Web3Dev DAO: Tokenomics Feedback
As part of a recent engagement, we have been asked to evaluate the tokenomics of Web3Dev DAO (Portuguese website here). We started our evaluation with a basic paper drawing and a conversation. The following is the summary of our evaluation.
Introduction
Web3Dev DAO’s objective is to build a two-sided web3 marketplace that connects companies to tech professionals such as developers, designers, and data specialists.
The DAO will also work to develop software, tools, educational content, and courses to allow anyone to use, create, and benefit from the web3 ecosystem.
The DAO wants to launch its token WDT to decentralize its governance while creating a powerful token incentive for its ecosystem participants, who will have the possibility to participate in its management and unlock other token utilities in the future.
Web3Dev has created an interesting organizational structure made up of a consulting company, a DAO and a group of sub DAOs, this structure beside enabling scale and fragmentation also easily connects with the traditional world.
Wagbi Consulting is a traditional company that works as a bridge between the client and the DAO, who have access to guilds (Sub DAOs) made up of tech professionals.
TokenomicsDAO was invited to analyze Web3Dev DAO tokenomics strategy and provide our comments on the presented model. We have created a diagram that describes the mechanisms and ecosystem participants. Further, we described our observations along with our suggestions and references.
Tokenomics Overview
The diagram below describes the mechanism with which the ecosystem participants interact with each other. A zoomable version can be found here.
TokenomicsDAO Suggestions:
Voting Escrow: Web3Dev’s main objective is to incentivize DEVs and lock them into their ecosystem. However, despite having a staking mechanism, the current design doesn’t offer any lock-up feature. We see that as a possible barrier to achieve the defined objective.
A possible solution can come from the Ve(3,3) token model, where locking up tokens longer gives more voting power. Find below an article that explains Ve(3,3) Tokenomics and its benefits against traditional models.
Resources: VE Token model breakdown and evolution
Making Governance Attractive for Developers: In the presented model, access to DAO governance is regarded as the main utility provided by the token; however, there is no clear definition of how governance tokens will be seen as worth holding by a participant.
We envision two reasons for that. The first is the scenario where developers work full-time and can not be active in the DAO management. The second is if the proposals won’t directly impact their ROI. As a potential solution, we recommend including topics such as treasury management and dividends distributions as part of governance.
Developer Reputation: Developers are one of Web3dev’s leading resources, and there are no real mechanisms to classify them according to their performance and engagement. We would like to suggest implementing a reputation system that can support the process of classifying developers based on their reputation and retain them within the ecosystem.
Bringing this reputation on chain in the form of a token, will give developers credentials they can use when applying for other jobs and can make the process of selecting the right developer for a client project a lot more transparent.
Additionally, a reputation mechanism can be used to award DAO internal roles to reputation holders. Members who have proven themselves, can then take more responsibility.
To create a skin in the game effect, role holders could be required to not only have a certain amount of reputation tokens, but also lock-up a number of tokens. Similar to the project mechanism, the lockup amount could increase based on the pay and would align incentives.
To really have skin in the game, there needs to be the risk for role holders to lose their locked up funds. This mechanism needs to be further investigated.
The articles below analyze how a two-token model can help solve this problem.
Resources:
Fair Token Distribution: Looking into the provided initial token distribution (see screenshot below), we noted that the quantity of tokens distributed to investors, founders, and team reached 35% of total tokens; this is above what we have seen in the industry.
Best practices recommend dedicating 25%-30% to this category to avoid excessive selling pressure.
Vesting Schedules: The provided business model does not include lock-ups for investors tokens, which can lead to selling pressure as investors tend to realize profits quicker. Based on market best practices, we recommend at least six months of lock-up plus a 12 month linear vesting to this group. As a reference, we provide the article below that analyzes the trends in token distribution.
Resources:
- Optimizing Your Token Distribution — Lauren Stephanian
- Introduction to Tokenomics. Over the past few months, we have… | by Zach Zukowski | Borderless Capital | Apr, 2022 | Medium
Lockup mechanism: Locking up tokens in return for access tokens to education and governance seems overly complicated. Alternatively, token holdings could be monitored and access could be granted based on that.
Web3Dev Educational Platform: Spending and locking WDT tokens to access education courses and content of the platform can be tricky because of the token volatility, as a solution we recommend using stablecoins or/and a reputation token.
Staking Yield: The diagram shows a staking yield paid out to developers who work on a project. This staking yield is planned to come from the genesis supply and it should be explored where this yield will come from once the genesis supply has dried up.
Maximum Supply: The supply is 1 billion and it seems that is not the maximum supply. To install confidence with token holders, token amount and emission rate should clearly be defined along with its timeframe.
Ecosystem Incentive Program: We recommend that the incentive program includes all relevant actors of the ecosystem and be aligned with the growth of the protocol.
Conclusion
Our evaluation has found some interesting aspects that Web3Dev should focus on before implementing and launching the token. We cannot overstate the importance of vesting and planned unlocking of tokens (Cobie thinks so too).
The dynamics of how a great community of experts can be enhanced using reputation tokens should be explored further and could lead to a blueprint for other professional service DAO and web3 organizations. On-chain reputation has many benefits and papers such as the recently published soul bound tokens document by Vitalik only prove the importance.
