The main objective of a DAO is to grow the associated ecosystem and encourage participation, which in turn can bring new users, clients, and value into the network. The most valuable element to encourage participation in anything, whether it be society, school, business, or a DAO is to align the mission and goals to appropriate incentives. But equally important is to set the appropriate penalties to discourage complacency and bad actors preying upon the network. If a proper balance in this duality is achieved, healthy long term growth is “almost” a certainty.
In societal structures like schools, you are incentivized to obtain good grades which can lead to great opportunities in your future. If you fail to achieve these good grades you could be penalized in your future endeavors when attempting to secure work and opportunities. Let’s take business as another example. As an employee of a new startup in Silicon Valley, you are presented with some vesting shares in the company. You commit to certain terms in order to unlock certain business equity rights over time. You will forfeit not only the shares but your job as well if you refuse to fulfill your part of the deal. If we look at this example you can understand that a Silicon Valley startup wants to find the best talent to drive their success but also understand that they will need to incentivize these team members properly to encourage dedication and hard work. These principles of survival ring true within all biological ecosystems from human-constructed societies down to bacterial colonies and everything in between. Therefore, careful alignment and design of incentives and penalties of a system will greatly determine both its success and survival.
So now let’s dive in!
The initial core incentives for Guardians are platform fees. There are 2 parts of the TEN fee distribution model that will be defined in this chapter. The first part defines the percentage of fees that are collected from the network, the second defines how and when those fees are distributed to the Guardians in Phase 0 of the DAO. In phase 0, those who stake and participate as the first members of the Effect DAO will be rewarded with the past success of The Effect Network from day one, when the platform went live. Transitioning from Phase 0 to Phase 1 we add a model alongside platform fees that will greatly increase incentives and should revolutionize the concept of DAOs, token incentive models, and how projects build their decentralized networks. But for this chapter, we will only be defining Phase 0 fee distribution.
TEN Fee Structure
Effect.AI is a team of passionate technologists who have been entrusted to build The Effect Network as described in the Whitepaper. There are several elements of the network that have been built and many to come over the next decade and beyond. At the core of the network is the TEN Protocol. This protocol was imagined to be advanced technology that anyone could build upon and in fact, it is and has been built the point where it’s possible for anyone to build task requests, products, or incorporate their services on the initial platform called Effect Force. Gaining builders for these new protocols have historically been a challenge. So we at Effect.AI do what we do best and build, showcasing some services you or anyone else can build with the TEN protocol. One example is Rosette, an automated engine for multilingual subtitles for YouTube and another is Effect Translate, an automated engine for document translation in 12 languages and counting. We are just scratching the surface of what can be achieved on TEN! But our team has made a commitment that any product or service we build on TEN will have a 10% fee attached that goes directly to the DAO. Any other builders who use TEN will have a fee based on DAO votes and that percentage can be adjusted with each Phase by the voting. But the 10% fees from Effect.AI products and services will always be part of the fee structure. Along with that 10% will be, as previously mentioned, a new token incentive fee model that has never been seen before and it will be fully announced on December 19, 2020 and incorporated into Phase 1 of the DAO in January 2021. It’s not the only announcement on December 19, wink wink… Stay tuned!
On June 27, 2018, our first platform Effect Force, went live. We launched with 4000 registered workers from 95 different countries. We had a few paying requestors with image labeling tasks upon release and within the first 48 hours of the very first task being completed there were more than 250,000 tasks performed on-chain. Payments for all work rendered was instant and in the form of EFX. Fast-forward 2 years, and we have seen over 4.8 million tasks on the NEO Blockchain with an additional 3.5 million tasks completed on our current blockchain, EOS. This equates to over 2,200,000 EFX collected in fees and will partially be distributed in Phase 0 if needed. I say “if needed” because of how Phase 0 will work. For Phase 0 of the Effect DAO all Guardians will earn a guaranteed return of 6%-12% APY. This is possible in Phase 0 by incorporating past fees of the network to subsidize rewards IF necessary. It is easy to forecast that amount under active participation in the DAO, and also that it can be sustained throughout Phase 0. After this, we will move to a new fee distribution system.
Note: Any leftover fees from Phase 0 will be distributed to Genesis Guardians in Phase 1. I will explain how to become a Genesis Guardian in Chapter #8: Effect DAO Roadmap.
The Incentives for Phase 0
The percentage of returns will be based on your DAO level. Level 1 is 6%, level 2 is 9% and levels 3 and above will be 12%. The DAO level requirements are detailed in Laurens’ Staking Protocol 2.0. With the minimum requirements of how to become a Guardian not yet officially announced, I will let you in on a little advanced information… As previously stated, 100k EFX (0 Stake AGE) + 10K NFX is the minimum staking requirement for level 1. You will need to meet that requirement, as well as participate in voting to receive your rewards. It’s that simple;)
An official overview of requirements to reach each level will be published very soon by our man Laurens.
The Penalties for Phase 0
The only penalty for Phase 0 is the loss of your rewards if you do not participate in voting. You will still gain Stake AGE and you will not lose any of your stake due to non-participation in voting.
The “stakes” will increase as the DAO and TEN grow. In each Phase of the DAO, the incentives and penalties are up to the Guardians and High Guard to decide and vote on.
We have designed Phase 0 in the simplest way on purpose, as there are a few secret initiatives that the Effect.AI team will be releasing alongside the DAO in the coming weeks. One of these initiatives is for those of you who do not yet have the minimum requirements to become a Guardian… Maybe I can share this with you all at BlockDown on October 22 & 23. As I am the host of the show I can do and say what I want ;)
Read the previous blogs in the series:
Chapter #7: Meet the Members of the High Guard Coming soon
Chapter #8: Effect DAO Roadmap Coming soon