written by: At0x.eth & mattim0use.eth
Section I: Conceptual Framework
1.- Introduction and rationale
2.- Bitcoin as a Primitive
3.- The Strudel DAO Economic Mandates
4.- Defi 2.0 Economics
Section II: Orkan Design Considerations
1.- Strudel DAO Economic Mandates
2.- Orkan Project Description
3.- Project Objectives
4.- Orkan Initial Network State
a.- Launch dates and presale structure
b.- Contributor Reward Structure
c.- Multisig Participation Structure
The Strudel Protocol started as a simple yield farming protocol which has evolved over time to include several products over multiple chains. This expansion seeks to diversify the Strudel Bitcoin market in order to create opportunities for users to deploy their vBTC.
The purpose of the following document is to achieve consistency in the actions taken by the DAO in future endeavors. Monetary policy should be a goal driven endeavor which will require different solutions for specific market conditions. By implementing a mandate driven strategy, the DAO can understand the motivations behind specific actions under a broader purpose which may involve making short term decisions that are not optimal from a purely profit optimization standpoint.
Crypto Primitives are protocol-based incentives systems that are uniquely enabled by tokens. Also referred to as “tokenized economic games”. They enable the coordination and allocation of capital to achieve a shared goal via the use of various economic and cryptographic mechanisms.
Bitcoin can be considered as the original crypto-financial primitive which allows other assets to have value. Bitcoin enables protocols to create markets over which other primitives can be composed. However, although BTC is one of the main sources of liquidity for Ethereum and virtually all other tokens off chain it has had little uptake as the default currency of the interchain. Ethereum has filled that role to a degree finding itself as the go to asset to transfer wealth across chains.
The appeal of BTC as a store of value is going to become more and more apparent over time. With the growth of the Interchain economy the neutrality that BTC offers creates a common currency that all other chains can adopt and issue their assets against. It is also the most readily adopted network by legacy systems and large-scale networks that will need to be onboarded into the Web3 economy to enable the realignment of incentives we are trying to create collectively
For the BTC network it is important to find sustainable ways to participate in the Web3 economy. By promoting integrations with a broadly understood asset the Strudel Protocol aims to be the biggest BTC advocate for the Interchain. Our liquidity landscape is constantly expanding. As new primitives enter DeFi, Strudel DAO implements them utilizing vBTC as the liquidity pairing for a number of different assets further increasing our network of products and the diversity of the economic activity going through the network.
As the protocol grows markets in more networks our own network effect increases adding value to everyone involved with the Strudel DAO across the interchain. Arbitrageurs distribute value by utilizing vBTC to settle across many different asset classes and networks. By selecting the correct incentive models and monetary policy Strudel DAO can create several liquid markets which expose vBTC and $TRDL holders to several emerging market opportunities such as fractionalized NFTs and interesting L1 opportunities in networks such as FTM and Matic.
A brand-new class of algo stablecoin projects have emerged recent market, which are called DeFi 2.0. They have enjoyed large expansion not only in market cap but also in business scale in no more than 30 days, and largely driven by community rather than institutions, among them are Olympus, Spell, Alchemix and others. The two major features of DeFi 2.0 is protocol owned liquidity and yield enhancement from product perspective.
Olympus DAO, the protocol behind OHM, is a collateralized asset issuing system, where outstanding OHM backed by treasury reserves obtained by the issuance of short-term Bonds. Bond sales are the core part in Olympus, as its sales proceeds go to the treasury and are used as the backing to mint OHM, which in turns feeds the rebase reward to the stakers. Bonding is considered as an active, short-term strategy for price discovery.
Reserves obtained from bond sales are managed to increase the perceived value of the protocol and induce growth through increase demand for the ecosystem assets. However, OHM is not pegged to any asset and allowed to fluctuate, because its aim not becoming a stablecoin but rather an algorithmic reserve currency. Though OHM is backed, not pegged, the combined value treasury assets act as a floor price under which users can enter an arbitrage trade as the treasury is capable of buying back outstanding supply.
The main appeal of a bond issuing platform is the creation of a sizeable treasury. Treasuries can be considered primitives because the collection of capital in a centralized point enable new financial instruments to be implemented. In a paradoxical way the creation of bonds is possible because bonds create a treasury which then in turn drives further bond issuance as the ownership of that treasury is desirable to newer market participants. Once this is established a series of products can be created on top such as credit offerings and interest programs for deposits.
As Robert Sams describes, “Cryptocurrencies like Bitcoin govern the supply of coin through simple and deterministic coin growth rules. As a result, unanticipated changes in coin demand are reflected in changes in coin price, causing volatility and discouraging usage of coin as media-of-exchange.” Strudel DAO has iterated on the seigniorage share system in the past. Our current next generation design introduces Perpetual Bond Auctions and Treasury Management as a primitive in order to align the protocol incentives with its mandate. This allows us to incorporate an elastic supply rule that adjust the quantity of vBTC supply proportionately to changes in market dynamics.
Perpetual Bond Auctions
A perpetual bond auctions enable the control of the vBTC supply in the following two scenarios:
If the price of vBTC is under the peg the free-floating supply of vBTC needs to decrease, then $ORK bonds are incentivized by lowering the BCV, which increases the demand for vBTC to purchase bonds at a discount. Alternatively other treasury assets can be used to increase the treasury vBTC stock
If vBTC price is above the peg the free-floating supply of vBTC should increase through increased bridge usage, Alternatively vBTC stock can be swapped for other types of tokenized BTC in order to diversify the treasury balance sheet. The BCV can be increased if necessary.
Considering treasuries can gather significant holdings the possibilities of how those assets can be deployed is essentially infinite. Furthermore, there is a need for a overarching purpose to be established in order for a treasury to grow past the initial exponential phase. A Mandate based management provides a frame of reference for the scope in which the DAO should act. While mandates are not absolute, can and should be updated, they should drive the reasoning behind every action the treasury takes. Mandates therefore aim to provide a shared truth under which the DAO can operate update allowing for a scientific governance approach based on policy and facts.
The permanent nature of DAOs allow a longer time frame to be established where a DAO mandate can be enforced indefinitely to grow the protocol holdings forever. There will be periods of contraction and growth rate will taper significantly after an initial exponential phase but over a long enough timeframe if the DAO continues to exist the treasury is much more likely to grow in perpetuity.
The Strudel DAO’s first mandate is to secure the peg of vBTC.
This is a broad mandate that is achieved by implementing several distinct strategies which include but are not limited to:
- Funding the development of the Strudel Ecosystem
- Acquiring vBTC, Liquidity pool positions and yield incentivization tokens
- Acquiring other BTC wrapped assets to create a indexed BTC position
The Strudel DAO’s second mandate is to design incentive structures that issue and manage reserve backed currencies
These structures are governed by the strudel economic policy
- Liquidity Incentives
- Bond Emissions
- Fixed Term Deposits
- Dutch Auction Emissions
- Index Funds
- Project Description
Orkan is designed as a standalone expansion to the Strudel Network. The perpetual bond issuance allows the rapid acquisition of a number of strategic assets that open several opportunities in the FTM ecosystem. By having two independent structures bidding as protocols for vBTC demand is going to be insured and arbitrage between chains while providing a profitable market for an increased number of users who will deepen our liquidity landscape.
Furthermore, the Orkan is looking to acquire voting power for exchange incentives which will allow it to capture new yield opportunities for wrapped BTC products within the FTM ecosystem. By having a leading role in the growth of novel networks Strudel DAO can become an institution for liquidity provision on BTC denominated markets across the interchain.
- Project Objectives
Protocol growth metrics provide objective milestones around which economic policy can be determined.Success will be measured using protocol growth rates, revenue produced from treasury assets and interest accrued from deposits.
Protocol health will be periodically assesed by the DAO economic policy team to modify variables in order to grow along expectations. The initial targets for the protocol are the following:
Protocol Controled Vaue = 2’000,000 USD
Monthy Revenue = 100,000 USD
Average daily combined bond volume = 25,000 USD
Mcap/PCV ratio= > 60%
The initial targets are expected to be met within the first 4 weeks of the project’s activity. Once initial targets are met consensus should be reestablished as to what policy should be implemented in order to meet sustainable growth rates.
|Asset||Discount (BCV)||Target Holding Size||Target Holding %|
In order to support Bond issuance the protocol must own a controlling share of the available liquidity. Therefore, FTM/ORK offering will be available at a discount in relation with other bonds. The target allocation for FTM/ORK LP holding in the treasury is 50% (see above table). At an initial $2 million valuation target, the holding size will be $1 million total held in the treasury.
Spirit can be locked in order to vote on allocations for incentives for specific pools. By securing a revenue stream for protocol owned liquidity the treasury will be able to incentivize its assets and attract farmers to participate in our incentivized pools
By securing incentives for Bitcoin denominated assets Orkan can foster the growth of BTC liquidity in the FTM network attracting new TVL to the chain.
Orkan is designed to grow a treasury of Bitcoin indefinetly. By becoming the first DAO to explicitly accumulate BTC we can over time control a significant position in the network. The Bitcoin design allows for value to be stored in perpetuity which makes it the perfect asset for a treasury to hold as backing.
The treasury will initially be mainly composed of wBTC which is the most widely used BTC wrapper on chain. Over time other wrappers will be introduced in order to diversify the risk profile of on chain BTC. As per the table above, the treasury will offer bonds for wBTC in addition to vBTC at a target holding of 20% or $400,000 for wBTC.
We are starting with a small target holding in this token because the reduced number of vBTC in existence. Removing a significant ammount of vBTC from the supply should help complete the Strudel DAO mandate by arbing the peg. At 5% the treasury will hold $100,000 worth of vBTC.
0.5% per rebase will be the initial rate on launch until the treasury reaches a total of $2,000,000 in the treasury (or its close equivalent). After that it will be tapered for the sustainability of protocol growth rate.
Contributors will be rewarded via CoordinApe. Payment will be managed and executed from the Treasury Manager in the form of vested ORKAN tokens obtained from the sales of bonds. The payouts should not exceed 10% of the monthly bond revenue.
Multisig participants will number between 5 and 8 operators, with a majority vote required. Additional multisig participants should be added by proposal on the governance forum (https://gov.strudel.finance)
→ Seed funding was led by Information Token DAO at a 2M USD Valuation for 28% of the supply locked for 6 months