Constructing ANT to enable low volatility

monetary-policy
ant

#1

Expanding on a discussion that occurred in Aragon’s chat channel, I wanted to bring up the question of ANT becoming a low volatile token that has many similarities to a stable-coin.

The team’s perspective seems to be that a low volatile token price leads to greater adoption, as users likely won’t want to be exposed to volatility when posting collateral. However, why not adopt a stable-coin such as DAI?

If adopted, the team can focus more on building out ANT functionality and thinking through the token mechanics of ANT rather than designing a system that dampens volatility.

A non-volatile token mutes the upside of early token holders. I understand that through structured inflation, jurors and other participants of the network can earn more ANT, but this functionality won’t be introduced for a much longer period. Additionally, speculators who do not participate in the protocol serve a purpose and perhaps shouldn’t be shunned.

More importantly, though, what are the implications of “double-spending” ANT as collateral and as influence? I’ll leave it to the experts to answer that one but I’d imagine there could be some unforeseen attack vectors on the network by enabling such functionality.


#2

I see ANT as part of an ownership in a DAO that has multiple uses and makes you a direct participant (and co-owner in some ways) of this DAO. It’s in the best interest of every DAO co-owner to protect the value of the token, which is why low volatility makes sense.

Going into the current way of doing things, would you buy a stock of a company that has ±50% swings within the same week? In the stock market world, this would be absolute madness.

Adopting a stable-coin could certainly be an option for people that want to use the Aragon network but don’t care about the governance aspect of it. Stable-coin or not, I see ANT as a must have token and the main method of transacting within the network.

Regarding the “double spending”, I don’t think it would really something to worry about. It makes sense that the most you invest on something, be it time, money or skills, the more you expect to get out of it and be able to influence the direction it takes in order to protect your interests. That being said, there could certainly be some “traffic of influences” under this scheme, which is why decentralized projects like Aragon are so interesting and need to constantly experiment to get the right recipe :slight_smile:


#3

Regarding the question of
" Would you buy a stock of a company that has ±50% swings within the same week?"

It’s irrelevant to compare ANT to stock in a company. If you want to do that, ANT should be a security :wink:

Having said that, if you really want to think of it that way, owning ANT is then like owning an extremely early stage startup (that just so happens to be publicly trade-able). Early stage startups have massive swings. For instance, a contract in the early days of a startup can dramatically change the trajectory of the company. If this was trade-able, the value of that company would likely swing a tremendous amount.

In fact, given the relative risk every ANT owner is taking, you should WANT 50% swings in price. Otherwise, if you are owning a stable-like token, there is not much difference to simply owning DAI, the S&P 500, bonds, etc. That doesn’t mean you can’t participate in Aragon network, but there is simply no reason to hold Aragon today.

Regarding “double-spending” I do think it is potentially an issue. Let’s presume a massive whale owns 40% of the Aragon network. This whale sets up a contract where he uses her tokens as collateral. When it comes time to rule on that contract, she can presumably use that same collateral to influence the arbitration.


#4

First, just wanted to add that I really appreciate you opening up this conversation, as I think thinking about how ANT accrues value relative to the aragon ecosystem is critical to ensure that the project becomes a self-sustaining economic engine. While I feel strongly that optimizing ANT for use as collateral is strongly aligned with both the long term growth of the network and value accrual to early adopters, if there are better approaches or alternatives its best to identify and adopt them through open discourse.

A non-volatile token mutes the upside of early token holders.

This is true, but it is important to recognize the the goal is absolutely not to create a stablecoin or non-volatile token. The goal is to make a useful currency that is uniquely well suited to the Aragon ecosystem such that as the Aragon Ecosystem as a whole grows so will demand for its native currency.

The purpose of the reserves is to minimize downside, if the network experiences sustained growth it does not mute the upside for early token holders. When the network experiences sustained growth, ANT can split to maintain a stable unit of account. This keeps price stable, but moves the upside to unit count instead of unit price. An early token holder would not see price increase, but they would see their number of tokens increase and thus experience the value appreciation of the network.

However, why not adopt a stable-coin such as DAI?

I think it makes sense to allow users to decide which currency they want to use as collateral. This means we don’t need to choose to adopt DAI or ETH, users will be able to lock up whatever they want in in agreements, potentially even NFT’s like crypto-kitties. However, the intention is to design ANT such that it is uniquely well suited to this particular purpose and thus is naturally adopted by users.

I think you are directionally right that most people will want to use a stable coin, and may even have a preference for existing stable coins like DAI that have proven to be stable over a longer period of time. The issue with using DAI to collateralize agreements is the opportunity cost of locking up capital for long periods with no upside potential. The ideal asset for use as collateral would not be stable, but experience low-risk growth over time. That growth can either be in terms of unit count or unit price, and in the case of collateral its much much better for that grow to occur in unit count rather than in unit price, because agreements need to be denominated in unit count rather than in unit price.

More importantly, though, what are the implications of “double-spending” ANT as collateral and as influence?

I don’t really follow the concern here. Allowing users to get additional utility from an asset while it is locked up as collateral is a win-win. It reduces the friction of economic interactions.


#5

I don’t think it makes sense to design to accommodate swing trading. We should be focused on creating real, substantial long term value.


#6

“ANT can split to maintain a stable unit of account.”

Why is this a goal? Tokens are extremely divisible. So adding more tokens to dilute the price is taking an extra, unnecessary step, when it would, in my opinion, be easier to just use fewer tokens for collateral.

For instance, if 100 ANT = 1USD in January and in February, 50 ANT = 1 USD, then in your scenario the protocol might mint new tokens whereas in reality, people can simply use a fraction of the ANT to get to their desired rate.

As far as double-spending is concerned, are there any examples of other protocols who allow you to use your locked-stake for other purposes? I’m not aware of any and I think it is for good reason.


#7

If Alice and Bob enter into a collateralized agreement in January, and the agreements terms require Alice to deposit 100ANT in collateral and at the time ANT has a unit price of 1USD, but by February the price of ANT has doubled to 2USD, Alice now has twice as much value locked in the agreement. This is not ideal for Alice who may wish to utilize that value elsewhere but it is locked for the duration of the agreement. The opposite problem exists as well, what if the price falls by half, now Alice has less collateral which could be a problem for Bob since Alice now has less collateral locked in the agreement than when they initially made their commitment to each other.

So, by using the reserves to minimize downside volatility we reduce the risk of agreements becoming under collateralized, and by splitting the currency if there is sustained growth, we can ensure that as price appreciates agreements do not end up overcollateralized.

Generally the reason for this has to do with slashing conditions, most stake based protocols require you to lock collateral and in the event that you misbehave the collateral can be slashed. Thus if you were able to participate in two protocols that implemented two types of slashing conditions you have a bit of a dilemma, since if you are slashed in on protocol, you then no longer have a disincentive to not misbehave in the other. From the protocols perspective this is dangerous and ads complexity.

In our case these issues are less of a concern, for two reasons.

The most straightforward reason is that so long as participation in governance doesn’t have slashing conditions, there is not any significant risk for the counterparty that the collateral will not be there in the event of a dispute.

The second, and more nuanced point may be slightly unrelated to the issue but seems relevant to discuss: each agreement can define a minimum and maximum liability, if it is important that collateral always be available when a dispute occurs then the minimum liability should equal maximum liability. This is essentially like saying collateral for this agreement is in a 1-1 escrow for the duration of the agreement and can’t be used to resolve unrelated disputes. In some cases that may not be desirable because it is less capital efficient, if there is some degree of informal trust or reputation between parties they may be willing to accept collateral that is shared across multiple agreements (this would sort of be like a traditional agreement where you don’t put up collateral explicitely, but you know that the person has good credit and has assets that could be taken like a house in the event of a dispute, but if someone else has a dispute first they might not have that house at some point in the future). Regardless, the point is that the ability to use collateral for multiple purposes is done at the agreement level based on the minimum/maximum liability parameters–so if you are uncomfortable with shared collateral you can personally decide to only engage in agreements where minimum liability = maximum liability.


Collateralized DAO Proxy Services as an Aragon Network use case
#8

I’m just getting into the details of the project so it might take me a little while to grasp the token economics. While I get acquainted with those details I’d like to ask whether a dual token has been considered and if so, why it hasn’t been selected.

The way I see this working is similar to the way the SPANK token works along with its BOOTY. SPANK token represents the stake in the project and is staked to generate the BOOTY necessary to use the platform. The difference I would see for Aragon, would be that instead of soft-pegging to USD, we could have whatever stabilisation mechanism you see fit.

Thanks!


#9

Hey @GustavMarwin!

I think taking the two token approach could work (similar to SPANK/BOOTY). In this case ANT would be locked up to generate a stable token (Let’s call that token an Eaglet), If price of eaglets drops bellow a target price ANT holders would be required to burn eaglets or have a portion of their locked ANT liquidated in order to buy and burn eaglets to maintain the price. If the price of eaglets rises above a target then new eaglets could be minted to those who have deposited ANT.

If someone wanted to hold ANT, participate in governance, and collateralize an agreement they could deposit ANT to generate eaglets, and use the eaglets as collateral in their agreement.

I think the main advantage of using a single token model that provides unit price stability (while still capturing value accrual through splitting) is that a user doesn’t need to understand the mechanism that makes it work or to actively participate in maintaining the peg… They just need to understand that the asset has a historic rate of return and that when they use the asset as collateral those returns do not end up also locked in the agreement. This is possible because the effective governance of the network and productive use of its capital assets is what ultimately results in stable growth, the pegging/splitting mechanism is simply a means to provide better UX for collateralizing agreements.


#10

I tend to think that using an Eaglet token as a stable currency might be better, although I realise there are pros and cons to both options. You have highlighted the pros of using ANT both as a currency and as the Aragon governance token, so here are some pros for separating the two roles:

  1. Vitalik sees this stable currency model as full of potential, but with some risks:

https://blog.ethereum.org/2014/11/11/search-stable-cryptocurrency/
Note: we are not planning on adding price stabilization to ether; our philosophy has always been to keep ether simple to minimize black-swan risks. Results of this research will likely go into either subcurrencies or independent blockchains

  1. Looking at the discussion around the Aragon Community Token (ACT), it would seem reasonable to have different tokens for different roles. I could imagine the ANT token as the “Master key”, one that is void of complexities as it has such a high responsibility of governing the project.

I realise the complexity of this aspect and I don’t pretend to know better here, only sharing the results of my readings on the subject so far.


#11

Really appreciate you joining the discussion! While I have strong opinions, I’m not an authority on this and the more discussion and perspectives that are offered to the community the better! Ultimately it will be a decision made by ANT holders on what is the best approach–It may even be decided that having a community specific currency is not valuable at all, but it will be the healthy discussions and debates that happen here on the forum (and elsewhere) that inform that decision… Just putting this out there for you and whoever else may be reading–do not hesitate to post even if you don’t feel like an expert on the topic.

While I’m very much in favor of having different tokens to represent different roles, I think there is a lot of value in marrying the “currency” and “governance” specifically. I wrote a blog post a while back that goes into greater detail on why – https://medium.com/aragondec/community-aggregation-theory-973a283c7226

The crux is if you treat “governance” as a service provided by a pure “work” token there is a misalignment between consumers and suppliers in much the same way you often see misalignment between interests of consumers and traditional companies. This is even more problematic than other work token models because the service rendered is “singular” in nature (there is only one output, but the work per participant is mostly fixed), therefore the more participants the more expensive/inefficient it is to reach the outcome and its reasonable to expect that over time this would result in a highly centralized structure.

If instead you create an asset that is intended to be broadly used within a community and grant that asset governance rights you not only reduce the opportunity cost of participating in governance (which if you look at governance as a service, also reduces its overall cost) but also help ensure that the interests of governance are more closely aligned with the broader interests of a community of users.

In the case of Aragon and ANT, I think the community/users especially initially are DAOs and people who value maintaining a self-sovereign pseudonymous interactions and by imbuing ANT with properties that reduce the frictions of those interactions is a strategy for ensuring that governance remains broadly distributed among a set of relevant stakeholders.