Original compilation: aididiaojp.eth, Foresight News

Original compilation: aididiaojp.eth, Foresight News

Token governance committees can distribute tokens to the community and stakeholders in many different ways, including airdrops, liquidity mining, auctions, or different combinations of the above. This paper introduces a new approach to improve the effectiveness of various allocation strategies to maximize alignment among stakeholders.

There are many problems facing DAOs right now, chief among which is the problem of ubiquitous voter participation, as anyone actively contributing to a DAO knows. Of course it doesn’t necessarily mean that every address holding a particular governance token has to participate and discuss every fine detail, and not everyone has the same motivations when it comes to participating in the community.

Another common issue is a common distribution method known as liquidity mining, which puts tokens into the hands of people who are not necessarily interested in product governance. If those involved in liquidity mining are not interested in governance, they may try to sell tokens to other people. In the ruthless world of DeFi battles, it seems that there are only two choices: either cash out and leave the market, or take over at a high position.

This articleThis articleAs pointed out, we can observe this in the token dump after the yield farm starts.

There are ways to quantify contributions and distribute tokens more fairly to those who put in their time and effort, but these loyal holders often have no competitive advantage over speculators and yield mining participants. An intuitive solution would be to create a vesting schedule for stakers and early buyers who are not DAO members, although the downside of this is that contributors won't actually sell their tokens for profit since staking provides less liquidity , the demand for tokens decreases. Also, the vesting schedule doesn't necessarily reduce selling pressure, it just spreads it over different points in time.

There is no perfect way to manage governance tokens, but there are ways that certain risks can be mitigated, depending on the exact goals and requirements of the token launch.

An often overlooked method of token distribution is the use of bonding curves to mint and burn governance tokens. For those unfamiliar with bonding curves, here is a brief introduction.

Bonding Curve: Fixed Token Price and Supply Relationship

A bonding curve is essentially a way of simplifying the relationship between price and supply. A simpler way of saying this is: When the token supply changes by X, the price changes by Y, where Y can be a fixed value or a percentage.

This is similar to how AMMs work, except there is no need for a liquidity pool, as ETH or stablecoins can be deposited onto Curves to mint tokens on demand, rather than requiring liquidity in a pool to facilitate transactions. For example, we have a bonding curve where no tokens have yet been created, and the price increases and decreases by "1 ETH" every mint or burn. The starting price for minting the first token is 1 ETH.

Now the first person to deposit 1 ETH into the bonding curve will be rewarded with one token. Then the curve starts to move, X changes from 0 to 1, Y becomes the ordinate when X equals 1, now the price to mint the next token is now 2 ETH.

Then another person appeared who wanted to be involved. After she minted one token at 2 ETH, she minted another at 3 ETH. In total Alice has deposited 5 ETH into the curve and received 2 tokens in return.

The first person sees the price increase at this point and decides to cash out his tokens for a profit. Since the price is now 3 ETH, Bob can deposit his governance token back to the curve and redeem 3 ETH, so the point moves back one unit along the curve and the price drops to 2 ETH.

That's the nature of simple union curves, and it gets more interesting once we start experimenting with the shape of the curve itself. What if the price increases by 10%? What if it changes 0.5 ETH until it reaches a supply of 100 tokens, at which point the curve flattens and only moves 1% per mint and burn? What if the curve is a certain shape, but it changes once certain product milestones are confirmed by certain prophecies? Such a curve can be used to reward early believers in minting tokens when the stakes are higher, and the curve can become steeper as the product becomes more mature.

The possibilities are endless, and bonding curves can take an infinite number of shapes. It looks like this:

Another option is to use different curves for buying (minting) and selling (burning), where when X is aligned, selling is more expensive than buying, increments can be retained and sent to the treasury, or retained by the graph A higher redemption rate is awarded for each sell-off curve of tokens.

Other Types of Bonding Curves

There are of course other, more complex types of bonding curves, but two stand out, one of which was introduced by the Commons StackEnhanced Bonding Curve。

Above is the enhanced binding curve with some interesting additions. Additions include an "incubation period," the pre-minting phase where early investors can deposit funds to acquire tokens and make early contributions. Some funds go directly to the curve itself and some go to the treasury, which can be used for capital allocation outside the bonding curve to further product development. In addition to this, there is a vesting schedule for "incubator" tokens awarded at the initial stage, and an exit tax where the seller pays a small fee, which is redirected into the curve. The Commons Stack even offers a simulator you can use on the site, and it's considered an effective way to fund public goods.

Another variant was created by ParadigmVariable Rate Progressive Dutch AuctionarticlearticleA more complete explanation with examples can be found in .

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