FIP 1

[Dr-ZS]

Title: Treasury DAO Mechanism for Fushuma Network

Description: A decentralized and transparent on-chain management model for the Fushuma Treasury.

Author: "@Dr-ZS"

Type: Idea

Created: 2024-06-08

Abstract

The proposed mechanism aims to establish a self-funded and self-sustained ecosystem, maximizing decentralization and transparency within the Fushuma Network. It leverages Augmented Bonding Curves (ABC) and decentralized governance through Decentralized Autonomous Organizations (DAOs) to manage allocated treasury funds, increase liquidity, and support continuous project funding.

Motivation

The aim of the Treasury DAO is to support the expansion of the Fushuma ecosystem by leveraging treasury coins for project funding with minimal impact on inflation with respect to the coins in circulation. This proposal addresses key challenges such as market volatility, liquidity limitations, and project valuation accuracy, fostering a self sustained and self funded ecosystem.

Specification

The Treasury DAO consists of two primary pools: the Development Pool and the Liquidity Reserve Pool. The Development Pool funds projects to accelerate the Fushuma ecosystem's expansion through grants controlled by a democratic DAO. The Liquidity Reserve Pool provides liquidity to investors, ensuring continuous liquidity and fair valuation through the ABC mechanism.

Treasury DAO Components

1. Development Pool:

   • Used to fund projects to accelerate the Fushuma ecosystem's expansion.
   • Grants are controlled by a respective DAO, with decisions made through democratic voting.
   • Funded projects reward investors with tokens, similar to staking rewards.

2. Liquidity Reserve Pool:

   • Serves as a reserve to provide liquidity to those who have funded the ecosystem.
   • Operates based on the Augmented Bonding Curve (ABC), an automated market maker (AMM).
   • Ensures continuous liquidity and fair valuation by adjusting token prices dynamically according to supply and demand.

Mechanism Operation

1. Token and Fund Allocation:

   • Individuals deposit funds into the DAO and receive Fushuma tokens in return.
   • Deposited funds are split into the Reserve Fund and the Development Fund.

2. Preventing Market Dumping:

   • Vesting and lock-up mechanisms prevent large-scale market dumping along with burning mechanism for withdrawals.

3. Governance:

   • Performed through a Decentralized Autonomous Organization (DAO).
   • The DAO oversees fund allocation and project approvals, ensuring community participation and decentralized control.

Augmented Bonding Curve (ABC) Details

• The Reserve Fund operates based on an ABC mechanism, providing price discovery and liquidity management.
• Buying Tokens: As more tokens are bought, the price increases due to higher demand.
• Selling Tokens: As tokens are sold, the price decreases, maintaining balance in the system.

Rationale

The Treasury DAO mechanism provides a sustainable and transparent funding model, addressing the critical issues of market volatility, liquidity, and project valuation. By leveraging ABCs and decentralized governance, the system ensures continuous funding, fair ecosystem valuation, and active community engagement.

Backwards Compatibility

This proposal does not affect any existing standards and is fully compatible with existing Ethereum-based protocols and smart contracts.

Exact mathematical model, Parameter selection and Implementation

To be defined in subsequent FIPs and technical specifications.

Conclusion

The proposed Treasury DAO mechanism represents a significant advancement in blockchain project funding. By integrating augmented bonding curves with decentralized governance, it provides a sustainable and transparent funding model that aligns the interests of all stakeholders, towards enhancing the long-term growth and success of the Fushuma Network.

[FumaSage]

Hello! Digging into the Treasury DAO proposal here, which seems super interesting stuff!

Got a few quick questions about how things are gonna run with the voting system:

• Who Gets to Vote? Just curious about what makes someone eligible to vote. Is it all about how many tokens they've got, or are there other hoops to jump through?

• How's Voting Power Figured? Does everyone's vote weigh the same, or do the big token holders have more say? How does that scale?

What's in place to stop any one person or group from basically taking over the voting? Would hate to see all the power get scooped up by a few.

Would love to get some clarity so we all know how fair the play is. Cheers!

[Dr-ZS]

Nice questions. To begin with, who participates in the voting process.

Pretty much anyone holding our tokens is eligible to vote, but we're thinking about setting a minimal token threshold to ensure voters are genuinely invested in the ecosystem's future. Also, we want to reward active participation and hence those who take part in the voting process may receive some extra power. This is under consideration right now along with the percentage given to the development fund depositors, as they are the ones who take the risk to deposit in the DAO and therefore in the development fund, There is also the possibility to be given to them a limited number of Vetos, e.g., max 1 veto for every 10K of USD that were deposited in the DAO.

So, voting power is indeed based on the number of tokens you hold. To avoid any dominance by major stakeholders, we’re setting up some checks and one mechanism under consideration right now is the veto.

Hope that clears things up and makes the system democratic and decentralized.

[Cryptonavt13]

Hey community! This seems good. I was thinking about this proposal and have suggestion. Could we maybe add stabilization fund for times when market is too volatile? This fund could help to make prices more smooth when there are big changes.

[Dr-ZS]

Yes this will be done for sure! This is the basic idea of this mechanism. So imagine that the depositor issues a bond for FUMA, part of which can be used for the development of the FUMA ecosystem, while the rest can be used for people who want to take back their money from the issued bonds. Depending on the willingness of people to provide liquidity for the fuma expansion this means that depositors can even get profit from this. This is similar to the way the interest rates goes up and down. The more depositors the lower the risk and thus initial depositors can get profit from the risk they took.

[Dr-ZS]

I've been working on this idea for the last few days, exploring papers on the Augmented Bonding Curve. I believe that if properly engineered, this mechanism could significantly enhance blockchain funding. We propose a unique advancement in blockchain funding mechanisms aimed at providing liquidity in the blockchain ecosystem similar to the bond market at the governance or corporate level.

We will base this model on a new mechanism known as the Enhanced Bonding Curve (EBC) system.

What is the Enhanced Bonding Curve?

The Enhanced Bonding Curve is a mathematical model that dynamically adjusts token prices based on real-time supply and demand. This ensures continuous liquidity and fair valuation, pivotal for the long-term viability of blockchain projects, similarly to how bonds are issued and managed at their maturity or before.

How Does it Work?

Offline Period: Initially, tokens are sold at a fixed price to gather liquidity. This phase forms the financial backbone of our ecosystem, ensuring there is enough initial funding. At this point, the risk is higher so the rewards also need to be higher for the users.

Online Period: The token price becomes dynamic, governed by the enhanced bonding curve. Prices rise with increased buying and decrease with selling, maintaining a balanced market driven by actual user engagement and investment.

Key Benefits:

• Sustainable Funding: Continuous investment flow without the abrupt stops common in traditional funding methods.
• Decentralized Governance: Every stakeholder has a say through a properly designed DAO (this will be the next improvement proposal when we finish with this design).
• Transparency and Fairness: Every transaction and decision is recorded and open, promoting a transparent ecosystem where fairness prevails.

Mathematical Model:

The Enhanced Bonding Curve mechanism is defined by the following equations:

• Initial Supply and Reserve:

  • Initial Supply (S0) = Total Funds (L0) / Initial Price (p0)
  • Initial Reserve (R0) = Total Funds (L0) * (1 - theta)

• Reserve Ratio:

  • Reserve Ratio (rho_t) = Initial Reserve (R0,t) / Initial Supply (S0,t)

• Invariant Function:

  • Invariant Function (V) = (Supply^kappa) / Reserve
  • Initial Invariant (V0) = (Initial Supply^kappa) / Initial Reserve

• Price Function:

  • Price (P) = kappa * (Supply^kappa) / (Reserve^(kappa + 1))

• Realized Price for Transactions:

  • Actual Price (p_actual) = Change in Reserve (Delta R) / Change in Supply (Delta S)

• Friction Fee:

  • Fee = Friction Coefficient (phi) * Change in Reserve (Delta R)

These equations will help us simulate the dynamics of token pricing and reserve changes, ensuring that the EBC mechanism aligns with our goals for sustainability and transparency in the blockchain funding landscape.

[FumaSage]

@Dr-ZS Can you please explain the equations?

[Dr-ZS]

The explanation of the above equations is the following.

1. Initial Supply and Reserve:

• Initial Supply (S0): Calculated by dividing the total initial funds (L0) by the starting price of the token (p0). This tells us the number of tokens initially available.
• Initial Reserve (R0): Represents the portion of initial funds set aside as a reserve. It's calculated by multiplying the total funds (L0) by (1 - theta), where theta is the fraction of funds allocated for active project use.

2. Reserve Ratio (rho_t):

• Reserve Ratio: This is a key financial health metric of our system. It is the ratio of reserve funds (R0,t) to the total token supply at any time (S0,t). A higher reserve ratio indicates a more stable and lower risk environment for token holders.

3. Invariant Function (V(R, S)):

• Invariant Function: A mathematical formula that helps maintain balance within the system by relating the token supply (S) to the reserve (R) using a power function where kappa is the degree. This function is critical in ensuring the stability of the relationship between supply and reserve.
• Initial Invariant (V0): Set at the start of the system and used as a benchmark to keep the system balanced as transactions occur.

4. Price Function (P(R)):

• Price Function: Calculates the token price based on the current reserve using the derivative of the invariant function. It adjusts the price as the reserve and supply change, ensuring the price accurately reflects the current market conditions.

5. Realized Price for Transactions (p_actual):

• Actual Price (p_actual): This is the effective price at which transactions are executed. It reflects the change in reserve divided by the change in supply. This price might vary from the theoretical price due to real-time market dynamics.

6. Friction Fee:

• Fee: Applied to transactions to help stabilize the economy by discouraging speculative and rapid trading. It's a percentage (phi) of the change in the reserve (Delta R), designed to moderate large, sudden withdrawals and maintain economic stability.

[Dr-ZS]

I am writing the above in a white paper to be clrear for everyone.

[Dr-ZS]

Some important afvantages I thought are the following!

Why Bond Issuance Exchangeable for Coins is Important ?

Issuing bonds that can be exchanged for coins on a blockchain provides a unique and flexible way to invest in new ideas in the crypto space. This capability allows investors to switch between a more stable, income-generating investment (bonds) and a more liquid, potentially high-growth asset (coins) based on their financial goals and market conditions. This flexibility is introduced for the first time in the crypto space - on chain - can enhance liquidity, allowing investors to respond quickly to changes in the market or their personal circumstances and solving the problem of trust in providing liquidity.

Furthermore, by integrating these bonds with blockchain technology, transactions become more transparent, secure, and efficient. This reduces the risks and costs, making it easier and more accessible for a broader range of investors to participate. Ultimately, this approach helps stabilize decentralized and transparent funding for Fushuna.

So this DAO acts as a secondary market

Why It's Important for a DAO to Act as a Secondary Market ?

A DAO serving as a secondary market on the blockchain has many advantages as it provides a transparent, efficient, and accessible platform for providing liquidity. This setup significantly reduces the costs and the bureaucracy time removing the barriers typically associated with traditional markets, enhancing liquidity, and making it easier for everyone to buy and sell their investments anytime they wish. With this innovation anyone can invest in the bond market of the crypto ecosystem, changing the way crowdfunding operates. Most importantly in the past a few people controlled the investment fund of projects and thus defining the future of projects. With this innovation, investment funds are formed in a decentralized way with no central control!

[FumaSage]

WOW this is first time I see such thing and it's very important, yes? Bond can change for coins, it's smart way to manage money! Like, you not just stuck with one thing, you can choose bond or coin whenever you like, depend on what market does or what you need. This make everything more flexible and safe, more people can join and do smart investment without big risk. Very clever, making everyone can have options and not lose all if market go down or up too much. We need more like this in crypto, it’s good step forward!