By Marco Huberts & Javier Gonzalez

Abstract

Most governance tokens today have an issuance schedule and behavior modeled on monetary policies. This opens up governance tokens to a variety of vulnerability vectors, as the governance rights and economic incentives are tightly coupled, even if they might be at odds with each other, i..e. vote buying. We propose decoupling the governance token with the utility token, one of which will have a preference on creating a better voting signal for the community, and one which will have a preference for maintaining unit price stability.

Proposal Summary:

We propose to develop the loose specifications in this document into a whitepaper which will specify a two token model that will be deployed on the Ethereum network: $sbVALOR & $VALOR.

• $sbVALOR is a Soulbound Fungible Token (SBFT). A highly inflationary and strictly governance-focused token. It does not have a unit price, it cannot be transferred to other addresses and can only be swapped for $VALOR. It can only be earned by making valuable contributions to Valorize DAO.
• $VALOR is a utility token which is a tradable ERC20 token with a unit price that counteracts the market dynamics of $VALOR. Besides Ether, $VALOR can also be burned for discounts and exchanged for services within the Valorize ecosystem.
• The dynamic of the Valorize DAO Two-Token Model will have contributors receiving $sbVALOR, and use it for governance. Contributors will then have the possibility to make an irreversible trade of $sbVALOR to $VALOR. This token can be held in a wallet, it can be transferred to other wallets or it can be exchanged for stable coins or $ETH.

Pros:

1. This model separates governance and monetary policies
2. Choice for contributors to receive governance power ($sbVALOR) or to invest in the underlying asset they are contributing to ($VALOR).
3. $VALOR allows for utility in the ecosystem (e.g. can be burned to receive a discount on Valorize products/services).

Cons:

1. Steep increase (+100% yearly) in $sbVALOR supply might be perceived as not attractive to receive governance tokens. This is a short-term investment-focused vision.
2. Complicated process / dynamics. Complicated to explain and complicated in execution.

Overview

Governance tokens often follow monetary policies, focusing on the stability of the price rather than prioritizing the accurate representation of the value that a contributor has given to a community at a certain point in time. The thesis of this proposal is that separating the monetary policy from tokens harboring governance functionality will allow for better governance incentives.

Here, we propose a two-token model that attempts to separate the governance policy and the monetary policy from each other. This model consists of a highly inflationary governance-focused soulbound token ($sbVALOR) and a regular fungible token ($VALOR). The governance token will be highly inflationary with the goal of making its voting weight represent the half life of the contributions of those that earned it. This will be a Soulbound token, meaning it will be a non-transferable reputation tracking system.

Overview and Dynamics of Proposed Two-Token Model