Single vs multi-token: Tradeoffs and paths forward

Disclaimer: Delphi Ventures holds $ANJ tokens. While we have endeavoured to analyse the situation as unbiasedly as possible with the goal of achieving the best long-term outcome for Aragon, it is possible our opinions are affected by our financial interest in $ANJ

Over the past few weeks, we’ve spent a significant amount of time reading discussions on the forum and Discord, talking to various $ANT/$ANJ stakeholders as well as with the Aragon One and Aragon Association teams. After much deliberation, we wanted to put together this post in order to update the community on our latest thoughts regarding single vs multi token, the tradeoffs involved and what we believe each solution should look like.

Tradeoffs

Distilled to their simplest form, we believe the tradeoffs for single vs multi-token are the following:

Pros for Single Token

  • Incentive Alignment: A single token means all members of the Aragon community are aligned in increasing the value of ANT. Rather than wasting time arguing about value capture, human resource & capital allocation, Aragon can focus on building an amazing Court product, onboarding DAOs to it and generally growing the network. To me, this is the strongest argument for a single token.
  • Simplicity & Efficiency: Single token is simpler to understand and thus easier for people to engage with. A single token also unlocks operational efficiencies in terms of exchange listing fees, market-making costs, etc. To me, these arguments aren’t as strong since: a) operational efficiencies aren’t as significant in the long-term b) there are far more complex token models than this (e.g. NXM) and we believe this will only increase as the space develops.

Pros for Multi Token

  • Independence: Separate tokens means a more independent court which is critical for its long-term legitimacy and success. Aragon is a separate project with separate products and incentives, court independence is important if ANJ is to become the standard in dispute resolution for the entire space. While Aragon would still own a significant percentage of the tokens, to me it’s clear that a separate token for the court leads to greater independence compared to a single token. To me this is the strongest argument for a single token.
  • Capital Efficiency: Multi token will make growing a community easier and cheaper as each dollar of incentives spent on $ANJ will have a far greater impact on the market cap and on the returns for jurors compared to a dollar spent on $ANT. It will also allow for greater capital efficiency in that investors will be able to isolate their exposure based on their risk-reward profiles. To me, this argument isn’t as strong given Aragon is already well-funded and it’s also likely to be able to cheaply recruit enough jurors from the existing $ANT base, especially as most $ANT is currently earning 0 yield.

Path forward

Given this, we see the primary tradeoff as being one of independence vs incentive alignment. This is a very difficult decision and rather than weigh in with our opinion, we would like to instead illustrate what we believe each solution should look like to maximise its effectiveness.

Multi-token

If the community opts for the multi-token model, it’s important to design this correctly in order to mitigate the problems of misaligned incentives and ensure these discussions don’t resurface later on. Mainly, given the Court will be the team’s primary focus in the medium term, Aragon DAO must have a significant ownership stake in the Court. In addition, we believe the Aragon team’s incentives (both team members employed by Aragon Association and by Aragon One) should be restructured such that each team member is able to choose to convert some percentage of their $ANT token options to $ANJ. This is crucial to ensure the Aragon community, Aragon One and the Aragon Association are all fully invested and aligned with the Court and $ANJ’s success.

Single token

On the other hand, if the community elects to go for the single token model, we believe it’s crucial to structure this such that the existing $ANJ community isn’t left feeling alienated or hard done by. After all, it’s clear that the Court is Aragon’s best chance of generating fee revenue in the medium term and is well positioned to begin doing so given the launch of optimistic voting. Many $ANJ holders made a bet on the Court with the expectation that it would some day reach this point, and it doesn’t seem fair to cap their upside just as the thesis is beginning to play out. Having spoken to many of the large funds and investors backing $ANJ, most are displeased with the proposed conversion, including both the way it has been handled and the suggested price. At least a few of these $ANJ holders are also significant $ANT holders and we believe a mishandling of the conversion process may lead to a splintering of the Aragon community as well as potential selling pressure on $ANT.

As such, if the community determines single token is the best path forward, we strongly recommend rethinking the proposed conversion process. In our view, given the timing of the conversion coincides with the time at which the Court is poised to begin gaining traction (as well as shifting to become Aragon’s primary focus over the medium term), the premium should be significantly higher in order to appropriately reward $ANJ holders for the upside they’re giving up. We won’t suggest specific numbers here as we feel this requires broader community discussion and consensus, but rather a few ideas on how this could be thought about:

  • Two prices: At a high-level, we believe the premium should scale with the amount of time $ANJ holders are willing to lock-up their converted $ANT for, signalling their long-term commitment to the Court. In its simplest form, two prices could be offered with different lock-up schedules. The higher premium should impose a longer lock-up on the converted $ANT, with $ANJ holders effectively committing to being jurors in the Court for a certain amount of time post-conversion. This way, $ANJ holders who believe in the Court’s long-term vision are rewarded, ensuring $ANT holders are paying a premium for a dedicated supply-side and community. The lower prices could involve either a short lock-up or no lock-up at all in order to give unhappy $ANJ holders the chance to exit.
  • Dilution: While from the perspective of $ANJ it makes sense to think of the buy-out in terms of the premium paid for their tokens, for $ANT holders this could also be thought of as the dilution required in $ANT to acquire the Court. Thinking of it in these terms, we believe ~5-10% dilution is not unreasonable given the value of what’s being acquired and the benefits of a strong, united community. By our calculations, even 5.5% dilution in $ANT would result in a conversion price of 0.03ANT or 100% premium for $ANJ holders.

To conclude, we believe both multi and single token solutions can work. If the former ends up being selected, it’s important to carefully design incentives to make sure we don’t have these issues again in future. If the latter, it’s important to adequately compensate $ANJ holders for the upside they’re giving up in order to avoid splintering the community. Regardless of what decision is made, we look forward to putting this behind us over the next few weeks such that we can collectively begin to focus on what really matters: building and growing the Court.

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Thank you Jose,

Very thought provoking.

We are all still waiting for the for the release of all the “internal context” that Jorge mentioned within the town hall meeting a week ago. Jack said we should be furnished with the information very soon.

Until we have seen this, it is very hard to work out which of the two models you proposed would work best. Intuitively I am still leaning towards a two token model to ensure independence. However I am prepared to be swayed, and i think you idea of time locking to secure a higher buy out price is inspired.

Until Aragon release the “internal context” which have driven their design choice around system governance, it is exceedingly difficult to decide - we are still being starved of information.

Furthermore, the sense i am getting from the discord - and i hope i am wrong here - is that the Aragon team still think it is OK for ANT holders to vote on the destiny of ANJ holders. Lets see how that plays out, but IMO the process needs to be such if we continue to explore a token merger:

  1. ANT holders to decide the offer terms of an “ANJ buy out” - to be voted on by ANT holders only.
  2. If there is general consensus between ANT holders that the offer is fair, this is to be put forward to ANJ holder - to be voted on by ANJ holders only.
  3. Merger vote - ANJ votes to be weighted so they have same voting power of ANT.

So, Aragon - please release the information, so it can be compared to Jose’s thoughts above, and the community has all of the information necessary (i.e. the pros and cons of 2 vs 1 token architecture) to make an informed decision. Then we can start having a proper debate as to which is the appropriate choice to make for ANJ. Until then, we remain “in the dark and waving our hands around”.

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