Vesting Unlocks: The Original Sin of Token Design

Transcript

[music] >> Calendar vesting pays for surviving. Not for succeeding. That's the default design. Um, you know, insider tokens unlock because time has passed, not because value has been created. And token holders absorb dilution with no clear signal that was earned. Token projects have an accountability problem.

One version of that problem is calendar vesting. Another version of that problem is actually happening right now. Um, has anybody followed this? This is recent. I I've renovated my my slides for this cuz uh, yeah, recently No Sis DAO got a new dashboard and a much clearer view of the value of their treasury. Um, but despite the trans transparency, the markets are still pricing their token uh, substantially lower than the value of the treasury.

So, yeah, now now No Sis DAO is actively voting on whether token holders can redeem their pro rata share of the treasury. Um, you can scan the QR code if you want to see it's live right now. It's actually changed quite a bit. Yesterday, uh, yes was winning. And then uh, some big blocks of tokens came in today to vote no. Um, but yeah, I like I'm not saying No Sis team is engaging in calendar vesting extraction cuz they're not. Uh, this is a category comparison. Uh, the situation is showing us the fail the the missing failure path. There's no mechanism for token holders to recover here.

>> [clears throat] >> Um, but besides, you know, the fact that this could even happen uh puts noses down uh, you know, ahead of most in the space. Countless token projects uh treasury their treasury is you know, totally controlled by a foundation or some other entity and token holders have no path for uh you know, no credible path for a recovery at all. >> [cough and clears throat] >> So, noses is interesting because you know, we can see it happening.

Um, but visibility is not the same as design. Whether or not this proposal passes or not uh is beside the point. The point is that noses does recovery rights are being improvised through a pro through a political struggle and they should have been defined before the conflict began. Calendar vesting is the wrong success path. This noses doubt proposal is showing us the missing failure path. So, this talk will is about uh these two missing primitives. One, success path accountability, you know, insider tokens should unlock when the protocol earns or you know, some other pre-committed metric, but not some arbitrary date.

It doesn't really make sense. And two, um failure path accountability. When continued funding is no longer justified, token holders need a credible way to do something about it. With calendar vesting um the incentive for teams becomes maintaining appearances until the next unlock. For token holders, dilution arrives on schedule with no clear signal that it was earned. And nothing in the system forces a reckoning.

So, you know, surviving for 3 years is not the same as creating value for 3 years. What's a good signal us for token unlocks? Calendar vesting, you know, it just tells you that the team survived long enough for the unlock. >> [snorts] >> Token price these days mostly tells you, you know, what the market's paying attention to. TVL is just parked capital. Revenue Revenue tells you that users voluntarily voluntarily paid to use the thing. Revenue is not perfect, but it's the only signal here that someone that requires someone to pay for the protocol.

With revenue gated unlocks, insider tokens unlock only after the protocol's fee revenue reaches predefined thresholds. So, you know, insiders get upside, great, when the protocol earns revenue, instead of being, you know, dreaded. Uh you know, this kind of token unlock uh actually signals traction. And revenue is the only way to get your tokens, no plan B. If tokens are unlocking, somebody is paying to use the thing in this model.

That doesn't necessarily mean the the protocol is healthy, sustainable, or winning, but it does mean somebody voluntarily paid for it. And I think that's a pretty big improvement from what we've got right now. Um this is Armada's implementation. I'm working on Armada. Armada's launching by crowdfunding instead of a private sale, and governance starts with the people who funded the protocol. So, like team and early network allocations are revenue gated with no calendar fall fall back. So, you know, at 10K of revenue, 10% of the insider allocation unlocks, and at a million, 100% unlocks.

Um you know, calendar vesting just happens over time. And revenue gating happens uh from paid usage. So, we'll have a fixed 12 million ARM token supply, no calendar fallback, and this is an important part. Unvested insider allocations don't participate in treasury recovery. It's not the only possible curve. Um, it's one implementation, but it's the principle that matters. So, a startup can be acquired, uh liquidated, or run out of money. A public company can be restructured or taken private.

Uh a protocol can just keep going. You know, the treasury slowly depletes. Governance is never forced to confront failure. And in many projects, insider unlocks continue regardless. A protocol that cannot fail cleanly cannot hold its team accountable. Okay, we need a failure mechanism. >> [cough and clears throat] >> The trigger should be pre-committed criteria and permissionlessly activated.

Um in our in Armada, uh the shielded pool becomes exit only, so users can always withdraw. Remaining treasury assets distributed pro rata to circulating token holders, and governance ends. Remaining actions all become permissionless. I'm not arguing that every DAO needs instant rage quit. Bad redemption design can drive activist extraction, which might actually be what's happening with uh with the Gnosis DAO proposal. You know, liquidation arbitrage and death spirals. But, what I'm saying is that every token should have a falsifiable claim about what success looks like.

Sorry. A credible redemption right, even without being enacted, means the continued operation has to stay legitimate. If the rules are not defined before the conflict, the conflict defines the rules. Those who paid decide. Those who didn't don't. We want the team to have authority during operation. They build, propose, execute, and steer.

But recovery governance is different. The people financially on the line decide whether continued funding is still justified. Zero cost basis allocations, like tokens that people haven't paid for, they stay locked and don't participate in the recovery. Teams working on the protocol should get upside from success, but recovery decisions are different from build decisions. They're about who bears the downside. Transparency tells holders what they own.

A redemption mechanism tells them whether they actually own it. Transparency without mechanism just leaves token holders as speculators. And you can see this if you go on the Gnosis Safe forum. The deeper principle is simple. Accountability should not be a promise. It should be a mechanism. If the team earns, insiders unlock. If the protocol fails, paid holders can recover what remains.

Teams that can be shut down are teams that must deliver. Thank you. >> [applause] >> I could take some questions. I think that was good timing. >> chance From people who are shy? No. >> It's good. I haven't slept. >> [laughter] >> Well, then thank you very much for the presentation.

>> Yeah. >> [music]