DefiHedge: The Decentralized Protocol For Fixed-Rate Lending & Interest-Rate Swaps
Kernel Final Update : Governance
After establishing the structure of our database around the time of our last update, we spent the following week building out our backend & basic REST API. In this time we also established some basic models and dynamically populated our database for future continuous integration testing.
That said, with a number of hackathons completing, and with multiple demo/presentation days within Kernel, we then took a small break from our sprints in order to assess our governance plans and solidify strategies going forward regarding sustainability and protocol security.
Governance
With YFI’s success, we have been asked on multiple occasions whether we had considered a “Fair Launch” (fairlaunch.capital). With that said we spent some time discussing/identifying the issues that exist with both a “Fair Launch”, as well as more traditional fundraising methods.
Fair Launch:
Requires founder capital/liquidity to participate in token distribution & properly align financial incentives
Risks early stakeholder manipulation of fees & incentives
Unproven in terms of organization sustainability
ICO / VC:
Generally guarantees/results in early investor plurality
Community stakeholders lack incentive to continue contribution
Implies unpredictable sell-side pressure
In then brainstorming a way to ameliorate these key issues, we came up with a model somewhere in between the two.
This resulted in a token distribution that initially places governance in the hands of the DefiHedge team upon launch, while algorithmically ensuring the gradual dilution of governmental control as the protocol matures.
Token Distribution:
With the implementation of a vesting period, DefiHedge funds will be unable to be moved for a set duration. The representative influence of DefiHedge wallets is then diluted continuously after launch based on a consistent modifier. In our proposed case, 100/(x+1). *Updated To 100/((x/4)+1)
Token Distribution at Launch:------------>Token Distribution after 3 Yr:
1% Compound Stakeholders---------------->1.16% Compound Stakeholders
1% Aave Stakeholders---------------->1.16% Aave Stakeholders
5% Community Initiatives------------------>5.82% Community Initiatives
10% Developer Fund------------------------>11.56% Developer Fund
10% DefiHedge------------------------------>1% DefiHedge
5% Founding Team-------------------------->0.5% Founding Team
28% Early Investors-------------------------->32.40% Early Investors
40% Liquidity Providers--------------------->46.24% Liquidity Providers
Liquidity Provision:
Given the largest leap for any decentralized exchange is the provision of initial liquidity, much of our protocol design is intended to provide liquidity incentives.
Liquidity Provider Rewards:
The DefiHedge exchange will launch with negative maker fees.
This serves multiple purposes:
Provides additional yield to attract liquidity, similar to most AMM liquidity incentives
Dilutes protocol governance
Increases pricing accuracy in low liquidity environments
Venue Neutral:
Similar to the 0x protocol, our goal is not to monopolize as the only interest-rate swap venue, but to introduce swaps as a whole to the decentralized financial ecosystem.
That said, we plan to provide the infrastructure for anyone to build a swap venue. Through the implementation of a libp2p order-sharing network, multiple venues can easily share their orderbook, further incentivizing shared liquidity and providing a mechanism to punish bad actors.
Compound Protocol Stakeholder Distribution:
Given our protocol is built on top of the Compound Protocol and we expect our userbases to overlap significantly, we believe an important step towards attracting these potential users is ensuring they are aware of DefiHedge and ensuring they are given incentive to participate in DefiHedge's future growth.
With this said, we plan to distribute DefiHedge tokens to Compound Stakeholders based on their network participation over a given period before our protocol's official launch.