Background:
In the early stages of a project, hype and wealth creation are essential to getting it off the ground. Unlike traditional stocks which only grant voting power, dividends, and acquisition revenue, limited supply governance tokens can also be used as the native means of payment / protocol utility token. In short: if we ONLY accept the gov token for all transactions, then the price will automatically track with real growth of the platform. Given our ability to control supply, we can actually use this fact to manipulate price in any way we choose.
Price appreciation breeds hype and speculative demand. And ultimately, it is upon us as a DAO to distribute our token in a way that is 1) sufficiently decentralized and 2) maximizes the profit earned by the DAO and its founding team. The distribution mechanisms available to promote decentralization are various and range from free airdrops to NFT staking and more. But ultimately, a significant portion of the limited supply tokens need to be distributed in a way that generates revenue for the DAO and compensation for its founding team. In tradfi, funds are raised through 1) private equity sales, 2) IPOs and 3) bond offerings (which sell debt rather than ownership). In crypto, the market has experimented with its own fund-raising mechanisms including ICOs, IDOs, and most recently NFTs. But, interestingly, there is a fourth mechanism available: token bonds offerings (TBO).
Token Bond Offerings:
Bonds have a different definition in crypto than they do in tradfi. The most famous success here is the example of Olympus DAOs Ohm token bonding. In essence, a token bond allows you to purchase a quantity of tokens at a discount from the current market price, then vest over a fixed period of time (called the vesting curve). This mechanism has key benefits for both buyers and issuers of the bond. On the buy-side, those “bonding” to the mechanism get tokens at a discount from market rate. On the sell-side, the fact that the tokens vest over time means they cannot be immediately dumped on the market to adversely impact price.
Pricing:
Pricing a token bond offering is both art and science. The key questions are: 1) how many tokens are made available in each bond offering? 2) what is the discount from the current market rate? and 3) what is the vesting period? These 3 factors are all interrelated and must be tuned appropriately for each bond offering event. Ohm and it’s forks generally follow something like a 5% market discount and 5 day vesting period. But, crucially, Ohm is an inflationary token whereas gov tokens are not. So bond offerings for gov tokens are likely to have even steeper discounts and longer vesting periods, eg. 15% -> 1 year.
A concrete example:
I remember when I bought a couple grand worth of scum, it drove the price up 50%, imagine I wanted to buy a million dollars worth? My average price would be terrible! What if instead I had the option to buy $1M of scum at a 20% DISCOUNT from the current price, but the scum vests to me over a year. If I am a long term investor / hodler, that's fine with me. Plus, the token vesting “bond” is an NFT, so I can always resell it if I want.
Notes
NFTs with staking are a form of TBO
TBOs can be implemented by various other means, including direct public key registration with a smart contract
Vesting curve analysis must be used to ensure a balanced circulating distribution at each point in time