DAOfi is a decentralized exchange (DEX) that seeks to work with new token creators by providing them with “economic contracts to power new types of community alignment.”
Although the services offered through decentralized ledger technologies (DLTs) are, well, decentralized, the governance aspect of these systems is mostly centralized. Unfortunately, this anomaly had become the norm.
Then came decentralized finance (DeFi) that, being community-centric, required community governance. Decentralized autonomous organizations (DAOs) made this possible.
Interestingly, despite the fact that DAOs work towards a common goal, enabling community involvement, they are available in different ways to cater to unique protocol and community needs. DAOs can either be open or closed. Note that access to open networks is granted as long as you hold the system’s native token.
To enhance the provisions of the DAO ecosystem are platforms such as DAOfi. DAOfi is flexible, scalable and includes a native currency to incentivize participants. Below, let’s have a closer look at the project, it’s token, benefits, governance, staking, etc.
DAOfi is a product of DAOfi Limited, a company registered in Hong Kong. The project was inspired by Karma DAO, a Telegram community that operates a tokenized involvement in the community’s operations. The idea behind Karma DAO is to build a system where every member is a winner.
As Karma recorded tremendous success, it turned out that new tokens with single liquidity pools were suffering in the hands of individuals who were after the profits and not the long term growth of the platform. To prevent pumps and dumps for small tokens, the Abridged team, a development partner of DAOfi which was also involved with Karma, collaborated with the rest of the DAOfi team to create a protocol that would ensure that new tokens have a fair price distribution during launch.
What is DAOfi?
DAOfi is a decentralized exchange (DEX) that seeks to work with new token creators by providing them with “economic contracts to power new types of community alignment.” Part of the alignment comes from providing a smooth user interface and creating a customizable bonding curve.
Note that a bonding curve depicts the relationship between the price and token distribution. The current DEX ecosystem has a fixed bonding curve feature. For example, Uniswap has a 50/50 allocation ratio with liquidity pools. This heightens the appetite for speculators.
Consequently, a new token ends up having an extremely volatile price movement in the early days.
DAOfi provides configurable bonding curves liquidity market, helping new tokens achieve price stability and valuable adoption by addressing slippage and impermanent loss.
Apart from providing flexible bonding curves, DAOfi aims to allow token creators to configure the DEX trading fees and provide user-centered usage and experience.
DAOfi and Web 3
DAOfi is powered by the third internet generation. This form of internet is more intelligent than its predecessor. For example, it can study trends within its users and suggest the best actions for new users.
As such, the value of platforms employing Web 3 rises with each new member. Consequently, the early adoption of these systems provides a strong force against competitors.
It’s this evolution that has led to the introduction of community-driven economies. Also, it opens the door for decentralized networks such as DAOfi to interact with social media platforms to drive the adoption of DEXs and other distributed systems. In addition, connecting social media platforms with DAOfi and other decentralized protocols adds value to traditional systems.
By employing the Abridged SDK, the protocol’s Web 3 functionalities can be accessed in non-Web 3 environments without requiring Web 3 extensions.
For instance, it has the capability of driving token-based chat rooms. Such chat rooms require members to hold a certain amount of a given token to be a member. A reduction of the token amount leads to automatic removal from the chat room.
How DAOfi Tackles Scalability
Although DAOfi makes use of the Ethereum network as the main chain, it doesn’t suffer from scalability issues that have plagued the platform. To steer away from scalability hurdles, the protocol adopts:
- Layer two scaling solutions also called sidechains. Apart from increasing the platform’s speed, incorporating a side chain provides for easier integration.
- State channels to boost scalability. State channels provide a way to interface with off-chain systems that hold locked funds to help link capital in a DAO. In such a scenario, liquidity providers end up having interest-bearing assets.
DAOfi uses what it calls a hub-and-spoke model that enables participants on the network to operate a single channel via a hub. Notably, collateral hubs can create hub-based marketplaces.
DAOfi Token and its Use Cases
The protocol’s native token is called DAOfi. The token’s initial distribution was done via a private sale governed by Hong Kong rules and regulations.
Transactions across the network incur a 0.2 percent fee, which is sent to the platform’s creator to convert it back to its native token.
The token’s distribution consisted of the token sale (40 percent), advisors (7 percent), and partners (14 percent). Also, the ecosystem fund got which totaled 20 percent while the DAOfi Foundation received 19 percent.
DAOfi token’s critical use cases in the ecosystem include, but are not limited to:
- Discounts – Token holders interacting with the protocol are given rebates in the form of reduced transaction fees. However, the discount amount depends on a 10-level scale. On the scale, the more tokens held, the higher the discount amount.
For example, those in level five have token holdings worth $100,000 and are eligible for a 20 percent discount. On the other hand, those in group 10 have invested $1,000,000 into the token and receive a discount of 45 percent.
- Staking – The token can be staked on the DEX in exchange for providing liquidity. The tokens can be used to sponsor a select number of liquidity pools on the DEX.
- Risk mitigation – Smart contracts have, over time, been associated with hacks and security vulnerabilities. However, the DAOfi protocol mitigates the security risk by accumulating assets on the smart contract. This reduces the possibility of an exploitable bug.
- Treasury management – The network has a treasury that holds part of the transaction fees on the protocol. Commissions from such activities are used to enhance, among other things, the health of the ecosystem.
Being at the initial stages of development, the protocol initiates a progressive governance approach where the governance aspect slowly moves from centralized to decentralized. However, involvement in the activities of the treasury requires holding the DAOfi token.
DAOfi allows certain aspects of the network to be community governed. Some of the areas that fall under community governance include restricting transaction fees and discounts.
Other areas include:
Adjusting the fee parameter for liquidity providers. The community decides how much should go to the liquidity providers considering they occupy a crucial spot in distributed markets.
- Changes to the DAOfi curve.
- Fees for creating a new community on the protocol.
- Community fee. Note that this is a fee taken from a section of all volume appearing on marketplaces on the entire DAOfi ecosystem.
With an increasing number of new tokens being created, DAOfi brings a much-needed service into the DeFi space. Providing scalable bonding curves and putting key governance issues under community management makes the protocol ideal for new token creators looking to establish a stable price and adoption during their token’s early days.
Adopting progressive governance ensures that the platform’s governance can smoothly transition from being centralized to decentralized. Furthermore, using state channels and side chains enables the network to provide the scalability required in a decentralized world, further boosting adoption.