State of REP Distribution
There is currently 1,236,855.47 REP held by 417 members.
980,000 REP was awarded during the reputation staking period about a year ago in 2019 (see section 5.3.1 of the original whitepaper). Members gained REP by locking ETH (80,000), locking approved ERC20’s (300,000), registering MGN which was earned by trading on the DutchX exchange (500,000), and also by purchasing REP with GEN (10,000). If I remember correctly, there were 399 addresses holding REP after the initial staking period. It is important to note there is no clear way to know how many people this represents and some parties may control more than one address.
DXdao reputation can be minted or destroyed through proposals. To my knowledge, REP has only been destroyed once, and that was when Loopring proposed to slash 20% (21,000) of their REP. The rest of the REP (267,715.91) has been minted since the staking period to members who pass proposals or otherwise have generated value for the DXdao. The majority of this has been awarded to workers helping build DXdao’s products. This represents a 27% inflation rate in REP over the past year.
REP Issuance Framework
Now that the DXdao has raised capital and deployed dxdao.eth, mesa.eth, and omen.eth, the time has come for the DAO to establish a framework for the issuance of REP. The following should be kept in mind as the DXdao establishes this framework:
- It is essential for DXdao to increase its membership and improve reputation distribution in order to become more decentralized. This should be done by issuing new REP to those contributing value to the DXdao.
- REP holders have significant responsibility (management of DXdao treasury and products) and it is important for REP holders to have proper incentivization. One way to do this would be to compensate REP holders with the portion of the revenues being used as operating capital. That is, revenue is sent to the DXtrust, 10% is deposited in the buyback reserve supporting the price of DXD, and the rest is sent to DXdao to be used as operating capital. Some of the operating capital should be used to incentivize REP holders. This budget item would be governance cost.
- In order for DXdao to be decentralized, it is essential that no group gain a controlling stake in voting power. A balance of power must be maintained amongst DXdao’s constituent groups. While these groups are not well defined, they include but are not limited to software developers, business development professionals, DXD holders, liquidity providers, and product (Mesa, Omen, etc.) communities.
A REP Distribution Framework requires consensus on a max inflation rate and the breakdown amongst the constituent groups. It would also benefit from a valuation of REP, and a max amount of inflation for an individual address. To get the discussion started I will throw out a suggestion. I am only just coming up with this as part of this post so treat it as a starting point.
Current Yearly REP Inflation Maximum
REP Inflation Budget Breakdown
- Technical Workers: 25%
- Business Workers: 25%
- Liquidity Providers: 20%
- DXD Holders: 10%
- Omen Community: 10%
- Mesa Community: 10%
Individual Address Maximum
- 1 REP = (Treasury Value * 1.2 ^ 5) / (Total Number of REP * REP Inflation Rate ^ 5)
At the moment, the top 9 REP holding addresses have > 50% of the voting power. With an inflation rate of 50% for a year and an individual max of 4%, the addresses with the highest amount of REP will have their REP percentage reduced by one third. After 1 year of 50% REP inflation, only the top 4 addresses would have greater than the max and would represent ~20% of the voting power. If 8 more addresses had the max of 4% each, then the number of addresses to get above 50% would be up to 12. Over time, with REP inflation and an individual address max, the minimum number of addresses to get above 50% voting power becomes at least a number equal to 50 divided by the maximum, rounded up. So at 4%, it’s 50/4 = 12.5, rounded up to 13. If DXdao over time lowers this percentage, the number can get bigger. E.g. 50/2 = 25, etc.
The model I used bases the valuation of REP on the value of the treasury, using a 5 year time horizon and assuming a 20% growth rate in the value of the treasury. If you plug in a 50% yearly REP inflation rate and a current treasury value of $7M, then you get:
1 REP = 7,000,000 * 1.2 ^ 5 / 1,236,855.47 * 1.5 ^ 5 = $1.855
If yearly REP inflation is instead 30%, this number is $3.79.
Giving a reputation inflation budget to the product communities could be a great way to increase decentralization and increase engagement with the community. It should be noted though that there may be a decent amount of technical work required to enable this to be done.