The founder of the personal token “Kerman” launched another bold experiment to achieve debt composability.
Written by: Kerman Kohli, founder of ARC and DeFiweekly Compiler: Perry Wang
Since entering the field of cryptocurrency, I have been passionate about the idea of synthetic assets and its potential impact on the ecosystem. MakerDAO is an inspiration. It is regarded as the central bank of the Ethereum ecosystem, allowing unlicensed borrowing of USD-denominated debt-known as DAI. At the same time, Synthetix has shown the world the power of a token-based incentive structure, which can quickly and strategically roll out the network and coordinate everything needed when needed. Synthetix achieved this goal by introducing a 4-year inflation (that is, additional issuance) timetable for native network tokens, and then allocating a larger share to active participants in the target growth plan.
But the main limitation of these two systems is that they are dominated by the first collateral that was initially invested and locked in. Although both currently have or plan to add more collateral types, MakerDAO will always be dominated by ETH, and Synthetix will always be dominated by SNX. Both projects have good reasons for doing so-the riskier collateral type will lead to the risk of paralysis of the entire system or enhance the value proposition of the native token. Another benefit of this design is that the aggregated liquidity model can create a better user experience and positive network effects.
When thinking about this problem space, the reason for breaking the model of “all assets must be pooled into a capital pool” is to see the success of Uniswap v2 and Curve capital pools, and the fact that liquidity is not as dispersed as people think. So I thought: “Why not go deeper and use the same idea for synthetic assets?”
Everything is MakerDAO
If you ask me “what is ARC in one sentence”, I will answer “Everything is MakerDAO”.
What does that mean?
Well, the idea is really simple. If you have a synthetic asset pool, you store a mortgage asset in it, and you will get a single output asset.
输入ERC20 代币→ 拿到ERC20-USD
The idea of this model is that a debt universe can actually be created based on each token that exists, while fine-tuning the risk parameters surrounding each token, so as not to cause compound risks in the global system. For example, the first asset in the system is LINKUSD, a synthetic U.S. dollar collateralized by Chainlink. Yes, it is supported by Chainlink oracle. (Read the game file for more details about the oracle and the asset)
Anyone can provide price information on the chain through some valuable collateral and create synthetic assets. If we look back at the history of encryption, although decentralized exchanges like IDEX / EtherDelta do not require a license, they still have gatekeepers to handle the listing. ARC’s goal is to do what Uniswap / Balancer does in a decentralized exchange-let anyone create debt based on their own parameters.
Of course, there are many such ways in reality, but if you create a permissionless technology, you can always add elements of trust to ensure user safety. (To learn more about use cases and details, please view the game paper directly at the following URL)
Challenges in bringing ARC to market
Although the product has very interesting features, the token distribution mechanism itself is also true. When I was working on the ARC project, I saw the way Andre Cronje released YFI. When I saw the possibility of community management agreement, I was very excited.
I personally spend a lot of time on the governance forum, following related proposals in real time, which I haven’t done in any other projects. What I didn’t expect was that many talented people also participated in the YFI Governance Forum.
If you accept the simple idea: the people behind the project will determine the success or failure of the project, then you need to optimize to attract the highest level of talent and community members to participate in your project.
Most DeFi project communities are made up of founders, investors, and team members—everyone else may hope to see token prices rise without spending a lot of their own energy. Obviously, over time, the community governance agreement will produce more benefits, and these benefits are not available to their “centralized” opponents, because everyone feels that they can enter the grassroots of the project, and later Will not be abandoned.
Considering this information, my first instinct is to code the smart contract + front-end and publish it without auditing. However, considering that I have spent a lot of time in this field, smart contract hackers are devastating to all relevant personnel. Once a problem occurs, it may be severely injured and unable to recover. I don’t want to waste the future of ARC just because I don’t have audit and all operating expenses. I want to build long-term products instead of short-term speculation. However, when designing the community management agreement, it does not seem to be the right direction for early investors to transfer 10-20% of the tokens to raise 2 million US dollars and provide the other 20-30% of the tokens to the team. The supply of tokens will be controlled by internal personnel, and token sales pressure will be generated from the beginning. In my opinion, the current two feasible methods seem to be:
- The community management agreement, but the motivation for the founder or the future team to move forward is very limited. Andre spent nearly $100,000 of his own funds to put YFI into operation, and as the owner, he has only a small share in YFI. The treasury will always have $500,000, but the ability of full-time team members to contribute is limited because they cannot profit from the rise in YFI.
- The agreement supported by venture capital funds VC can obtain early capital, but at the expense of the community. The founders and team members are highly motivated, but everyone feels that they have really made 2-3 VCs rich. At the same time, not all VCs are bad. Some VCs can increase the chances of the network getting the key things it needs.
Design a better token distribution mechanism
After several weeks of meticulous research on the key factors that can be optimized, I decided:
- Raise the minimum amount of funds for myself and a small team for review and start-up in order to maintain operations for 6 to 12 months. This includes getting the right combination of supporters throughout the ecosystem to help guide me through the ups and downs of the project. .
- Ensure that ARC can be owned by the community for a long time, and have appropriate incentives for people to enter the grassroots.
- Contributors can get more benefits from the rising trend of ARC tokens, so if feasible, the project can self-fund and attract suitable team members to ensure that it is the driving force of DeFi in the next few years.
So what model did I end up with? After talking with the above experts and the most experienced people, I summarized the following patterns:
- ARC tokens can only be obtained by using the protocol itself-also known as yield farming. No pre-mining can ensure that no one has any preemptive advantage before the project is released. Inflation will be used as a strategic tool to expand the network as needed.
- Within 4 years, 1/3 of all tokens minted in real time will enter ARC DAO, which will provide incentives to future team members, investors and myself. After 4 years, the community can decide whether to delete the percentage or change its distribution.
- The remaining 2/3 will be owned by the community to ensure that the tokens held by insiders are always in the minority, and compared with other protocols, the network will not risk being controlled by insiders. Initially, control of the agreement will be in the hands of the team and myself, but certain decisions will be open to community governance. This is intentional, because I hope that ARC will iterate quickly, and I can use my expertise as a founder to get ARC into a stable position in the short term. My long-term goal is to be a silent, occasional voice in the community, like Vitalik.
- To deploy the network, a small part of the tokens issued in the future will be sold by ARC DAO. This means that only if the DAO gets the token (the user farms the token), the supporter can get the token.
- As of now, 5.41% of the future (4 years) issued tokens have been sold in the community fundraising round for a total of US$406,000. The ecosystem has a total of 29 supporters, with an average contribution of USD 13,000 and a maximum contribution of USD 40,000.
- In addition, 1% of the future (4 years) issued tokens (4 years) will be distributed to the holders of $KERMAN. I will write a detailed article on the Medium blog soon.
- The remaining 26.92% will be held by ARC DAO.
ARC games
Now that we have resolved all the tricky details, there is another aspect of ARC that needs to be discussed. ARC is not only a protocol, but also a game.
If there is one thing in the DeFi field that makes us more and more popular, it is the “gamification” of active network participation, which is a very powerful collaboration tool. The “Rescue YAM” progress bar we saw a few weeks ago gave a good example, but until now, no one has really tried to fully adopt this game concept-until me.
The goal of the game is simple, people must work together to create a new asset class. The ARCx host will set a “level” for the network according to everything needed for growth, and the game players will achieve the goal. You can play games with other players, and the value of ARC tokens will continue to rise. Let me briefly demonstrate an example of the level target:
- Level 1 = Create 1 million USD of LINKUSD
- Level 2 = LINKUSD expanded to 10 million USD
- Level 3 = Add RENBTC as collateral and create 1 million USD of RENBTCUSD
- Level 4 = RENBTCUSD expanded to 100 million USD
The higher the game level, the more meta: the community will become the master of the game. Here is a glimpse of its appearance:
10-year vision
In the field of encryption, it is hard to imagine what will happen in two years, but it may take 10 years to reach its ultimate vision. ARC aims to unlock the value storage function of Bitcoin by creating a stable debt exchange medium, making Bitcoin’s initial vision of growing into P2P digital cash into reality, and all this is done with the support of Ethereum.
ARC’s ultimate network idea is to create a universe of issuable debt.
I predict that by 2030, the world will issue trillions of dollars in mortgage-based special stablecoins/debts. No need to sell any crypto assets you own at that time because you can use them to issue debts and pay bills. My ultimate goal is to let the core team become the historical past of the network, and let the community run ARC with a high degree of maturity and motivation.
As we see more and more valuable types of collateral enter the Ethereum network, the potential debt creation market may be very, very large.
What’s next?
At present, our smart contract is being audited by Quantstamp. After the audit, we will gradually introduce the fuse mechanism in stages to limit the amount of funds that the system can hold. Once we are confident that the system will operate as expected, we can enter the time for yield farming. All of this will happen soon, so stay tuned.
