I’m happy to see the discussion over the last few days, and happy to see the vote to move forward with Aragon One’s proposal to unify ANT and ANJ into a single token withdrawn so that the community can discuss and debate the merits of that proposal as well as alternative paths which have been brought forward.
I’d like to make the case for why I think token unification is the best path forward for both ANT and ANJ holders. For some context, I was a major supporter of creating the separation in the first place for two reasons:
Separation of powers and isolated incentives - In order to establish rights for minority and or otherwise unrepresented stakeholders (like users) or encode core values (like setting aside a portion of revenue for charity) its essential to be able to raise objections when these rights or values are discarded by those that hold a majority of governance power.
Work token aggregation - As I’ve written before (1)(2), a well designed crypto-economic system is unlikely to capture significant rent because capturing excessive rent is actually inefficient, and decentralized protocols can be forked at minimal cost (relative to the upfront investment in design, implementation, and market validation).
The current design accomplishes both by using a bonding curve to connect ANT to ANJ, ensuring that some fraction of the success of the connected token is realized as demand for ANT, while enabling the token to float on the market such that market incentives would drive participants in the court to value the long term reputation of the court as a reliable arbiter, while creating a check and balance between the two groups where on-chain votes can be blocked by the court, but the court cannot execute on-chain actions.
While this model results in only a fraction of the increase in demand for ANJ as a result of the court reflecting in demand to lock up ANT in the bonding curve, it also serves as a template for realizing value from investing in the creation of tokenized protocols without depending on extracting rent. By using the bonding curve model, we exchange extractive fees, for a baseline level of liquidity between connected tokens. While both can be potentially forked out, additional liquidity is (imo) less extractive and benefits and aligns communities more effectively than fees.
So what’s changed…
1. Optimistic Snapshot
With optimistic snapshot voting, we can move voting off-chain and support a much more flexible way to design voting mechanisms, while only needing to submit two transactions to execute the results of an off-chain vote. This works by using the Court as an arbitrator for an optimistic game, where anyone can submit the results of a vote on-chain, and the result will be accepted unless it is challenged and the challenge is resolved in the favor of the challenger.
This is by far the best way to do voting if you need to have execution happen on Ethereum and have a large number of stakeholders that need to participate. We want to adopt this process for the Aragon Network, but if we do we break the separation of powers assumption that is so important in governance. As a result we have been reconsidering some aspects of the Aragon Network and Aragon Court’s design in order to make the most compelling system and create the most value for all of Aragon’s stakeholders.
I believe strongly in the value of Aragon Court, it has been the foundational pillar of the Aragon Network and is essential for DAOs and I believe it should be the Aragon Community’s singular focus for the foreseeable future. Rather than have the Aragon Network function as an investment fund, which is probably not a good fit for a large, open, and highly transparent community governance process… while also fracturing the communities attention and considerable resources between many disparate initiatives. It seems more practical to focus all of the communities energy into a single direction.
By creating this clarity, and reflecting it in our economic model, we can reduce confusion by simplifying what people need to understand about Aragon, while also making it easier to integrate and collaborate with other communities and networks by ensuring the role and incentives around ANT are simple and well understood.
3. Better solution
As mentioned above, the potential transition to off-chain voting using snapshot has been top of mind for us at Aragon One and has driven us to reconsider some of our past design choices and explore alternative constructions of the Court to establish separation and isolation of incentives while also addressing other important challenges we have encountered while working on the Court so far.
Rather than create this necessary separation by creating a separate token, we can deploy multiple instances of the court tied to single token (ANT) and use a reputation and/or credential component to modulate how much stake individuals can have in a specific court instance. A court instance may be focused on different languages (english, spanish, chinese, etc), or dispute specialization (snapshot, legal certification, solidity etc). While snapshot is likely the highest priority use case in the short term, allowing for people to opt-in to specific categories of disputes in this way is something that many Jurors have asked for, and this provides a way to do it while making it easier for economic stakeholders to activate in controversial cases as they get escalated to a final appeal round. Eventually using a futarchy decision market so that final appeal round does not require participants to have credentials or reputation in the specific court instance.
Hopefully these points help make the case for why token unification is the right path forward for Aragon as a whole. However, I think it’s also important to address the concerns that have been raised by ANJ holders since the proposal was shared on Monday.
I think there are two primary points of concern I have observed:
- This proposal violates the rights of ANJ holders by not explicitly including them in a decision which clearly impacts them.
- This proposal doesn’t offer adequate compensation for ANJ holders.
To the first point, the relationship between ANT (which has governance authority over the court and by extension of ANJ), has always been both explicit and clear. That said, the goal of ANT holders as governors of the Aragon Network is to navigate a complex decision surface to serve the Aragon Community as a whole and represent the interests of all of its stakeholders, including participants and stakeholders in Aragon Court specifically. So while I don’t think the proposal should be seen as a violation of the rights or expectations of ANJ holders, I am happy to see that the vote has been withdrawn so that as a community we can discuss and address the concerns that have been raised by community members before moving forward.
As for the second point, the strike price for the merger and fact that the proposal was announced without prior discussion was done in an effort to ensure that both ANJ and ANT could be merged as equal stakeholders in the network, while minimizing the possibility of trading as a result of the proposal inferring advantage to any specific parties.
Some have suggested that it would be appropriate for ANJ holders to be offered a takeover premium, and while I have less overall conviction on the specifics of something like that, I think the analogy of a hostile takeover is not particularly apt, here’s why:
ANT and ANJ are deeply linked, because the Aragon Network as a whole is responsible for governance as well as development, support, and promotion of Aragon Court. As a result ANJ is not currently a self-sufficient standalone asset, but a component of the Aragon Network, if ANJ were to be valued independently of the Aragon Network and ANT I expect that its fair value would be much lower than it is today, especially if ANJ was left alone while the Aragon Network proceeded to focus on the vision described above using ANT as the staking and fee token. I would hate to see that happen, and think it makes much more sense to fold ANJ back into ANT as the proposal suggests, but it’s important to think about in the context of any sort of call for a buyout or redemption premium. Taking all that into consideration, if we assume markets are a reasonable estimator of value, using the relative market valuation feels like a fair and objective way to resolve the merger.