DAO ENVELOP Tokenomics: From an Idea — Through IDO — to a Closed Ecosystem

16 min readNov 3, 2021

Menaskop disclaimer: I should say right away that this text is more descriptive than formal. The formal one will be placed in docs.envelop.is later, while this one is intended to clarify those questions that have already arisen for users who are learning the services related to DAO ENVELOP, as well as from those points that obviously require comments.

So, tokenomics.

A little aside

Before we dive into the general part, you need to know the following:

I’ve been involved in asset tokenization for over 5 years and have authored a number of books and numerous articles on the subject. Simply put: this issue is not new to me. The number of projects I managed to work with during this time is more than 100. This is what is important for this story.
ENVELOP is a super-DAO — not as a reference to Superman, but exactly as a DAO, which unites Protocol, Oracle, Index, and Token, each of which is a micro-DAO, that is, can function autonomously — without the participation of other constituent parts. And these micro DAOs are not the last in the ENVELOP DAO. One case of implementation of a Protocol (or Oracle, or Index, or even Token, or all at once, or a number of them) — one micro DAO.
The same model (micro-DAO) with the team transferred to the service development/monetization strategy.

That is, in fact, all. Now for more details.

Tokenomics and its core issue, or a bit of history

I remember meetups, conferences, and other events in 2017, when “The First ICO Book” was gaining peak popularity — at that moment, judges and experts almost always asked startups the same question: “what is the role of a token in a project?”

Admittedly, there weren’t many good answers. As a result, during the ICO boom (2016–2018) the following utilitarian functions emerged:

Bonus and/or discount — often mixed, although mathematically and economically this is the wrong approach. Say, for IoTeX, discounting via tokens is the right solution; and for loyalty programs, bonus accumulation (and in the modern way of stealing them, or even farming them) is better.
2. Loan — there’s always a lot of questions about how not to mix it up with loans and go to battlefields with banks and other lending institutions, especially — with the prefix “micro”;
3. The medium of payment in dApp is probably the most common and the most dangerous, as the experience of Kik mess., TON and many other projects have been shown. If previously it was possible to identify a segment of games where the internal “currency” has developed since the olden days, in the GameFi era, not everything is so simple here either. Still, the main question is: if the token can be replaced by a native coin (cryptocurrency) — why do we need it at all?
4. Staking — this process will still be considered in the next 2–3 years, but today it is recognized as utilitarian, because actually pledging tokens to a network/project gives it the ability to process transactions, etc. More broadly, the same aspect can be called the “token pledging function”. It’s more complicated with farming.
5. The commodity is still mostly digital and especially relevant in NFT, but the sale/rental via digitized, tokenized, avatars of any things and entities: houses, cars, books, etc. is not far off.
6. Other approaches: there are quite a few, but they are not often used.

Now let’s stop and try to connect the first two elements:
1. On the one hand we have the SEC and its associates, who a priori consider all tokens securitized, i.e. securities, whatever that means (and NFT too, if necessary).
2. On the other hand there are not many utilitarian functions of a token: yes, they can be broken down into even smaller ones, but that will be the realization of specific tasks, not a unifying function.

This is where we loop back to my experience: as a consultant in ENVELOP (NIFTSY), I wanted to get something more original and at the same time reliable. And I think I did.

Judge for yourself.

Is the new the well-forgotten old?

I do not like this phrase in the affirmative: it stops development. And yet, the first task I faced in late spring-early summer of this year, 2021, was to develop a consistent technical architecture DAO ENVELOP (then NIFTSY), possible to implement at the moment.

It took a few weeks to update the market data and as a result, there was an understanding of WHAT the project does: in fact, it hedges the risks of NFT owner-buyer from a complete failure in the value of some crypto-assets. And from there appeared a simple logic: if we insure step #01, then step #02 and all the following ones should also be insured? And step #00, too!

Thus, a quartet was born: Protocol, Oracle, Index, and Token, where the last one is a connecting element of the first three:

And the Token’s binding function is easily reflected in the same scheme:

But I already told all this: Protocol insures at the level of assets (wrapped in wNFT); Oracle — assets and projects (check by 4K methodology, etc.); Index at the level of market and its segments (actually wNFT is micro-Index, their unity by market segments — second-order micro-Index, etc.). At that Protocol works only with on-chain entities, Oracle works both on- and off-chain, and the main difference of Index is that the latter takes data of both Oracle and Protocol, but it is still on-chain and the main thing — it becomes an independent product.

But you can use it all if you already have money — tokens, cryptocurrencies. What about those who don’t have money? This is where the next important section of the narrative comes in — architecture approbation and step №00.

Believe or verify?

You can believe in life off Earth, but as for the numbers and facts, you better check them: many people think that the creation, elaboration, architecture of a project is a trivial task. In the sense that “you come up with whatever your soul desires, and that’s it.” But it is not:
1. First of all, you can’t just put everything together: you always need segmentation. Even big corporations fail at startups: look at Google or Amazon. And certainly, when the budget is limited, you can’t test all the ideas.
2. Secondly, the structure must be consistent. That is, there must be principles and purpose that unite the elements: for ENVELOP the purpose, I repeat, is to hedge every step of the (w)NFTs market, and the principles: openness, anonymity, decentralization, coupled with automatic transfer of value.
3. Thirdly, it is relatively easy to synthesize the trends of the past: someone put one stall in the square — in a month there are already 10, and a year later — 100. Another thing if you want to fight for something truly innovative: you need to identify trends in the early stages and through the goal + principles to try to implement.
4. Fourthly, the project must be profitable, even if it is income, to begin with. This is business. Everything else is a waste of the investors’ money (in our case, the contributors’ money). On the other hand — you can’t make any profit just by selling Token: is it absurd? No: a given, based on the practice of startups and their interaction with regulators.

But what does approbation have to do with it?

You always have to choose: either wait for someone to realize what you have in mind, but then you will never be #01 or try to realize it yourself. In the case of ENVELOP we were lucky several times:
1. First, Rarible supported the project, and then they implemented, based on their API, the protocol and index for the NFT segment: so, no questions asked in this part. Protocol and Index were written down as workable mechanics.
2. Then 1inch also followed the beaten path: getting information about wNFT-mechanics, they tried to link this entity to the project’s work, thus giving us one more checkbox in the verification process, so, as CTO DAO ENVELOP formulated it, no complaints.
3. That said, over the course of our MVP & Alpha implementation, several projects have implemented a number of the solutions described in WP and earlier materials: Uniswap started to turn liquidity into NFT;
They also implemented L2 for transaction savings (but didn’t get to tokenization of payment channels); AAVE adopted the concept of insurance through NFT, etc.
4. And yes, not too long ago there was verification from industry guru V. Buterin regarding such an application area as payment channel tokenization and/or rollups.
5. So there are no questions about the technical part of the architecture as of September 2021.

But there is a second side of the coin — the product side. There is still a lot of work to be done here, and yet the general approach looks as follows:

That is:

If a person has no money and wants to somehow get NFT — he takes a loan of NFT and through the game, flash loans services, and other mechanics — works off this loan. Frankly speaking: here I was a little upset when I learned that CGU — a project of one of the most famous figures in crypto-industry S. Sergienko — already works by such a scheme (the difference between invented and seen was about a couple of months). But on the other hand — just here there is no need to look for hypothesis testing: everything already works. Exactly.
Further — if there is money, then the person (in fact SaO — any active subject-object that needs funds) goes in a circle: the Protocol — if he wants to wrap assets himself or buy/purchase them; if he wants more — he scoring with Oracle at the primary transaction and/or buying services of the anti-fraud system at all others; finally, if he wants not just buy but trade — he goes for secured Index: and makes his or buys already ready one (secured fully or partially).

And now at this step (finally?) tokenomics is born, which from the product part includes micro-DAO architecture (and it includes liquidity providers, WL-mechanics, and other solutions already implemented in the market), and from the technical part — the unity of P+O+I & T (POIT). About this — in detail.

Tokenomics. Genesis

As you can see, the journey was not easy and took about 3 months: a whole quarter to work through! But it was worth it. Today ENVELOP is moving along the following path, taking the role, functions, tasks, and all other aspects of the Token:

The name has taken hold of the Token as a binder of elements separate — NIFTSY.
The main function of the Token is collateral (more about it below);
The token is NOT a prerequisite for working with Protocol, Oracle, or Index.

What does collateral function mean?

For this, we need to visualize the development of the DAO ENVELOP. Let’s take a simple example — GameFi:

You are a player in some kind of super game #01.
You want to compete in game #02.
But you only have game “money” from game #01: the same game has the pimped characters in it.
What to do? You can try to exchange some game “money” for another via the same Xsolla, but it will not be cheap, and not sure that you’ll be enough to participate in the contest, plus — do not know that you even want to part with the money and the more — the character.
That’s why you, provided our or similar Protocol in two games can: pledge your character, get the funds, play in Game #02 and give the money to investors (correct — to contributors) after you win, and the Protocol will return your pledged character to you.
But what if you lose in Game #02? No problem: here, some of the game “money” (essentially interchangeable or partially interchangeable tokens) is exchanged by the Protocol in the right proportion to the other, and you give back the security part of the deposit: for example, 9 people took part with you, so you have to pay 1/10th of it. That said, there may be situations where we are dealing with a “pure” investment: in this case, both when you win and when you lose, you get some rating downgrade (optimally — reputation), but you don’t make any direct payments.

And if you are not a player, but an investor? In addition to the described and already partially implemented mechanics, you can come to DAO ENVELOP and choose one of the many implementation cases:

Let’s say you want us to implement Protocol and Oracle in Marketplace #P01.
The cost of this case study is $10,000.
You say you are willing to contribute 30%.
The entry threshold: from 25%.
DAO ENVELOP expresses agreement.
This means that:

You contribute $3000 in NIFTSY tokens at market price: weighted average determined through our Oracle at the time of the transaction (actually, the example is simplified to understand: all transactions will be tied only to BTC, ETH, and other crypto-assets);
Then we send these funds to the development team (it is chosen by DAO).
After that, a stack is formed, 30% of which is yours.
But the important difference from existing stacking/farming models is that up to 30% of the spending part is also borne by you: That is, the resulting income is divided as follows: Let’s say that after the implementation of the case for the first month DAO ENVELOP in micro-DAO-marketplace-#P01 received income of $1000. At the same time, the expenses (for Oracle server, TA team, and others) were $300. This means that 30% of the $300 will be incurred by you and 70% of the $300 will be incurred by us. Remainder — $700 will be divided in the same proportions: 30/70.

7. Thus, you and I create a separate micro DAO for each case, which independently determines its own balance, based on the expenditure and income, its own community, etc.

Now let’s try to formalize?

Let X — the number of Tokens in circulation; Y — the number of Tokens in the ecosystem fund (which includes the reserve fund, swap fund, and others: see below); Z — the number of Tokens needed to implement Project №P01. At that, the reserve fund of the DAO ENVELOP Projects is R. We obtain the following simple descriptive formulae:

X -> nX, where nX is a fraction of Tokens that need to be redeemed from the market to implement Project #P01 (with n being a minimum, which can only be increased by decreasing m).
R -> mR, where mR is the part of Tokens from R that is necessary to implement Project №P01 (where m is the maximum index that can only be decreased by increasing n).
Z = nX + mR — all Tokens needed to build the micro DAO №W01.

Any questions left? You bet. I’ll try to answer some of them:

Who decides whether to reduce m in favor of increasing n r leave it at the given numerical values? DAO ENVELOP response after receipt of a secured application from the applicant.
Why can’t n be decreased? Because the DAO budget is calculated for the year and cost items can only be reduced but not increased.
In what units does each case count? In native units of the micro DAO creation network.
Can I pledge in fiat units? Yes, but including all paid commissions on all transactions of exchange of the fiat currency unit to the fiat currency unit of the Micro DAO creation network.

Now briefly about how many Tokens we have for this.

Reserves

Actually, the DAO fund in the ideal model should be distributed among the mass of micro-DAO: the goal is that each segment (games, marketplaces, DeFi/GameFi, etc.) allocated no more than 1–5% — then the diversification of super-DAO will be maximum.

Initial conditions are such that the fund (F) is formed from:

FPL — Liquidity Pool Funds (taking into account the mechanism of impermanent losses, slippage, and other mathematical values: the third stage of project implementation);
FDD — DAO Development Fund (first phase of project implementation) as the second part of the ecosystem fund.
FCR — Main (Core) Reserve Fund (zero phases of project implementation) as the first part of the ecosystem fund.
FRS — Stabilization Reserve Fund (necessary to solve operational tasks: the second phase of project implementation);

Why do we need this gradation and project queue?

Super-DAO has a Roadmap to follow.
To rewrite the Roadmap more than 1–2 times every six months — is not technically and organizationally possible.
That said, the Roadmap itself has 4 layers of implementation: By networks/systems (ETH, BSC, others); By standards (721, 1155, 998, others); By Cases; By dApp of the main DAO or its constituent elements (dApp on the Web, Telegram bot, and similar).
Accordingly, the Road Map defines the main framework for the development of the Project, and each subsequent phase of the funds is raised as necessary.
In this case, each fund is a dynamic value, but the FRS always tends to 1% of the total issue, and the values of other funds are calculated from it.
The ideal ratio is: FRS — 1% of the total issue (in report №00 DAO ENVELOP is designated as “Reserve”); FPL — 10% of the total issue (denoted as “Pools” in report #00). FE (FCR+FDD) — 18% of the total issue (denoted as “Ecosystem DAO” in Report #00).
Funds can be replenished from:

Micro-DAO revenues;
The work of the main micro-DAOs;
Own funds of the participants of any micro-DAO;
Token sales;
Other legal (permissible) ways.

But the collateral function is the main one, not the only one of Token. I’ll tell you briefly about them as well.

Additional Token Functions

Because the technical and product architecture of the DAO ENVELOP is quite complex (although arranged on primitive models), the Token can have many functions in each micro DAO:

For example, Tokens in the Protocol can be used to pay royalties and make a pledge to the accumulator — Collateral.
Tokens can be a link, a glue between games (in cross-chain character rentals, say).
Tokens can be a means of voting for Projects, etc.

The main thing to understand is this:

The economics of a super-DAO and each micro-DAO can only be linked through a Token: if you made a micro-DAO on a Protocol, but don’t use DAO ENVELOP Tokens, then you will simply develop a separate branch of the Protocol.
The Token is not a mandatory element, so you can safely use, even copy both the Protocol and the Oracle and Index, but still, this data will be taken by the super-DAO into its Oracle and its Index (according to the open-source license).
Finally, the Token may have a different value in fiat and/or cryptocurrency, but within super-DAO, everything is valued with a peg — this is one of the reasons why the total issue of ALL blockchains is 500,000,000: to issue 100,000 in BSC, for example, we need to freeze 100,000 in Ethereum or another blockchain where the right number of Tokens is available.

And yes, we’ll talk about multi- and cross-chain separately. Now.

A multi-cross-chain solution. Isn’t that a lot?

No.

Firstly, we are targeting several large markets (or rather, their integration):

Secured derivatives.
GameFi/DeFi.
DAO liquidity-DEX.
Pure NFT.
Others.

So without cross-chain mechanics and multi-chain implementations, working with liquidity at any direction level is absurd, even more accurately, impossible.

Secondly, everything stems from general trends:

Smart tokens are the easiest level of liquidity transfer.
LP-tokens are slightly more complex.
Atomic swaps are even more complex.
Tokenised payment channels — more.
Multi-blockchains — more.
And it’s far from over…

Lots of blockchain solutions are great: you can specialize in a niche (VeChain), a segment (Tron), an industry (Flow, WAX), markets (Ethereum), or blockchain itself (Polkadot, ETH2, Cosmos, Avalanche). Or even create a computer for it all (Octopus, ICP). In any case, single solutions will not go anywhere, but it is integration solutions we are interested in: and not only at the L2 level, but also L1 and even L0 and L3.

Thirdly, the mechanics of our approach are simple (and, by the way, already tested in practice too):

Imagine that you create a wNFT (wrap NFT — a wrapped non-interchangeable token with ETH or other collateral inside it — collateral) using the Protocol.
Let’s say you create this wNFT in Ethereum: and you have 1 ETH and, say, 30 ERC-20 tokens “in your account”.
And then you get a notification that a new storefront has opened in BSC and there is a very interesting NFT token that you want to buy: your wNFT is enough, but… It is in another chain, after all. What to do?
Ok, if by that time there is already a stable bridge you need and you just do some miracle swap of tokens and native coins, deploying wNFT beforehand, paying for all transactions, etc.
But you can go a simpler route: You send wNFT to the holder of the Character. He gets the right amount in native coin and tokens and puts in “change” when you unwrap it. And that’s it — the transaction is complete.
The question, “how will wNFT come to the holder in another blockchain?” — is the right question. Answer: You will send wNFT to the Protocol’s smart contract address; This smart contract will freeze the wNFT; And will release a copy of it in the BSC (or whatever blockchain the seller needs); The seller can: Either receive funds in the BSC when deployed — this is done through any micro-DAO that provides liquidity in that blockchain and is linked to the Protocol (in fact we can use the liquidity of any DeFi project, acting as a micro-DAO). Alternatively, we can get funds in Ethereum on demand. In either case, the key to access the request will be a copy of wNFT.
The main rule: for wNFT deployment to be completed — the access key (copy) must be burned.

Actually, it’s similar to making “one key for all keys” or even one safe for all wallets and passing always access keys with locations of safes: the recipient can either open the safes himself or by asking someone (the liquidity providers).

And yes, the whole process has several levels of protection, allowing any subjects and active objects to work: scripts, people, AI. The main condition is NOT to break the rules of the Protocol.

Liquidity providers and WL — a closed-loop

The bottom line is that we offer a simple, albeit innovative, market model:

Using each element individually — you are effectively moving to a white label structure where our technology is blended with your brand and/or the brand of the newly created micro-DAO.
You don’t have to use both Protocol and Oracle and Index, much less Token, but using them together in projects creates synergies not in words, but in action.
And yes, it’s a complete closed-loop:

Whether or not you have funds doesn’t matter: no — pledge/lease, have — go from Protocol through Oracle to Index, and sell your micro wNFT to anyone and everyone.
Want to be insured at any step of using crypto assets? Use wNFT through our tools.
Want to learn new markets hands-on? Participate in micro wNFT.

That’s it for today. We’ll start there next time, but for now -

Do!