The Network Equity Token Model applied to
Crypto Start Ups
By Jonathan Caras (@madcapslaugh), Michael Hasson and Zach Wolfson
Lionschain Capital
Ethereal Virtual 2020
Goals for creating a token
I.e. why have a token at all?
Created by Lionschain Capital, January 2020
Values
Open source and transparent
Interoperable / Composable
Consistency and stability
Community governance
Economic sustainability
Resistant to technical, economical, and governance capture
Unique and competitive value offering (to be the best*)
Created by Lionschain Capital, January 2020
List of actors
Developers of core software
Grant recipients
Shareholders in the platform
Application Users
Workers
Created by Lionschain Capital, January 2020
Actor’s Needs
Developers of core software - (ie the company) to get paid to improve and upkeep the software on a consistent basis
Grant recipients - to be rewarded on a one time basis for providing a valuable contribution
Shareholders in the platform - to see the upside of the success of the platform
Application Users (pay money ) - to profit by investing in algorithm or manual portfolio managers (ETFs and other products down the line)
Workers - perform actions that create value in order to get paid
Created by Lionschain Capital, January 2020
Fundraising
Initial Sale - during the initial sale, two approaches can be taken:
1)a fixed cap supply of tokens (ie MakerDAO)
2) a bonding curve increase in price (ie Nexus Mutual)
Allocation to team - In the case of a bonding curve, the team can participate in the initial sale, in the case of a fixed supply, the team would be allocated a small portion of the supply (10%?)
Additional fundraising - future sales of the tokens through curve or dilution would be determined via the DAO
Created by Lionschain Capital, January 2020
Sustainability
To achieve sustainability, a few core issues must be met
Created by Lionschain Capital, January 2020
Visual Model
Created by Lionschain Capital, January 2020
Flow of Funds
Reserve Pool
Company DAO
Grants
Operations
Core Devs
Investor
Created by Lionschain Capital, January 2020
Profit Distribution
The DAO business model will be one which collects fees as % of profits earned by Workers, as well as potential user subscription feeds
Payments will be made in ETH or DAI (or choice of other payment token) but we do not intend for the Network Equity Token to be a required interface for the end user
Token owners will realize the upside of the success of The Company from two methods
The DAO will vote on distribution terms to optimize the needs of the company and its shareholders
Created by Lionschain Capital, January 2020
Staking
Token holders will stake with lockups for the right to payouts, these payout % will be variable as voted on by the DAO
Staking will enable holders to participate in voting as well and be rewarded for participating in the govenanance
Created by Lionschain Capital, January 2020
Governance
Voting Mechanics
This is an ongoing area of research
To keep things simple, at start use a traditional 1 share 1 vote
Most decisions will be made by management + top holders
Over time as system matures and token is distributed, can review industry best practices and implement changes as needed
Areas of Governance
Created by Lionschain Capital, January 2020
Reserve Pool
The reserve pool acts as a check against exit scamming and gives token holders a right to withdraw cash without the need for explicit legal recourse or market selling a potentially low volume token
Annual expenses for the business can be allocated by the DAO from the reserve pool to cover operational expenses, thus ensuring the business can run without exposure to problems caused by “over funding”
We believe this is an elegant mechanism which can introduce trust to new DAO based businesses
Created by Lionschain Capital, January 2020
Community Ownership?
We believe there is no need to force users to own the token, and in fact this acts as a potential friction point
However, enthusiastic users and workers will be invited to participate in the token sale
Potential use of grant funding over time can be to allocate tokens to top workers
Created by Lionschain Capital, January 2020
Fork Protection
Fork candidates
Workers?
Developers?
Fork protection
Interoperability
Investors
Users
$ Locked up (in reserve)
A successful fork would need to coordinate the migration of both capital and human resources.
It is unlikely the community will take this route vs solving any core issues diplomatically
Created by Lionschain Capital, January 2020
Legal
Given our view that users should not be forced to interact with the token, pursuing Reg A+ filing could be best path forward to give anyone the option to participate as an investor and ensure a positive sentiment toward the project going into the future
(avoiding the stigma that getting in early was only open to insiders)
Or relocate outside of US
Created by Lionschain Capital, January 2020
Summary
A number of DeFi products have achieved nice indication of product market fit while leveraging the capabilities of the robust Ethereum DeFi ecosystem
We believe these applications have the opportunity to pioneer a sustainable and logical token architecture which can act as a model and position the project for long term success
Created by Lionschain Capital, January 2020