A framework for building towards a robust HAUS tokenomics model

Warcamp (DAOhaus Core Contributors)
#1

First Principles

Token Market Value

  • Fundamentally, a token’s market value is determined by its ability, ultimately, to be exchanged for goods and services IRL. In practice, this means liquidity against the USD.
  • Therefore, on-chain, token market value is determined by AMM liquidity pools of HAUS paired against reserve currency quality tokens, usually ETH, DAI, or USDC
    • ETH, USDC, and DAI have this reserve currency quality because they have extremely high liquidity against the USD, meaning they can be exchanged for USD at any scale that is relevant for regular humans
    • The deeper the liquidity pool, meaning the more reserve currency in the pool, the less the price will move in response to big buys or sells. The ratio of reserve currency to token in the pool determines the level of the price.
    • One way to think about liquidity pools for project tokens is like a bank account, and anyone who holds HAUS effectively has a checkbook to cash out some portion of that bank account. A permissionless treasury.

Token Value Sustainability

  • In order to develop a robust, sustainable tokenomics model, there must first be a recurring, meaningful source of income

    • Caveat: or the credible expectation that income could easily begin to accrue to a token (e.g, Uniswap)
    • What do I mean by robust and sustainable? I mean that the fully liquidated market cap (price * total supply) of the token doesn’t drop to 0 over time

  • The income to a tokenomics model cannot be outweighed by issuance of the token

    • Issuance must be 0 (fixed supply), negative (buyback, burn, or both), some mechanisms must be built to counteract the flow of token back into the liquidity pools (locking, staking, vote-escrowed, etc.), or slow enough compared to buy pressure such that it doesn’t pull price down to 0

  • To use a metaphor, a tokenomics model is an airplane. Income is fuel for the engine. Issuance is gravity.

    • If there’s enough fuel, the plane flies on!
    • If there isn’t enough fuel, or the engine is poorly built, or there’s no one to fly the plane, then it inevitably heads to 0. Whether it’s a graceful descent or a calamitous tailspin depends on the particular plane and the conditions of the weather (market).

  • Protocols generate income by offering a service that people are willing to pay for. In the Addendum, I’ve laid out a table of with a few of the reasonably lucrative services operating in the broader Ethereum ecosystem today.

    • It’s important to note that the income stream to the organization providing a service does NOT have to come directly by charging users for using that particular service.

  • The relationship of income to core service falls into roughly three categories:

    • Primary - users pay to use the service
      • e.g., Ethereum, Uniswap
    • Secondary - a paid service offering attached to the core utility that users need
      • e.g., Infura’s RPC as a service is free to use for Metamask users, which creates a natural userbase for Metamask’s swap aggregator - which is highly lucrative
    • Tertiary - the income source for the business comes from something largely unrelated to the core product offering
      • e.g, GnosisDAO is effectively a crypto hedge fund that also builds useful products that are free to use, like Gnosis Safe

  • Strategically, DAOhaus seems well-positioned to use either a secondary or tertiary model

    • As a platform, DAOhaus has an incredible opportunity to provide our base service offering (Molochs with a human-friendly UX) free to users in perpetuity, while offering desirable paid secondary services, e.g., the Yeeter
    • There’s also no reason that we can’t just use the resources we have available to us (e.g., capital, expertise) to operate blockchain validators, bridge routers, or other services and direct the revenues towards supporting the HAUS tokenomics system

  • In my discussion thus far, I’ve deliberately omitted two other common sources of token value (demand). Let’s touch on them here and why I chose not to include them this particular discussion.

    1. Meme value. I can’t put meme value in a discounted cash flow spreadsheet, and therefore I have no effective mental model for integrating meme-based buy-side pressure into a tokenomics system. See my username. Maybe I need to read more Gramsci.
    2. Non-income utility. There’s a handful of protocols that use tokens as signalling tools (eg GRT), or as pure governance tokens (eg ENS, GTC). In some cases, the case of ENS, the tokens are valuable because they represent the power to direct substantial funds held in the treasuries of the project (e.g., utility is power to direct funding). Overall, “work token” models like GRT are too new and oftentimes too inflationary to provide a credible model of success in sustaining token value.
    • It may be useful to explore these value drivers further in the future. However, I firmly believe that we will give ourselves the best probability of success by prioritizing income-based value drivers in the near and medium future

A Structured Approach to Finding Income Opportunities

  • Assess and pilot secondary model products

    • Brainstorm to generate product concepts that integrate well as a secondary paid offering to DAOhaus platform
      • Design Thinking / Discovery & Framing process to identify high-value user needs
    • Assess product opportunities, market size and competition
      • Prioritize on a 2x2 by revgen potential vs cost to pilot
      • Pick top 10 to try, with defined success criteria
    • Build 1-3 in parallel (Team RAGE)
      • Limited launch to test adoption
    • Scale successful tests (Team Sage?)
      • Decommission the rest
    • Rinse and repeat
    • Expected win ratio of 1:5 (one win for every five pilots)

  • Scope, assess and pilot tertiary revenue sources

    • Survey available opportunities
      • Assess by
        • Resources required (labor, capital, equipment)
        • Model economic projections
        • Risks and costs
        • Alignment / partnership opportunities
    • Assign resources and spin up first tertiary revgen unit
      • Operate for defined period
      • Assess
    • Scale and/or spin up next tertiary unit

  • Once we have income streams, we must determine the smartest way to utilize it, so let’s discuss…

HAUS Tokenomics Itself

  • In our specific case, to support a stable (or appreciating) HAUS price, we must either:
    • generate and direct a stream of ETH into the HAUS:WETH pool greater than the amount of ETH leaving the pool over time (directly affecting market value)
      OR
    • generate and direct a stream of ETH directly to HAUS holders via a mechanism that reduces or freezes supply such as locking, burning or staking (creating an incentive to buy HAUS, indirectly affecting market value)

There’s a few different variations on models for accruing income generated back to the token liquidity pools. I’ve done my best to categorize them here:

Model Flows Protocols (e.g.) Comments
Stake for Service User buys TKN. User stakes TKN to receive service or discount to service fees. User can unstake TKN to end subscription APY Vision, Binance Only reduces circulating supply temporarily. Retention rate can severely impact token price
Pay for Service User buys TKN. User pays TKN to protocol for service. Basically just paying ETH with extra steps
Buyback and Burn (BAB) User pays for service. Protocol uses income to buy TKN from market and burn it. Maker Reduce’s total token supply, but for this to be meaningful, income has to be significant proportional to total market cap of the token. In Maker’s case, this has been largely ineffectual and they are actively exploring other tokenomic models.
Buyback and Build (BBU) User pays for service. Protocol uses income to buy TKN from market and return it to DAO coffers. Yearn Functionally identical to BAB as far as market impact, but tokens recirculating to DAO coffers means that those tokens can be redistributed as payment for labor, services. Income is more directly “retained” by the DAO, rather than purely being subject to market recognizing / anticipating future “revenue.”
Buyback and Earn (BAE) User pays for service. Protocol uses income to buy TKN from market and distribute it to other users who stake TKN. Sushiswap, Curve Staking reduces some circulating supply. Stakers are accreting value in the form of TKN, which they have to cash out by selling it back into the liquidity pool for ETH or stables.
Stake & Distribute (SD) User pays for service. Protocol distributes payment directly to stakers in proportionate to staked TKN LooksRare, Kleros

NB: All buyback mechanisms require a robust liquidity pool for the protocol to trade against

  • Of these available options, I would argue that Buyback and Build (BBU) or Buyback and Earn (BAE) are both straightforward and a decent foundation from which to build more involved or complex mechanisms (such as a vote-escrowed yield-multiplying BAE staking system, etc. etc.)

ADDENDUM

EVM-based Services

Type Service Protocols (e.g.)
validators trustless, secure computing resources Ethereum
RPC as a service endpoints for tx processing without running a node Infura, Pokt
staking as a service validator reward without running a node Lido, Rocket Pool
decentralized exchange (DEX) permissionless fungible token swapping, liquidity provision Uniswap, Balancer, Curve
swap aggregators swap at best prices, reduces labor cost of comparing prices, MEV protection Metamask Swap, Matcha, 1inch, Cowswap
money market permissionless token lending and borrowing Aave, Compound
stablecoin issuance stable-value tokens Maker, Reflexer
yield aggregators reduce gas, labor costs of yield maximization from money market and dex protocols Yearn, Pickle, Harvest
fundraising permissionless capital formation Juicebox, Yeeter
DNS/ID censorship-resistant domain name service ENS
bridging cross-chain token transfers Connext, Celer, Hop
PFP art projects prestige, community, gambling Bored Ape Yacht Club
NFT marketplace permissionless non-fungible token swapping OpenSea, LooksRare
mixers privacy Tornado Cash
decentralized arbitration subjective oracle Kleros, Celeste
play to earn fun - hopefully Axie Infinity, Skyweaver
governance layer signaling + trustless collective control of wallets DAOhaus, Compound Governance, Snapsafe
analytics human-friendly tools to analyze blockchain data Etherscan, Dune Analytics, Chainalysis
data caching query-able, high-availability, low-latency state data The Graph 
This list is not comprehensive, but hopefully provides a reasonable overview

HAUS Present State:

  • Fixed total supply: 1MM HAUS
  • Issuance prior to CCO3: 413,277
  • CCO3 Issuance: 76,000
  • Deployed to Balancer mainnet pool: 66,072
  • Poolhaus Diamond Hand Bonus: 1,619
  • TOTAL HAUS ISSUED @ Q3 2022: ~557,000
  • Total HAUS in liquidity pools: ~70,000
  • HAUS Distribution
3 Likes
#2

Thanks to @spencer for his help and feedback in drafting this

#3

Maker discussion on burn mechanics](Against the burn - Governance - The Maker Forum)
Useful discussion here, seems credible.

Proposed Maker adjustments to burn and governance staking I wouldn’t support it, personally, but interesting to see proposed changes.

#4

Another element of tokenomics strategy to consider here:

  • Rather than adding ETH to liquidity pool to change price, maybe the long-term strategy should be to add ETH-HAUS to liquidity pool to deepen the pool. Or both, in some proportion.
1 Like