How The Open DeFi DAO Works
In our previous blog post, we introduced our reasoning behind why we believe the Open DeFi DAO is a necessary component in the growth and connectivity of the emerging cross-chain DeFi ecosystem. When designing our solution, we took into account the overwhelming personal agendas and tribalism founders had to face when dealing with current permissioned ecosystem DAOs in the market. This led us to create a new alternative, an incubator for everyone in DeFi. Our DAO will be the first of its kind, allowing permissionless entry for anyone in the community to govern a multi-chain balance sheet that will bootstrap the liquidity of DeFi ecosystems across every blockchain. On the other side of this DAO, operations will be open to contributors of any background, the ecosystem we will develop is not closed off to mentors and partners from VC firms and executives at DeFi protocols. If you have the ability to generate yield or venture strategies, developer skills, or even a background in data science, we welcome you to participate (and make some money) to help put your name behind the upcoming protocols leading the charge in the future of finance.
Central to our DAO is the Open DeFi governance token, a multi-chain asset that will empower our community of founders, builders, and strategists to govern the direction of both short-term opportunities such as yield strategies in our vaults and treasury, and more long-term opportunities such as incubation and liquidity bootstrapping for early-stage DeFi protocols. The vision for this DAO is to manage the most diverse and profitable balance sheet of cross-chain assets. In order to accomplish this, we have designed a new permissionless, chain-agnostic, and upgradeable governance architecture that utilizes several new components that we will soon leave in the hands of the DeFi community to take reins over.
In this blog post we get into more details about how the Open DeFi DAO will work including governance as well as some operational details related to community participation and technology choices.
Governance and Voting
The Open DeFi DAO is the community lego for a multi-chain ecosystem, where membership is permissionless and anyone is able to join. Membership to the DAO only depends on holding the Governance Token, the majority of which will be distributed through a combination of Balancer Pool LBP, Liquidity Mining, Community Drops, and Contributor rewards.
DAO Members will have the ability to vote on how to allocate the DAO treasury, which includes short term yield strategies and longer term incubation strategies.
For proposals that are passed through a successful vote, the DAO Treasury will release or accept tokens from various short term opportunities as well as longer term opportunities. The treasury will also allocate tokens upon successful votes for operational expenditures in support of the OD DAO or incubated projects, as described below.
Within a few weeks following launch a Forum will be deployed in order for the community to enjoy a more decentralized alternative for non-binding discussions about the OD DAO. Depending on community preferences, a certain amount of Governance Tokens would have to be held or staked in order to create or respond to posts, and introduce new proposals on which to vote.
Proposals and Contributor Tokens
Open DeFi DAO members will be able to shape the day to day operations and long term strategy of the DAO through a proposal process which will allow for open debate and discussion, voting, and the enactment of new policies. Before launch proposals templates and voting parameters will be set, but are expected to evolve with the needs of the community. All proposal submitted to the DAO will follow a 5 step process:
At launch the Voting function will require OD Governance tokens to be staked in order to submit and vote on proposals. To further incentivize participation, community members will also earn non-fungible, non-transferrable, Contributor Tokens through voting, participating in the forum, as well as participating in the operations of the incubated projects and the OD DAO itself.
The contributor token is a form of “social capital” that community members will accrue through active participation in the OD DAO’s governance and operations. Contributor tokens can also be earned by community members that participate in the governance and operations of incubated projects. Conversely, holding the token could gain the holder early access or privileged roles at incubated projects.
In the future, the community may vote to give Voting Proposal introduction rights to members with Contributor Tokens, or amplify Contributor Token holder’s voting power, for example.
Initially, Contributor tokens will be distributed retroactively by non-algorithmic means (to prevent gaming the system), however if the community votes to automate the distribution, Contributor tokens can be distributed automatically via systems such as SourceCred.
Short Term Opportunities
Proposals can be introduced for Yield Farming Strategies which includes choosing the liquidity pools and allocation of assets to be sent from the OD DAO Treasury. Voting will also control the configuration of liquidity pools such as Balancer, and Opty.Fi including what tokens to permit and in what ratios. The OD DAO will receive into its Treasury some portion of fees generated by participation in various Liquidity Pools.
Long Term Opportunities
The primary long term opportunities for the OD DAO will be the incubation of projects that serve the collective needs of the Open DeFi community.
Voting will take place on incubation opportunities that have been brought forward before OD DAO members (see Operations, below). In order to limit to a reasonable level the amount of data on chain, long-form proposals potentially including datasets and multimedia would be shared by IPFS and embedded into proposals that detail the incubation terms such as Token allocations.
Once passed, the OD DAO Treasury module will allocate tokens according to the outcome of the vote to fund any incubation activities in the incubation proposal. If the OD DAO receives Governance Tokens from the incubated project (for example a “Child DAO”), Open DeFi DAO members will be able to participate in the governance processes of incubated through a “proxy voting” mechanism using the weight of incubated project tokens held in the OD DAO Treasury module.
Computer Aided Governance
Community governance is not a trivial task. Making the right decisions in a complex environment is very difficult, especially in a space that is on the cutting edge and constantly innovating. To help our community make sound long and short term decisions, tools supporting “Computer Aided Governance (CAG) will be an important part of Open DeFi DAO.
Experts believe that artificial & machine Intelligence is going to be increasingly applied to automate DAO governance decision making and operations. In that vein, “Computer Aided Governance (CAG) described by Common Stack’s Jeff Emmett and BlockScience’s Michael Zargham, describes “decision support processes that lead “to better informed decision making”, through the use of data analytics, machine learning, and simulation modelling. Tools like these will be implemented with the objective to make OD DAO’s community decisions to be supported by data and empirical evidence.
In addition to members contributing to DAO governance functions through voting, submitting proposals, reviewing proposals, and forum moderation, members will get opportunities to participate in DAO operations in several ways:
Venture Strategists: These internal stakeholders lend their knowledge, expertise, and networks identify and develop project incubation opportunities. This role manages the incubation lifecycle of an incubated project for long term value generation. If you are someone who can easily identify the best applications of liquidity and have an eye for early-stage protocols, this role is for you. Venture Strategists will have a constantly-growing pool of stablecoins and Open DeFi tokens coming from fees generated by the DApp to work with and diversify across the DeFi ecosystem where fitted.
Yield Strategists: More of a consumer facing role, yield strategists are those internal stakeholders that can identify and develop multi-chain yield farming strategies for short term value generation. With the tokens coming into the treasury from the venture strategists, the yield strategists are tasked with taking the portfolio of ecosystem tokens, and growing them through yield opportunities. Fees generated from these strategies will be turned into stablecoins and fed right back to the funding pool, where the process repeats itself with the venture strategists.
Technicians: Community members that support the varied technical needs of the OD DAO and incubated projects. This could include various software and bug bounties, on an as-needed basis as decided by the DAO members.
Data Scientists: Includes Modeling & Simulation experts who collect, clean, analyze data and create A.I. and/or simulation models (e.g cadCAD models) in order to understand the complex relationships between variables. The evidence that is generated through this process will be considered when voting on proposals or framing proposals, or questions, for voting — including long term and short term strategic decisions.
Data Scientists act as curators of the data and process that goes into training A.I. models as well as creating Generalized Dynamical Systems models. Data Scientists who are well versed in the application of AI, ML, and simulation of complex systems using tools such as cadCAD, work to understand the underlying relationships hidden in data, and make that evidence available for the Governance process to consider.
We expect a few variations or specializations of Data Scientist to emerge, for instance Data Wranglers who identify useful data, clean it, and make it available in a convenient format for further analysis by A.I. Model specialists who train A.I. models, evaluate their performance and apply them to generate insights and strategies. This work is complemented by Simulation Modelers using data, create and validate simulation models (e.g cadCAD models) in order to understand the complex relationships between variables that A.I. models can find but not explain.
Decentralised marketplaces and competitions for Data Science contributions such as Numer.ai can be used to incentivise and work with the best talent in the space to address Data Science tasks as directed by DAO governance.
Evidence generated through these various steps of analysis, will be considered when introducing or voting on proposals — including the decision making and implementation of Incubation and Yield strategists. We expect the decision support processes will at first be normative, but as time goes on these processes will increasingly be encoded within smart contracts and carried out autonomously using AI agents.
So far we’ve been talking about the OD DAO in terms of how the DeFi community is involved and participates, that’s because at the end of the day, a DAO is all about its community — that’s why we’re going to be the best DAO around! The underlying technology should be regarded as a way to algorithmically support the knowledge and idea generation, consensus, and operations (including, of course, treasury management).
Recently, it has become increasingly apparent that the wider DeFi community is starting to think of DeFi as a Multi-chain phenomenon in which community members express varying preferences for decentralization and low fees or other convenience features. Although the opportunities are there to take advantage of platforms that optimize for different security models and user convenience, DeFi communities split across chains (both L1s and L2s) are realizing new liquidity and coordination challenges.
The DeFi community will take time exploring ways to optimize across these challenges and opportunities, and new developments occur, we expect the DAO to incorporate the very best available tools and platforms. As these technologies come online, we expect to upgrade the technology infrastructure over several cycles.
The decentralized governance of the OD DAO will ultimately decide on which technical path to take. For this reason, the exact way forward is difficult to predict, as it further depends on developments and market conditions in the DeFi ecosystem. Therefore, at the outset, the implementation of the OD DAO will be focused on being agile to optimally ride the rapidly evolving wave of the multi-chain “Governance Surface”.
The specific launch characteristics will be released leading up to our LBP in the coming weeks, but the guiding principle of Agility and the ability to adapt to new developments will be the “North Star” for the launch characteristics. What we can share now is we will launch natively multi-chain and have multiple interworking components that take advantage of the tradeoffs of different platforms and projects:
- Primary liquidity pools will be on Ethereum, including LBP, permanent liquidity pools to take advantage of the protocols and applications available on the Ethereum ecosystem.
- Initially, a majority of the Vaults and Treasury will be initially deployed on Ethereum to take advantage of liquidity there.
- The Governance Token originates on Conflux to take advantage of ShuttleFlow cross-chain bridging to a growing number of L1s.
As can be seen from our GitBook we anticipate the evolution of the technical architecture of the OD DAO to keep track with Multi-Chain developments, and evolve accordingly.
Going forward from the initial design, we expect DAO functions will continue to be split across blockchains to benefit from the strengths of specific platforms and technologies. For example, on some platforms, transaction fees may enable on-chain governance features, such as a forum, which would not be possible otherwise. On-chain governance has the potential for increased automation of operations, and perhaps more importantly to be “radically” transparent; a momentous movement like DeFi could have long market cycles and the provenance of the DAO’s culture (e.g. memes) becomes important throughout different “generations” of active community members.
Given the “Cambrian Explosion” of Blockchains, DeFi Applications, and Multi-Chain applications, happening within the DeFi community, the Open DeFi DAO will normalize incorporating new technical developments, and evolving in response to changes in the Multi-Chain ecosystem. Recently, there’s interest in alternative, or augmented voting models such as Conviction Voting, Quadratic Voting, among others. On a more technical platform level, different governance implementations are available such as Aragon, Snapshot, and more recently Gnosis SafeSnap. The Open DeFi DAO has the potential to incorporate the best developments into its own Governance procedures. Moving forward from launch, the governance token holders will ultimately decide in which way to proceed following launch, in order to best advance the goals of Open DeFi.
We’re evaluating a few cutting-edge and recently developed Governance & Voting tools and implementations for the launch configuration of the OD DAO. Please stay tuned here and follow us on Twitter for developments regarding the precise launch configuration of the DAO.
About Open DeFi
Open DeFi DAO is a permissionless incubation DAO, formed to launch the breakthrough DeFi projects of tomorrow and generate long-term value by building and launching early-stage financial protocols, applications, tools, and infrastructure that support Open DeFi’s vision of a cross-chain DeFi ecosystem. The DAO will support and launch projects across all layer one ecosystems and explore DeFi markets surrounding new digital asset classes, including NFTs, data tokens and more. The goal is to develop a truly integrated multi-chain DeFi ecosystem that will open up liquid markets and establish a new operating system for finance.
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