Here I analyzed some basic economics of DxDAO, its treasury, spending, and bonding curve.
DxDAO is an organisation that should be viewed similar to a start-up and hence reflect this sentiment. The current bonding curve promotes too much inflation, which disincentives earlier adopters and contributors to DAO, and even holding of the asset. I propose some potential solutions along with my analysis on treasury spending and the interaction between the bonding curve and DXD secondary markets.
Overview / TDLR
dxDAO’s current treasury is healthy, holding ~22,000 Ether
dxDAO has spent 412 Ether in the last 4.5 months
At current holdings, the treasury is projected to have 20 years of runway at a static spending rate, and 7-8 years at 50% year-on-year growth (parabolic growth scenario). Urgent funding is not required.
The bonding curve raised over 10,000 Ether in August, minting approximately 20,000 DXD. It allows buyers to enter but unable to exit due to enar non-existent buyback curve.
DXD is strongly correlated to ETH on the downside.
Currently, these are DxDAO’s assets, of which, ETH is the main spending power as we received DMG to participate in the DMG governance / ecosystem.
The DAO currently holds nearly 22K in Ether, so what are the treasury’s ETH spendings? I grabbed some etherscan data and this is what I was able to come up with.
If we project the treasury spendings so far into a table:
|September (so far)||20.800||$8,060.00|
And a chart:
In total, dxDAO has expensed 412 ETH (US$ 113,500 at time of ETH spent) over the past 4.5 months which is an annualized rate of 1,033 ETH. At the current rate of spending, dxdAO has a 20 year runway. Assuming dxDAO’s spending grows by 50% per year, which is a parabolic growth in funding, we would have enough treasury to last the next 7-8 years. From what I could find, a normal tech start-up generally raises enough for a 2-3 year runway before the next funding round. Below is a chart that shows the average distribution period in which a company has raised for, from a sample data of 13,916 start ups.
By modeling a parabolic growth in spending, increasing year-on-year spending by 50%, current treasury can last us into 2028, meaning at current rate of spending, we do not have without need to worry about the lack of funding.
The calculation is strictly made in ETH and compares ETH spending with ETH treasury holdings. It also does not take into account spending other assets in our treasury as this has been negligible thus far, and also does not account for DXD holdings and vesting from the treasury. Finally, the assumption has been made that the DAO’s treasury will not grow, though obviously it can grow via revenue capture, DXD vesting, and asset price appreciation
Currently, the bonding curve alone has raised over 10,000 ETH in the month of August, and nearly 22k Ether in last 4 month, which so far has shown that raising some capital is not that difficult.
In August we also saw significantly inflation the total circulating supply of DXD by nearly 20,000, which in my opinion is way too much inflation and too much DXD shareholder dilution. Is this significant amount of inflation worth the 10000 Ether to be added to the treasury?
DXD is meant to give holders the economic output from the DAO, however if this share is inflated significantly, then early buyers will benefit less than the DAO’s actual growth, inflation not only mean suppression of DXD price, but more so dilution of revenue share in the future that will be generated. The growth of DxDAO should not be captured by the inflation in DXD.
Furthermore, I think anything that inflates significantly in supply is unattractive to hold, but DXD is meant to be an equity that is held by active participants like us.
Given that the treasury is relatively in a comfortable spot, I think proposing a potential new curve that induces less inflation, or pausing the curve, make sense.
On bonding curve and impact on DXD secondary markets
Currently, the linear bonding curve trades in ETH into the treasury, and mints (and inflates) DXD, the DXD goes to the investor.
This week, Bitcoin fell from 12 to approx 10k, and Ether fell from mid 400s to mid 300s. Meanwhile, DXD suffered a correction of ~40% against ETH, which in USD value was a high of 450$ to 150$ (data from uniswap), and currently trade at 240$.
Sure, this is a volatile market and I am not here to say we need to do things to prevent DXD from ever dropping ever ! and only go up - but if currently the back curve is very weak, which means if you invested into DXD, you can only sell on the secondary market, and because the secondary market is very thin, it is easy to drop the price. Whenever secondary markets move slightly above the price of DXD, arbitrage comes in to mint new DXD to sell on the secondary markets. (more in depth below)
Currently, the Uniswap pair has less than 200,000$ of DXDETH liquidity, while bigger purchases on the bonding curve often involve multiple hundreds or thousands of Ether. This mechanism allows DXD secondary markets to drop very easily because buyers can easily get in on the bonding curve but will suffer
For example, if a buyer buys 197 DXD on the bonding curve, his slippage would be less than 1%, however if he instantly regret it or needs to de-risk from volatile markets, or need cash or whatever other reasons. he will end up pushing down Uniswap price by 30%
Some of my thoughts:
From previous discussions, it was mentioned that:
Adjusting the bonding curve > but what kind of modifications ?
Pausing the bonding curve > but when to unpause ?
I think this post answers that the treasury is wealthy enough that DxDAO should be perfectly fine if treasury grew at a slower pace, or if it is paused. Personally I think I am in favor of making the bonding curve significantly steeper, which likely results in less treasury growth, and less DXD inflation.
If we pause the curve completely, when do we unpause? I think if projected treasury spending can not sustain for longer than 3 or even 5 years, it would make sense to unpause. Considering how much DxDAO raised in the last 4-5 month, it seems raising is not a big problem, and pausing seems feasible.
If we make change the curve, how steep do we want it to be? and how exponential?
Just as an example,
Here is an example bonding curve but with a exponential modifier of to the power^1.001 for each new DXD minted. Again, just an example, i think a better curve can be produced, this is just for sake of visualizing a exponential bonding curve.
Ending this topic with a poll here, curious as to the results, personally, I am open to both, but if its an adjustment to the bonding curve, then a follow up discussion is needed for a better modling, in my opinion.
- Adding exponential factor
- Fine with both
- Against both
Bonding curve trade history:
Treasury holdings address
Uniswap pair information: