The hottest thing in DeFi right now is liquidity. In a world where code is open source and users are technically proficient and able to move platforms easily the differentiator for a decentralized product is what is not easily forked— liquidity
Once a protocol or project builds up liquidity in its platform the user experience dramatically increases and it attracts new users. Less slippage and being able to service larger orders are sometimes all users really care about.
It has also been shown that, even without a revenue model, liquidity can be enough to attract major investment. One would assume this also comes with expectations of some amount of revenue in the future but on the premise that getting the liquidity is the hard part and revenue opportunities will spring up from there.
This poses a problem though — how does one get from 0 to ample liquidity when building a decentralized application?
THE DAO is the chernobyl of…. well DAOs. It took a huge monetary, social, and spiritual toll on ethereum and the concept of DAOs in general. And for a while anyone trying to launch a dao had to deal with the connotations that came with that acronym. Fortunately some small, incremental testing has been going on for the past year or so with DAO structures and some measured success has been seen with MolochDAO, Metacartel, and others. By stripping out complexity (and often any expectation of profit) but still having a honeypot of funds it seems the tides have turned for DAOs and we are now looking at some higher profile for-profit DAOs launching soon.
The last feature is see being needed is a way for early contributors to share in the success of the project or otherwise incentivize liquidity providers. Pooltogether does something interesting here with their no-loss lottery. Rolling 10% of the winnings into a central pot that is reinvested the next round provides a greater expected return (over the long run) to players than just contributing to the underlying protocol.
I am interested in finding scalable intersection of DAOs and open, gamified, liquidity pools. The tricky part is you cant just create a decentralized, open source service or product, and then add a fee. When you launch, it can be forked and have the fee removed before you reach sufficient liquidity. Without a fee then there is no real upside for the DAO. They can earn a return from providing liquidity to the product but have no further upside compared to any other liquidity provider and are then forced to look for revenue generating ideas if they even want to break even on the work that went into the platform. If it is something that enhances an investment or another product of the DAO members thats fine but it would be ideal to be able to fund good projects for the sake of them being good projects and have value flow to those that took risk and put in the capital and effort upfront.
- Form DAO with a common interest in building a product
- Use DAO resources (monetary and human) to design, build, deploy, and market a liquidity pool based product
- Acquire users and grow liquidity in pool
- Liquidity providers still earn a healthy yield and early contributors may be able to participate in some additional upside
- If successful DAO earns back cost of development + additional upside
I see a few potential options
- Taxed liquidity pools — DAO members are the first contributors to the pool and tokens are minted at the price of (total value in pool / total pool tokens outstanding). I went into this a little deeper here. https://firstname.lastname@example.org/taxed-liquidity-pools-7889de2236ea
- Incentive Pool — There is a secondary pool that receives some (say 10%) of all interest/revenue flowing to the liquidity pool. This pool has a fixed or declining issuance schedule. DAO members hold X% of the tokens with ownership of that pool with the rest being distributed to capital providers (ideally through some locking/commitment scheme).
I would love to hear more ideas about how this goal could be met or what other projects are doing interesting things that could be considered for inclusion in the final design.
Source: Crypto New Media