The $RIPE Token: its role and how it accrues value

When we started writing code for Ripe, I didn’t intend to launch a governance token. I’ve been involved in launching a token before, it’s stressful. Numba go up, everyone happy. Numba go down, it’s nonstop “devs do something!” in Discord. I just want to build cool sh*t that will change the world. I don’t want distractions. I’ve been building tech products my entire life — I know things take time. Time is not always afforded by traders and speculators in a Discord. It can be exhausting.

On the other hand, this isn’t a typical tech product, or a traditional tech company. This is a DAO. This is a new form of organization and cooperation where community matters. I love that and I want that. I know that tokens can be an incredible tool to help us — all of us — bootstrap a new, unstoppable, censorship-resistant, decentralized protocol. In the early days of Bitcoin, yes, people ran mining software because it was new and interesting. But many also ran it because of the economic incentives and the *possibility* of financial upside.

Tokens, if designed well, have the power to mobilize action, money, and movement.

So while I didn’t want to have to deal with the “wen moon” crowd, I knew that a token could help us reach our goals of unlocking yield opportunities for billions of people around the world. And that’s the goal. That’s why we’re here.

So today, let’s talk about the $RIPE token and how it fits into the ecosystem. Reminder, the $RIPE governance token is different than jUSD (Ripe’s stablecoin).

How Value Accrues to $RIPE token holders

Let’s get to the exciting stuff first. How does value accrue to $RIPE token holders? Why would someone want to stake their $RIPE token (single asset) or RIPE/ETH LP tokens in the protocol? What’s in it for them? We know that’s on everyone’s mind.

As a refresher, all protocol revenue goes to The Endaoment. That includes revenue related to loans (interest payments, liquidation fees, etc) as well as revenue related to home-grown yield strategies. The Endaoment puts its principle value to work so that it can generate yield/returns.

Now for the important part: the $RIPE stakers will get most of the gains generated from The Endaoment (except when jUSD is under peg). Let me say it louder for those in back: $RIPE token holders get the largest share of Endaoment gains! Within that, the RIPE/ETH LP stakers will get more than single-side stakers ($RIPE only) — providing liquidity to the RIPE/ETH pool is most helpful to the protocol.

So if $1B is in the Endaoment and it’s delivering 10% APY (optimistic, but easy, round number), the gains would be roughly $100M per year. If 50% of those gains were going to $RIPE stakers (this allocation is configurable by DAO governance), they would receive $50M. The Endaoment isn’t going anywhere (it only grows). So if the Endaoment kept performing at that rate, $50M yield will be given to $RIPE stakers… every… single… year. This is value accrual that is sustainable and long-term.

Now for the second most important part: A large portion of the initial $RIPE token supply will be distributed to stakers over the first few years (still finalizing exact details on this). We believe good governance in the first few years will be crucial in building trust, momentum, and growth for the long-term. It’s important that $RIPE token holders are incentivized to keep the protocol safe and healthy. Their work and decisions need to be rewarded accordingly.

So…what decisions are they actually making? What work are they actually doing? Why are $RIPE stakers being compensated so handsomely? Let’s cover that now…

$RIPE token holders govern the protocol

One important job that $RIPE token holders do: governance. $RIPE token holders vote on monetary policy and system configuration (i.e. assets supported, risk parameters, yield strategies, Endaoment portfolio, etc). Those decisions keep the protocol safe and secure.

As I said in our jUSD post, Ripe is not yet fully decentralized. To start, many of these types of decisions will start out as “soft consensus.” In the early stages, it’s important that the DAO be nimble and agile. It needs to be able to experiment, learn, and iterate (sometimes due to an urgent bug!).

But when the time is right, the Ripe protocol will come out of its nest and take a leap into the air. It will learn to fly on its own as a community-run, fully decentralized protocol. The training wheels will be off. Myself and others will fade into the background. This protocol will be yours, ours, everybody’s. At that point, the Ripe protocol will be fully governed, managed, and controlled by $RIPE token holders. All of it.

We’re still doing a lot thinking on how exactly governance will work within Ripe — especially as we push further on the decentralization spectrum. I’d say web3 governance as a research area is still in its infant stages. A lot of fascinating experiments are playing out in real-time, and we hope to keep observing and learning from them. Personally, I think most DAOs stink. There’s a lot that is broken. That’s why it’s important to take the time necessary to really get it right. You can expect Ripe will be at the bleeding edge of innovation as it relates to DAO organization, cooperation, and governance.

$RIPE token holders serve as the Ultimate Backstop

$RIPE token holders can’t just have the carrot (massive compensation), without the stick. If their governance and management of the protocol lead to poor outcomes (bad debt), then they need to be held accountable. We’re all in this together — both in good times, and bad.

So in the event that jUSD ever becomes undercollateralized, $RIPE tokens are automatically minted and sold on the open market (or auctioned, depending on liquidity) until the protocol health is fully restored (100% collateralization).

Not all protocol losses will be the direct result of $RIPE token holder decisions — perhaps there will be an exploit on a protocol we’ve integrated with, or a stablecoin pool that The Endaoment is providing liquidity to loses peg, or an asset used as collateral turns out to be a rug.

There are a number of ways in which Ripe protocol could lose money. This is the nature of building any new financial technology (especially in web3). Of course, our goal is to mitigate those losses. But it’s important that we be prepared for all outcomes and build the mechanisms to help manage risk, recoup losses, and self-heal. The $RIPE token holders serve as the ultimate backstop to ensure Ripe stays healthy and solvent. They are the last line of defense. The $RIPE token is minted, sold, and used to make up for the lost funds. $RIPE token dilution will depend on how good the $RIPE token holders are at governing the protocol and managing that risk. This mechanism is similar to Maker’s automatic recapitalization.

$RIPE token holders play a critical role. They govern the protocol and they serve as the ultimate backstop in the case of insolvency. This is why the vast majority of value in Ripe accrues back to them — they receive the largest portion of The Endaoment gains and a large portion of $RIPE token supply over time.

You are probably wondering how you can get your hands on some of that juicy $RIPE token. I can’t leak that alpha quite yet… but this post had a major hint on one of the methods.