RFC - era-based tokenomics & DOT derivatives
Ultimately, I’m proposing that we create derivatives of the DOT token, with specific intrinsic value, based on the era in which they were minted. A derivative is a financial contract (think Smart Contract) whose value is derived from the performance of an underlying asset, like a stock, bond, or commodity. Essentially, it’s a contract whose value changes based on the price movements of something else. For Polkadot’s purpose, instead of linking the value to the underlying asset, we would embed specific intrinsic value into each DSM (Derivative Smart Contract) making the token more valuable. A DSM could then be swapped along with the underlying asset / DOT token. Whether we create 2, 3, or 4 derivatives would be up for debate. I’ve started with a more complex idea to create 3 DOT derivatives, but perhaps 2 is the better number. If we decide on 2 then we could do pre and post derivatives. Sounds like everyone is hungry for a new economic model, so I’ve set the table with more detail and a little background.
Hatch here. I’m a volunteer Polkadot Ambassador since 2022 who was made whole by Polkadot Relayers 2022 and PBA 3 2023. 
I will forever be grateful to the community and treasury. I’m bullish on Web3 and the idea of decentralization. I started buying DOT in 2021 and have never sold. I love this OpenGov experiment we are all on and liken it to the early days of America. At some stage the Founding Father’s got in a room, discussed ideas, and voted. They led a Revolution, declared Independence, and helped draft a Constitution. They even created currencies based on specific points in time.
An era is a district point in time. What if a token had intrinsic value based on when it was minted? What if there was a DOT.ICO derivative based on the initial coin / private offering era? What if there was a DOT.AUTH derivative based on the era that defined Proof-of-Authority? What if there was a DOT.STK derivative based on the Proof-of-Stake era? If we could create 3 DOT derivatives, then we could code specific benefits into each DSM to increase the intrinsic value of the underlying asset, reward early stakeholders, and facilitate holding behavior. What if DOT.ICO, DOT.AUTH, and DOT.STK derivatives could be used for staking (earning rewards) and voting, but newly minted DOT could only be used for making purchases, paying for security, and investing? What if staking rewards were paid in newly minted DOT with no derivative? Would a DOT.AUTH holder want to sell at a low price knowing their token’s derivative could be staked and had voting power? If they did sell or swap a DOT.AUTH token, what would it be worth? Would it be fair to reward early DOT stakeholders with special tokens? Would new entrants into the ecosystem be OK with buying DOT tokens or would they want to pay a premium for DOT.ICO, DOT.AUTH, and DOT.STK tokens capable of voting and earning staking rewards? If so, they would need to buy lots of DOT to do it. Would someone sell derivative-based DOT for $3.50 on an exchange, or would they hold out for more or swap it using our own tools? Would we somehow have to identify DOT on the exchanges based on the era or would we be good with swapping derivative-based DOT using our own tool? Could we create new tools that would identify derivative-based DOT, so that a person who wanted to sell DOT could easily filter their holdings and send only the non-derivative DOT to exchanges like Kraken and Coinbase? What type of a code change would create DSMs based on eras and how would the Parachains be impacted? What rewards and voting power would we give to each derivative? What would happen to our DOT listing on Coinmarketcap? How would it be impacted? I believe it would go up, but these are all questions that would need to be discussed and answered.
What I’m proposing is somewhat complex but should be fairly straightforward to implement with code. If done correctly, it encourages people to hold DOT while driving up the price for those who want to sell or swap. It also rewards early stakeholders who have helped build Polkadot into what it is today. It would also effectively cap (partial cap) DOT.ICO, DOT.AUTH, and DOT.STK tokens, which creates scarcity and makes them EXTREMELY VALUABLE. This creates the cap that many people want while still allowing room for growth which other people want. It also makes DOT tokens ideal for buying core time, making purchases, paying for security, and investing. It even encourages the buying of DOT to get in on the next era. It might even preserve our Proof-of-Stake model and extremely high Nakamoto Coefficient by making DOT more valuable. Bottom line, the moment we do this the value of DOT & derivative-based DOT should skyrocket.
I recently read a Tweet from someone about Gavin’s idea to create 3 separate tokens for the Polkadot ecosystem. Instead of creating completely new tokens and perhaps devaluing DOT, let’s modify our existing DOT to make it more valuable and worth holding.
Like many of you, I’m interested in seeing the value of DOT tokens rise. To do that we have to counter the inflation-based sell pressure that has dominated DOT over the past couple of years. If we can create an incentive for DOT to HODL (derivative-based DOT) while increasing scarcity (derivative-based DOT) without sacrificing security (derivative-based DOT) then we are golden. We are the Founding Fathers of Polkadot. What say you? Personally, I think we need to do something big, bold, and truly innovative to shake things up. I also believe that it’s reasonable for the tokens to inherit the economics of the era they were minted and likely purchased in. That seems fairer than the current system. While we’re at it do we create a stable coin like DOT.USD?
If you are interested in this concept, I would like to form a committee to research the idea and come up with specific suggestions. We would need a combination of finance, economics, technology, and big idea people to make this happen. Please fill out the form and I will add you to the list. I want to move quickly on this and will have lots of free time around August 1st.
https://form.jotform.com/252077375893065
Thanks,
Hatch
Note: A similar concept exists with stocks traded on exchanges. Common Stock shares have voting rights while Preferred Stock shares do not. Both can receive dividends, but they usually have different values. Preferred shares have preference when it comes to bankruptcy and receive their dividends before common share holders. Both trade under the same name with a different symbol at the end. Bank of America is a good example of this.
NOTE: These are not true financial derivative products so there are no regulatory hurdles. We would simply use the concept of a derivative to implement era-based tokenomics.
More background and items to consider.
How many tokens are currently outstanding?
How many tokens were minted during the ico / private offer era and are still in circulation?
How many tokens were minted during the auction era and are still in circulation?
How many tokens were minted during the proof of stake era and are still in circulation?
Derivative intrinsics
- Voting
- Staking
- ???
Proposed Eras
- ICO / Private Offering
- Proof-of-Authority
- Proof-of-Stake
What would the proposed timelines be for the specific eras?
Proposed derivatives
- DOT.ICO
- DOT.AUTH
- DOT.STK
hmmm A sleek UI where I can put my DOT token to work on one of the 3 may make sense.
To me this is what we want to attract, a long term holder.