With the formation of the Kwenta Council, the Kwenta community can now vote on a structure for the Kwenta DAO. In this article, I will outline a governance framework, tokenomics model, and staking mechanism that I feel is optimal for the Kwenta DAO.

Why?

Before outlining a possible structure for the Kwenta DAO, it is important to highlight why a set structure needs to be established. A DAO is ultimately a set of enforceable rules that a community agrees to follow in order to coordinate. As a DAO, the Kwenta community will be well equipped to work towards becoming a decentralized trading hub that can rival even the most popular centralized exchanges.

A crucial component of a DAO is its incentives structure; everyone in the DAO must be adequately incentivized to help the DAO achieve its goal. To accomplish this, the Kwenta token and staking model must be properly aligned with the governance structure so that when desired outcomes have been achieved, those that conducted the work necessary to achieve those goals are rewarded, while inessential goals are rewarded accordingly or not at all.

A Proposed Tokenomics Model

Ticker:

KWENTA

Initial Supply:

313,373

Use cases:

  1. Facilitating Governance

Community members that stake their Kwenta token will gain voting power within the protocol. At launch, voting power will be determined solely by the amount of tokens a user has staked. Ex. A user holding 1.72 Kwenta tokens would have 1.72 worth of voting power. The intended outcome of enabling community members to vote with their token is to decentralize the decision making process of the DAO.

2. Staking/Incentivisation

Community members who stake Kwenta will receive inflationary rewards. Inflationary rewards are intended to favour those who use the product most as well as those that contribute to the DAO. This mechanism will also offer the infrastructure needed for the DAO to become sustainable.

Inflation Model:

Inflationary rewards will start at 60% APY in KWENTA and linearly deplete to 1% indefinitely over the course of 4 years. This will result in a total supply of 1,062,486.81 KWENTA at the end of 4 years. The goal with this model is to reward members that stay with Kwenta long-term.

Distribution:

30% - Synthetix Stakers

5% - synthetix.exchange and early Kwenta Traders

5% - Investment

25% - Community Growth Fund

15% - Core Contributors (2.5% of which goes back to Synthetix Core Contributors)

20% - Kwenta Treasury

Token usage:

The 20% reserved for the Kwenta treasury will be staked indefinitely. The yield generated from this reserve will be used as a long-term solution for fuelling community roles and product development.

A Proposed Governance Structure

Kwenta governance will follow a democratic structure with multiple semi-independent governing bodies, each with their own goals and operational structure.

Staker

Users who stake their Kwenta will gain voting power and have the ability to vote in elections, proposals the Elite Council deems fit for a broader community vote, and Community Kwenta Improvement Proposals (CKIPs).

Elite Council

Token holders will vote every three months on 5 community members to operate the Elite Council. The Elite Council  will be responsible for voting to pass or block Kwenta Improvement Proposals (KIPs). KIPs are proposals that anyone from the community can create and lobby for. If a KIP receives support from the community or directly from core contributors, the proposal will be voted on by the Elite Council. Proposals must reach a majority to pass. Meta-Governance proposals require unanimous support.

President

One of the 5 Elite Council members will become the President. The President is elected within the Elite Council, requiring 3/5 members' support. The President will be responsible for the strategic direction of the protocol and will have one additional vote of power representing the equivalent of two Elite Council members.

Product Elites

This role will provide structured feedback to the developers during the implementation a new KIP. Product Elites will be responsible for finding opportunities to improve the product, providing feedback and approving designs, as well as testing and providing feedback on staged code. The Elite Council in conjunction with the TreasuryDAO will use their discretion to determine the amount of Product Elites and approval votes necessary for this role. Council Elites can add and remove Product Elites as they see fit.

Core Contributors

These members are responsible for executing on the decisions made by the Elite Council. CCs will design product changes, manage the smart contracts and UI, assist with marketing, and assist in supporting community infrastructure.

Core Contributor Committee

This entity is managed and organized by Core Contributors. Core Contributor Committee members will hold a reserve of the Kwenta token as well as funding used for routine protocol expenses and Core Contributor payroll. Should additional funding be needed, the Core Contributor Committee will work with the treasuryDAO. This entity will ensure that Core Contributors will have stability under all market conditions.

treasuryDAO

This sub-DAO (outlined in SIP-177) will control the treasury and growth funds for the Kwenta DAO, working with the Core Contributors and Elite Council to use funds for bootstrapping the protocol and ensuring long-term sustainability.

Future Additions

devDAO - A community oriented development structure that rewards developers for closing outstanding tickets by having their code merged as well structured compensation for longer-term members. This sub-DAO will include a community PM, various developer roles, and auditor roles.

marketingDAO - A community driven marketing branch that collaborates on growth and manages a budget. Rewards will be be earned based on performance. Structured compensation will be available for longer-term members. This sub-DAO will include roles for marketers and designers.

KIPs

Here is an example of the process a KIP would follow to be implemented:

  1. A community member would write a KIP for a change to be made to Kwenta, following the structure established in SIP-01.
  2. If there is community support (Ex. recurring discussion in discord about the KIP) or Core Contributor support is demonstrated for the KIP, the Elite Council would vote on the KIP.
  3. If a majority is reached, the KIP will be handed over to the Core Contributors for implementation. If the KIP fails, it is properly labelled and dropped from the KIP process.
  4. If designs are required, the core contributors will create designs and present them to the Product Elites.
  5. Once Product Elite feedback has been taken into account and implemented into designs as necessary, the Product Elites will be responsible for approving the designs. The amount of approvals required for designs to pass this stage will be determined by the Elite Council
  6. Once designs are approved, Core Contributors will then write the code necessary to implement the designs. If designs are not needed, they CCs would write the code necessary to meet the KIP’s requirements.
  7. Once the necessary code has been written, the code would be staged for Product Elites to test. Testing feedback would be implemented as needed.
  8. If the Product Elites determine that the code meets their standards and the required amount of approvals have been met, the code would be pushed to production.

CKIPs

In the event that a structural change needs to be made to the DAO’s governance system, the community can overrule the Elite Council by reaching a quorum (over 50% of circulating supply voting in favour of a proposal) with a Community Kwenta Improvement Proposal (CKIP). CKIPs should only be used in the event that there’s disagreement between the Elite Council and the Kwenta community.

KTRs

In the event that funding is required from the treasuryDAO, community members can create a KTR which will be passed to the treasuryDAO and either approved or rejected.

A Proposed Staking Mechanism

The Kwenta staking mechanism will act as both a mechanism to capture inflationary rewards as well as a governance portal.

Staked tokens will gain voting power in the Kwenta governance system. Stakers will be able to cast their votes for elections as well as other governance items. The voting structure can be altered via a meta-governance KIP.

Kwenta stakers will receive inflationary rewards as a way to route voting power to those that demonstrate commitment to the project. This will also equip the Kwenta community with a system that can be expanded upon should the community decide, via a KIP approved by the Elite Council, to build KWENTA into a productive asset.

Inflationary rewards are distributed continuously to stakers based on two factors: amount of Kwenta staked and trading activity. The mathematical model for this formula is still being refined and will be outlined in a future KIP.

Inflationary KWENTA rewards are locked for a period of 1 year. Once the one year vesting period is complete, KWENTA can be withdrawn from the staking portal and freely used at the stakers’ discretion. KWENTA rewards that are vesting can be staked to increase voting power and weekly rewards.

Staking will only be available on Layer 2 Kwenta.

Commentary

The proposed tokenomics model, governance structure, and staking mechanism outlined above were inspired by decentralized protocols such as Synthetix and Yearn which have established powerful communities. By picking and choosing the parts of these DAOs that have worked well, while also taking into account their pitfalls, Kwenta is uniquely positioned to establish a robust DAO designed to enable the community to thrive.

Next Steps

The Kwenta community will have the freedom to discuss and provide feedback on the proposed DAO framework over the next week. Afterward, the Interim Kwenta Council will vote on the above topics via a Snapshot instance.

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