This document describes a basic framework for thinking about the demand for the Aragon Network Token (ANT) based on its current and potential future utility value.
Currently, the primary utility of ANT is governance. Holders of ANT are able to participate in the AGP process, allowing them to make proposals which include allocating funds from the Aragon Association’s treasury and shaping the strategy and direction of the project as a whole.
So far the AGP process has been used to primarilly fund teams building Aragon related infrastructure and products including the Aragon Client, developer tools, and Aragon Network service protocols like the Aragon Court. In broad strokes, these initiatives are intended to drive adoption of Aragon, grow the market for Aragon Network services, and ultimately drive demand to hold ANT.
Some of these initiatives can be considered public goods for the Aragon Community. They are made available to all Aragon users without any direct monetization or fees. For example, the Aragon Client and Aragon Developer Tools are open source and made freely available – but they are intended to grow the market for Aragon Network services.
Some initiatives like Aragon Fundraising are public goods with defaults that directly benefit the Aragon Network and ANT demand. For example, the deployment template and on-boarding experience for organizations using Aragon Fundraising uses both DAI and ANT as bonding curve collateral. This creates a liquidity bridge between organizations with ANT as a hub, and it locks ANT as collateral as demand for the organization token grows.
Finally, some initiatives like the Aragon Court are private goods which must be paid for in order to receive benefits. In the case of the Aragon Court, subscription fees and dispute fees are captured by the protocol and used to incentivize jurors to stake and adjudicate disputes. Jurors are required to stake ANJ, a protocol specific “work” token, which is linked to ANT via a bonding curve.
In the future there may be other Aragon Network services which may be monetized in different ways, but the basic framework of linking a derivative token to ANT via a bonding curve seems likely to be a recurring theme, as it enables the services to be designed with independent protocol incentives, such as participation rate targetting. Maintaining this separation allows for more effective protocol design and reduces the complexity and risk for the average ANT holder.
Bonding Curves relate a collateral token (e.g. ANT) to a bonded token supply (eg ANJ supply * price) using a ratio parameter called connector weight. As the market price of the bonded token increases the bonding curve will pull in additional collateral by creating an arbitrage opportunity for traders, similarly if the market price of the bonded token decreases (relative to collateral), the bonding curve will decrease the supply of bonded tokens in order to release collateral. This creates a fairly simple relationship between the price of a bonded token and demand for bonding curve collateral because the contract ensures that the following invariant is always true
connector weight * market cap of the bonded token = value of collateral . For a detailed breakdown of the math behind bonding curves I recommend reviewing Bancor’s white paper.
Using this relationship we can create a basic model for ANT demand as a function of aggregate demand for all bonded tokens connected to ANT, each bonded token or category of tokens (in the case of fundraising) can be evaluated separately and independently using an appropriate valuation model, and the aggregate result can help inform our understanding of long-term demand for ANT. In order to focus on the individual initiatives, the current price of ANT is assumed to be known and fixed, allowing the model to extrapolate based on that how much ANT would be locked up by the bonding curve as a result of demand for a particular service described in the model.
As an example I’ve created individual demand models for both the Aragon Court and Aragon Fundraising.
My intention with this is to create a general framework to help analyze various initiatives that Aragon and ANT holders could pursue and fund. I wouldn’t consider myself an expert in this type of modelling, and encourage people to help improve both the assumptions and methodology used here.