide that part of the REG Tokens in the treasury should be contributed as liquidity, or propose a Liquidity Mining program to increase liquidity and reduce slippage on REG. In the event of the protocol providing liquidity, there will be a new source of income from the fees collected.
The RealToken DAO could use part of the cash on deposit on the RMM aligning the economic interests of many stakeholders in the ecosystem by allowing the DAO to earn income on deposits and maintain a suitable borrowing rate for Token Holders. This rate stabilized by the DAO could benefit new products in the RealT ecosystem, such as tokens specifically for property renovation. What’s more, if rates are lower, other investors may be tempted to borrow or buy new tokens on the secondary market, creating a virtuous financial circle and increasing the volume and therefore de facto revenues of the DAO.
In the near future, new synergies could be created through the various services offered. Once the DEX or the revenue protection module has been launched, some users or the DAO could choose to deposit traditional crypto-assets such as USDC and xDai, or decide to deposit armmwxdai or armmusdc in order to accumulate two layers of returns: the one generated by the RMM and another linked to trading volume on the DEX or the return associated with the protection module. These mechanisms are made possible thanks to the composability and advanced integrations offered by DeFi.
Another opportunity could exist as it relates to grants where the community could partake in writing educational content. It could be decided that a budget be established to produce such content or offer gamification courses for new users with quest systems.
Safety and governance choices defined by the DAO
On the subject of safety, if you’re a DeFi enthusiast, you’ve probably heard, rightly or wrongly, about the new Restacking trend. The DAO may decide to use this type of product, or to use older mechanics such as the “Safety Module” proposed by AAVE.
DeFi experts who have followed the history of these DAOs could have a big role to play. RealT regularly sees what it believes are strong models and changes of direction in governance. For the older generation, in 2020, the model that everyone agreed on was Curve, with its “veCRV” locked in for up to four years.
At the time, this model was the most aligned between the various stakeholders (protocol, Token Holders, liquidity providers).
By blocking tokens in governance, 3 advantages were regularly put forward:
1. The token’s value could hold up better during a market panic, since these tokens cannot be sold.
2. By not being able to sell the tokens, the project’s valuation would not fall and therefore, maintains a good ranking on CoinMarketCap or CoinGecko, thus reinforcing its status as a reliable asset.
3. To “artificially” increase the market cap / Fully Diluted Valuation ratio.
Since then, new models called ve(3,3) have appeared, and currently it’s this kind of model that seems to be the consensus in the ecosystem. More mature DAOs are regularly modifying their roadmap. Examples include ParaSwap and AAVE, with the introduction of 80/20 Balancer pools.
AAVE realized that by blocking only the AAVE token, the safety module was overexposed to this asset. By introducing a pool of 80% AAVE and 20% ETH, this reduced dependence on a single asset. For the DAO, this also reduced incentive costs, since to encourage Token Holders to block a governance token or deposit liquidity, they had to be offered a return either in governance tokens or by distributing protocol cash.
ParaSwap seems to understand this, which in our opinion is why it proposes to boost by 2.5 those who deposit liquidity in a pool balancing 80 PSP token / 20 ETH rather than a Token Holder blocking only PSP. With this mechanism, the DAO has improved the efficiency of economic incentives and liquidity on their token.
For fans of decentralized finance, the mention of Balancer no doubt brings to mind Aura Finance and the innovative concept of “Bribes”. Members of our community might consider acquiring voting rights in other protocols, with the aim of strengthening and optimizing the “RealToken” protocol. As mentioned above, Balancer and Aura Finance, with their presence on the Gnosis Chain, we believe are paving the way for strategies to optimize future liquidity pools including REG.
Jarvis network’s DAO is also considered renowned in this field, having achieved an annualized incentive of $1,000,000 across its entire ecosystem without spending a single one of its governance tokens.
In summary, over time, REG will have the ability to vote and direct all aspects of the DAO. However, it’s important to remember that, in the case of AAVE, it took more than two years for the DAO to move from the initial oligarchy stage to migration to the next stage.
The “RealToken” protocol may also take longer to achieve its objectives, given its size, the complexity of its ecosystem which integrates several applications, close links with real-world assets and, consequently, exacerbated regulatory requirements compared with other projects. As always with RealT, the aim is to make progressive increments to test the infrastructure, innovate and adjust parameters according to the results of previous iterations, in order to tend towards the best compromise and ideal balance. We feel this is best to protect against cash evaporation as a result of a hack or a poor governance decision.
Initially acting as the main service provider, RealToken Technologies Inc.’s mission will be to ensure that the smart contracts function correctly so that it can react in the event of problems, and to weigh up the wishes of holders to avoid squandering cash, all with a view to building a solid, sustainable foundation over time.
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