ANT Derivative Tokens 🦅

🔍 Research Discussions Economics
#5

Yeah.

Yeah.

Not exactly.

You should be able to stake on Arachain and also participate in Aragon Network Governance. You should be able to stake to become a juror and also participate in Aragon Network Governance. To be clear, staking is not the same as using an ANT derivative token. If you’re staked in the court then you can’t use the same ANT to stake as an Arachain validator, but you’re still using ANT.

If we roll out our own blockchain we should be able to introduce optimizations that make it possible for ANT holders to stake and vote. Tezos figured it out. They have a very staked community that is also very engaged in governance. A similar mechanism on Arachain would allow ANT holders to engage in providing Aragon related services while also voting in Aragon Network Governance. If Aragon is serious about changing the way humans do governance at scale, then this is essential for the fight for freedom.

  • From the Aragon Manifesto: “We are committed to decentralizing power in order to dismantle unjustified power — which usually springs from centralization. Power has a natural tendency to reinforce itself and become corrupt. If power becomes centralized, it doesn’t have to answer to anyone but itself. Decentralizing power is essential to minimizing corruption over time. We must strive to create systems in which a large number of diverse stakeholders have a say, in order for common goods to be responsibly governed by their communities.”

That’s a good point. In this case you’re right that the if service providers are staked that would not affect the users, however, it can be expected that there will be a strong overlap between users and service providers (esp during the bootstrapping phase!). Making ANT the token to access all the applications, good, and services within the Aragon universe allows any Aragon service provider to interact with any ANT holder directly. It also greatly simplifies everything from a UX standpoint: just buy ANT.

  • From the Aragon Manifesto: “We seek to use technology to lift people from oppression. To be successful, we must keep our products open, understandable, and easy to use for everyone.”

ANT should be the token for the Aragon universe. If you want to participate in Aragon in any way, just buy ANT.

Yes.

No taxation without representation.

  • From the Aragon Manifesto: “Decentralized organizations change our relationship with governance : from something that is imposed upon us by others, into something we choose to opt into. Where we are equally serving and served, rather than just serving.”

Critical. Every ANT holder should be able to fight for freedom via Aragon Network Governance.

  • From the Aragon Manifesto: “Sovereign individuals will be able to freely express themselves and transact with each other without any kind of intermediary exercising their unjustified power and oppressing them.”

No. Decentralized governance matters.

  • From the Aragon Manifesto: “We must strive to create systems in which a large number of diverse stakeholders have a say, in order for common goods to be responsibly governed by their communities.”

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Agreed! But this is easier said than done. Historically it has almost never happened. Why would this time be different?

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#6

I like the conversation but I don’t get it.

Why is it necessary to have ARA instead of using ANT?
How does ARA gets created? only through staking ANT?
If yes then what happens if there is a high demand for ARA? Then I have to stake more ANT to mint more ARA and by doing this the value of ANT increase because it gets locked up (ANT gets out of circulation =higher demand and lower supply)? But how do block producers of the Aragon Chain get paid?
For which services do i need ANT and for which ARA?

Why is it necessary to have ANJ instead of using ANT?
How does ANJ gets created? only through staking ANT?
For which services do i need ANT and for which ANJ?

Why is it necessary to have AVT instead using ANT?
How does AVT gets created? only through staking ANT?

I would be nice to have a pro contra argument list somehow
It would be so nice to have the option to create a pro contra list somewhere where people can up and downvote arguments. is there a tool for that?

Also it would be very helpful for me if there would be a table where i see all the upcoming Aragon tokens their functionality (usecases) minting process supply etc.

It would be also so nice if each forum post has a Q&A tap where I can see all Q&A related to this topic because often i start reading but i don’t get it so I think this tool would be very helpful to educate and engage as many people as possible.

3 Likes
#7

Cool, so to avoid conflating many distinct issues is it fair to say that there are 3 independent issues you are concerned with here?

  1. Should ANT be used as a payment token for services like the Aragon Court and Aragon Chain?
  2. Should work/staking economics be associated all with the same token (ANT) or based on bonding curved based derivative tokens?
  3. How are service providers (Jurors/Validators/etc) represented in the governance process?
#8

The more ANT derivative tokens we add to the Aragon ecosystem, the more complex we are making Aragon. 99% of the world don’t understand financial derivatives so it would be naive to expect them to understand derivatives on Aragon - it’s already hard enough for many people to grasp Aragon as it is, without any ANT derivative tokens. If people don’t understand Aragon, they are unlikely to be effective contributors to the Aragon governance. And as @burrrata referenced in the Aragon manifesto " we must keep our products open, understandable, and easy to use for everyone". I find it very concerning if we not actively taking steps to make Aragon more understandable instead of adding complexity.

I would love it if we can build Aragon in such a way that it doesn’t require users to read a rocket ship manual to go with it :slight_smile: Effective onboarding is already an issue as it stands.

Also, +1 on @Mouyou’s request to see a for and against analysis of ANT derivative tokens.

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#9

Some of these details are still being figured out, but at a high level the current intention is for ARA to be connected to ANT via a bonding curve (using Aragon Fundraising on Ethereum Mainnet), there will be a genesis event where these balances are migrated to the Aragon Chain, but then can be moved back and forth between Ethereum Mainnet and Aragon Chain using a bridge.

The bonding curve creates an exchange rate between ANT and ARA, and maintains this exchange rate by minting ARA as ANT is deposited, and releasing ANT and when user burns ARA using the bonding curve contract. Based on a parameter called a Connector Weight, a ratio between the market cap (price * supply) of ARA and the value of ANT held as collateral is maintained. So we know that at any given time, the value of ARA will directly influence the value of ANT. (Though the inverse is not true, an increase in price of ANT won’t necessarily increase the price of ARA).

This mechanism allows ARA to have its own market cap separate from ANT which can be important consideration when designing and bootstrapping a proof-of-stake or work-token economy.

An alternative approach which @burrrata is advocating for is to simply use ANT for staking (and everything else). For simplicity, this might look like we have a peg between ANT and ARA. ARA and ANT would be economically equivalent but ARA would exist on Aragon Chain and would be used for staking and ANT would exist on ethereum mainnet. Since it is a 1-1 peg, the two assets would essentially act as one single asset without a separate market cap.

From an ANT holder perspective this may seem more desirable, as the increase in demand for staking would have a 1-1 impact on the price of ANT, rather than some fractional ratio.

However, this decision has trade-offs that are relevant to protocol design/engineering, for example most Cosmos proof of stake chains rely on a participation rate targeting mechanism where inflation is dynamically adjusted to ensure some percentage of the supply of is actively being staked, eg 67%. Having a high percentage of the supply staked is considered a security/safety advantage because it impacts how quickly the active validator set can change. When there are less than 67% percent of the supply staked, the inflation rate increases eventually getting as high as 20%, when over 67% is staked inflation rate adjusts down.

If we don’t create a derivative asset, but we want to adopt a similar policy for Aragon Chain validators we would be inflating ANT directly and subjecting all ANT holders (many of whom have no interest in staking) to that mechanism. Adopting aggressive incentivization mechanism may result in more effective and efficient protocols, but without a derivative token it impacts all ANT holders, not just those who have opted in to provide that service. Each additional protocol that is based on the token directly may have a similar impact, and now just to hold ANT you have to be aware of the dynamics of all of these systems or risk being negatively impacted by their incentivization mechanisms.

Additionally, some service protocols (like Aragon Chain and the Court) also have security assumptions which are partially based on the value loss to stakers (not slashing) based on the market losing confidence in the service. Without a derivative token, these incentives are not tunable parameters.

I agree, and that is why I advocate for isolating the incentives of protocols using derivative tokens rather than try and lump them all together.

Users shouldn’t need to understand every service protocol in order to safely hold/speculate on ANT and participate in Aragon Network Governance. They also shouldn’t even need to hold ANT in order to be a user of these services or Aragon in general.

Someone who wants to be a validator shouldn’t need to understand the economics of the court in order to participate as a validator–but if we lump everything together into a single token they would!

Tokens and Token Economics are important for investors and participants in each service protocol to understand, but users and even your average ANT holder shouldn’t need to understand them much at all.

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#10

can you please expand on this one? Specifically the “security assumptions” of Aragon Court?

#11

There are two ways that a juror loses value, if they make an “incoherent” ruling they can be slashed, or if the outcome of the ruling is unexpected or not preferred by the market, users will be less likely to use the court in the future. They may unsubscribe and opt to use an alternative form of dispute resolution… they may even stop using Aragon all together.

A loss in confidence in the court will result in less fees generated in the future, and a corresponding decrease in value of ANJ (because ANJ is valued based on future value of fees generated by the court).

In the case where ANJ is just ANT directly, and ANT is valued not just on the value of future court fees, but also the value of validating on the Aragon Chain and any number of other future utilities… the magnitude of that impact is diluted.

#12

I don’t get this. if you have on the one side ARA marketcap and on the other side ANT value and the ANT value rises then ARA gets automatically created and if ANT falls in value ARA gets automatically burned? ARA tokens get inflated to pay validators? and you need ARA for staking and the 100 validators with the most ARA staked will be validating the Aragon chain? so if the ARA supply gets inflated then each ARA tokens is worth less and less. To prevent this more ANT has to be staked? For what do you need ARA tokens? Would it be possible to buy ARA for ETH outside of the bonding curve? if this is possible then there would be two prices one bonding curve price and one free floating exchange rate and then you need market makers. so if the price of ARA goes up on the exchange then it would be profitabel to buy ANT to stake and get ARA to exchange for ETH.

What is a participation rate targeting mechanism? So there would be an Inflation of ARA tokens? Why is there an inflation? What does actively staked mean?

Why can you change validators set more quickliy if 67% of ARA is staked? How does the active stake and the speed of changing the validator set correlate?

AGP-106 Discussion: Aragon One <> ChainSafe <> Cosmos AMA
#13

Good! Then this thread is relevant. One of the biggest problems is that Aragon is too complex for people to understand. Even people who work on Aragon every day don’t get it. As @joeycharlesworth said, we shouldn’t need a rocket manual to figure it out. Aragon only works if people engage, but to engage in a productive manner people need to first understand what’s going on.

Also definitely agree that figuring out the token mechanics of ANT and the Arachain are non-trivial. I’m not saying it’s easy. I’m saying that first we need to ensure that all parties on the network can engage in governance. Then we need to make sure that using ANT is easy, both for Aragon services and governance. How to do that, as we can see, is an open design challenge.

If you can replace a token with another token and it doesn’t change the dynamics of a system you don’t need a special token. If ANT is just a gateway token to other utility tokens, then what’s the value of ANT? At this point it seems like it would just inflate the bags of early adopters. People will just fork the protocols and replace ANT with ETH or whatever else. Considering that Aragon is pro-fork, this seems sub-optimal from a community engagement perspective. If we want people to stick around we should make sure that the tokens they use have direct value.

From an end-user standpoint you won’t need to understand the entire Aragon network to use ANT for whatever it is you want to use it for. In fact, the easier it is to use ANT for everything Aragon related the more people in the Aragon universe are going to explore other goods and services within that universe. It’s a platform with network effects.

From an investor standpoint, investors analyze deals. It’s what they do. Investors are going to be equipped to understand how ANT works. Even retail investors don’t need to understand all of Aragon. For exampe: Ethereum. Does everyone who buys Ethereum understand everything about everything that uses ETH? No! Do people still buy ETH? Yes!

Overall, however, these are just details compared to the larger mission of Aragon: governance. ANT is used in Aragon Network Votes. People need to be able to vote. Users. Service providers. Investors. Everyone. All ANT holders need to be able to vote in Aragon Network Votes. This is outlined in the Aragon Manifesto. It’s why we’re all here. If users and service providers on the network don’t have voting rights that breaks the promise of AGP-0.

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#14

as i understand each Aragon will have lots of services in the future similar to Amazon with AWS. you can buy AWS shares or buy Amazon shares. Therefore each token represents the Maketcap of each service in Aragon and ANT is like Amazon share. I think you can build such a nice UI that you just see USD and nothing else. you can build UIs so people think they pay with USD. The only interesting thing is perhaps for active Investors (validators, stakers, jurors etc.) but those people have to understand the system to participate and they know this complicated stuff or they have the time to figure it out.

#15

This feels like an entirely different topic then whether or not it makes sense to use ANT or a derivative token for something like the Aragon Chain.

I think both are interesting conversations to have, but its really difficult if the two issues are being conflated together.

What I’m suggesting here is that service protocols (staking tokens, work tokens) do need their own tokens, but it is perfectly reasonable for the Aragon Network to fund the development, maintenance, and improvement of these protocols and connect these novel tokens to ANT.

For things that don’t need their own tokens, by all means just use ANT directly… Though it seems much more likely given the environment that those efforts will be forked away and replaced with something like ETH or DAI, because at the moment those tokens are more widely distributed, more liquid, etc.

#16

You can’t use ANT locked in a bonding curves for Aragon Network Votes.

As mentioned before, decentralized governance matters. I’m not alone in saying this. The Aragon Manifesto states:

  • “We must strive to create systems in which a large number of diverse stakeholders have a say, in order for common goods to be responsibly governed by their communities.”
  • “Decentralized organizations change our relationship with governance : from something that is imposed upon us by others, into something we choose to opt into. Where we are equally serving and served, rather than just serving.”

This implies that users, service providers, and investors - those that serve and are served - are not separate, but overlapping groups that all share in Aragon network governance. This is not possible if some participant’s tokens are locked in a bonding curve, and as a result, they don’t have voting rights. Using ANT derivative tokens forces ANT holders to choose between engaging in Aragon governance or providing services to the Aragon network. This effectively makes some service providers second class citizens without voting rights.

Historically, when a single group controls a network they will extract value from the users and service providers on that network. This can be seen on every major technology platform today.

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Yes, but only if interests are aligned. If Aragon funded protocols don’t give participants voting rights, they are kind of like a colony within the kingdom of Aragon. They will eventually revolt.

They can revolt because Aragon is pro-fork. Aragon funded protocols/services using ANT derivative tokens effectively function as independent protocols decoupled from ANT (as is the case with derivatives). These protocols would function on their own with their own dynamics, so why would they need ANT? Aragon services would just remove the intermediary like the United States removed England. The Aragon Manifesto supports this: "Sovereign individuals will be able to freely express themselves and transact with each other without any kind of intermediary exercising their unjustified power and oppressing them.”

Creating ANT derivative tokens makes ANT an intermediary, and in the process of doing so, takes away the governance rights of those being intermediated. To be more precise, those being intermediated would be the very service providers who are actually driving value to ANT. This is not right. This is also in opposition to the vision outlined in AGP-0. @luis since you’re listed as the author of AGP-0, how do you feel about this?

#17

If the underlying issue is “how do we ensure that service providers are adequately represented in Aragon Network governance” that issue can be looked at in many different ways–some of which may be compatible with the bonding curve design.

Off the top of my head, It might be reasonable to have decisions which impact a specific service protocol require approval from service providers and ANT holders. It might also be reasonable to have service providers vote with ANT held in the bonding curve as a block, rather than individually. There may be other viable alternatives as well, perhaps the voting app could be modified to enable an addresses voting weight to be split, such that the votes of derivative tokens holders could be proportionally passed through.

By conflating the issue of service provider representation with the issue of using a derivative token, there are a number of possible solutions to representation that are completely overlooked.

#18

This is a very interesting conversation! I have been thinking about some of these issues for a while now, specifically what appears to be @burrrata’s main point.



I am of the strong opinion that all ANT holders and by extension, ANT derivative holders should retain governance rights in the network as a whole

ANT holders deploy their resources (funds and developers) to build and maintain these protocols. Furthermore, the main utility of ANT from the beginning has been governance. For sure, that utility doesn’t appear to be valuable to a large number of token holders at the moment. However, ANV voting is the raison d’etre of ANT. if holders have to choose between staking and voting in the case of Arachain, or adjudicating and voting in the case of the court, this main utility will be further weakened. Another point to be cognizant about is what is “Valuable” to the user is only important to the system in so far as it is a leaver mechinism designers use to strenthen the protocol and network effects.


Clearly, but that is not the correct question we should be asking out selves when designing the system. A better question would be

“dose making holders choose between being a service provider and ANV voter align incentives or weaken them?”

Unless you work for a Flock team or are a massive ANT whale, you currently have very little incentive to participate in governance. IMO this is unhealthy for the network and a separate topic in its self but it relates to this because separating the token into derivatives in this way further weakens ANT utility when it should be strengthening it.



This is something we should be especially mindful of before rushing down any path. We in the cryptospace take for granted how complicated even the most basic interactions are for the average user. All that being said, I do think it makes total sense to separate the tokens wile having a strong link through bonding curves.

Staking and adjudicating are expert fields in themselves. individuals should not be staking without understanding what proof of stake is. They should understand things like slashing conditions and other technical issues. Understanding you have to use ANT to buy ARA is not massive friction conceptually.

Similarly with ANJ. Jurors already need to understand the protocol. In both cases we are talking about service providers, not users, we most defiantly need to consistently lower the cognitive cost of becoming a service provider, but they will always be specialist fields in any case



For me, this is a very strong argument. understanding the incentive mechanisms and finer details of individual protocols are non-trivial in themselves. Combining them exponentially increases this complexity in non-intuitive ways.



This is a little naive IMO, very few investors will be equipped with frameworks to analyse these dynamics. That’s not to say they will not invest, they are equipped to take risks, but clearly it makes the entire system more difficult to reason about.



I think it is of utmost importance. For me it goes to the heart of the project, when making technical or strategic decisions, we should be thinking about how this affects the decision-making capabilities of the network as a whole. “Will this make decision making more decentralised?”

But while I think it is of the super important, I don’t think it is urgent. to answer Luke’s question directly, no it would not be worth it. The effect on the number of unique voters will be marginal at first whereas the service protocols should have a massive impact.

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#19

Agreed! This is 80% of the reason why I feel like ANT derivative tokens, in their current design, are a net negative for Aragon.

The value of governance is linked to the value of what is being governed. Initially this seems to imply that the community and market does not value Aragon. Looking more closely, however, we see there are some problems with Aragon governance and ANT.

  • First, Aragon governance is signaled by ANT, but the AA board has many opportunities to enforce their will throughout the governance process. This is good as we are still in the early days, but it also diminishes the value of ANT governance.
  • Second, while ANT is widely distributed, a few key members of the Aragon community are known to A) have large ANT holdings and B) vote regularly. This, again, diminishes the appeal of ANT as a governance token because at the end of the day we all know that a few people can pick the outcomes they want.

These are temporary blockers. As Aragon further decentralizes these problems will fade and ANT utility and value will rise.

Agreed. The goal of Aragon is to further decentralize governance to give all stakeholders representation in decisions that affect the platform. This minimizes platform risk and allows teams to confidently invest in building and contributing to the platform.

Thank you for summarizing this core component of the conversation so clearly :slight_smile:

Agreed. The friction is when you then want to vote or use other Aragon services and you have to choose between unlocking your ARA or doing other things.

Governance, aka decision making, is the heart of Aragon. It’s the core feature of ANT. The principles outlined in AGP-0 express this very clearly. If these principles don’t guide decision making then they’re not principles, they’re just cheap marketing. Aragon is trying to change the world. Often bold ambitious projects start strong, but then compromise, bit by bit, inch by inch, saying along the way that the ends justify the means. Let’s not be one of those projects. While ANT derivative tokens would have a minimal effect on voters today, this is mainly because there are no service providers, AGP UX is confusing, and everyone knows that a few people can sway the votes anyways. If we just accept things as they are and give up, then I guess that’s that. If we’re serious about fighting for freedom and creating systems that fairly represent the interests of all parties involved, then we need to make Aragon governance reflect that. All Aragon token holders need to have voting rights.

#20

I don’t feel particularly bad if there are strong cryptoeconomic arguments in favor of derivative tokens not having voting power. But if there are not, I’d definitely push for derivative tokens to have some proportional voting power over the Network. I think sub-communities like ARA validators shouldn’t rule Aragon, but at the same time they should have some governance power. Similar to a federated state.

So maybe if ARA represents X% of the Aragon economy, if you hold ARA you have the same voting power ANT*X% would give you. How does that sound?

I’d also love for @jorge to chime in as well.

#21

Assuming it isn’t a crypto economic argument, why would ARA or ANJ holders not have the same governance rights as ANT? ARA and ANJ holders are ANT holders.

The strongest argument I have heard for having these derivatives and not simply using ANT are crypto economic.

Communities of the sub protocols are still members of the larger Aragon community. ANT and governance rights in the wider project ties incentives together.

Furthermore, without giving governance rights to these sub communities will lead to lower quorum and further centralisation of participating voting weight.

We need to ask ourselves what exactly are we optimising for?

1 Like
#22

One reason is simply that it add cost and complexity to these systems. If (outside of vocal pariticipants in this thread) there isn’t strong demand from service providers to add that feature is it worth adding to the cost and complexity of an already complex system?

Another is based on the idea of separation of powers, if a particular service (say the Aragon Court) ends up locking up a bunch of ANT, jurors become a highly influential group both in ANV, but also in the dispute resolution process around ANVs. In the case of Validators on Aragon Chain this is probably less of a concern, but its not unreasonable to think of each stakeholder group as wielding its own influence as the “supply” side of a service, and creating a separation there may result in better governance outcomes.

There is also the semantic distinction, as a holder of a derivative token you are not an ANT holder, you may have never held ANT because you acquired the derivative token directly on an external market. When you hold a derivative token, its not necessarily the case you expect to retain all the same rights as the underlying asset. I wouldn’t expect to support granting voting rights to someone who adds ANT to a uniswap pool, even though this is a derivative of ANT. Nor would I expect to be able to lend an asset while also staking it.

All that is to say that I think the situation of whether or not derivative token holders should or should not have the same voting rights as ANT holders, at the very least nuanced.

I’m not really advocating for any particular option here, other than that I think the question of if/how service providers are represented should not be conflated with whether or not it makes sense to use a derivative token for a service protocol. I think using a derivative token for service protocols is critical to ensure that we do not have a spaghetti mess of incentives that have poorly understood failure patterns.

Some possible options for representing Service Providers in AGPs to consider:

Option 1: No representation in AGPs, But service providers are represented in decisions related to the protocol they are participating in.

This provides the lease representation to service providers, but addresses concerns about ANT holders treating service providers unfairly. Changes to service protocol parameters would require approval of both service providers and ANT holders. But service providers would not be considered ANT holders by proxy.

Option 2: Service providers vote as a block in AGP processes

This would provide representation of service providers in the AGP process by allowing them to either vote on how the ANT held in the bonding curve should be used to vote, or elect a representative to vote on their behalf.

This is actually already implemented in Aragon Fundraising, as it was an important to ensure that organizations have a way to vote with the ANT held as collateral in their reserves, so this would be relatively simple to implement.

This approach could be combined with the above in the sense that changes to the specific protocol could still require approval from both service providers as well as ANT holders.

Option 3: Proportional Pass-through voting

This would require the voting app used for AGPs to be updated to allow splitting voting weight between yes, no, or abstain. And would require some connection to be built to aggregate preferences for service providers and then send a vote on behalf of the bonding curve that is split proportional based on the service provider vote.

This may seem a bit convoluted, but its worth noting that even without derivative tokens a similarly convoluted process would would be required to mirror a vote on Aragon Chain so validator could vote and the pass the outcome of the vote to the agent (bonding curve reserve) on Ethereum mainnet.

#23

I agree. This is a very good point.

There isn’t strong demand from current ANT holders to exercise voting rights, participating addresses barely reaches double digits per AGP!

naturally ANT holders would want to use ANT for protocols its funds are used to develop and maintain. If we are using derivatives to remove the “spaghetti mess of incentives” why should they also loose governance rights?

Forsure there are tradeoffs, I don’t think it is an urgent issue but it is important. I do think in principle voting rights should be protected even if they are not being exercised right now.

Also the comparison with Uniswap is not apt IMO. Uniswap was not built or maintained with ANT holders funds, so it’s derivatives should not be supported.

Wrt the options

2 Is a non-starter because it opens up the AGP process to attack especially if quorum is low. All an attacker needs to do is Lockup a relatively small amount of ANT to leverage the ANT already locked up in the curve

That leaves no rights or complicated refactoring. Again not saying it needs to be done straight away but to answer your question

“is it worth adding to the cost and complexity of an already complex system?”

Yes, unless we are cool with 1 address deciding the outcome of AGPs in perpetuity I would say it is

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#24

Another option here: service providers who want to also participate in Aragon governance acquire some ANT to stake for derivative tokens, and some ANT to vote on Aragon governance matters. For example they can exchange some portion of their profits from working in AN service protocols into ANT, or they can build an ANT-for-governance investment into their startup costs for becoming an AN service provider.