Note: The ideas presented in this article are my own and does not necessarily represent the future of HubCityDAO. Take these ideas just as a thought experiment of what’s possible.
A few weeks ago we released to the public the white paper for HubCityDAO along with a Juicebox project and a governance token called HUB. In a nutshell, HubCityDAO is a decentralized autonomous organization (DAO) whose main goal is to support the Togolese project HubCity that has been fostering the emergence of smart cities in Africa for more than 10 years. HubCity promotes a bottom-up approach that focuses on empowering local communities through technology and knowledge.
One of my realizations from participating in this project was that governance might not be a strong enough incentive for people to buy HUB tokens and fund HubCity’s projects. I took a step back and analyzed different mechanisms to provide value for a new token like HUB and wrote an article titled “5 Ways to Influence the Value of your ERC20 Token”. My main thesis is that there are 5 main characteristics that affect the valuation of a token: utility, liquidity, inflation, network effect and distribution. Armed with this new knowledge I now wonder, what could we do differently to make the HUB token more attractive to the community?
When designing HubCityDAO one of the main priorities was to create a cost effective solution that implied little to no custom coding and instead focused on the integration of readily available services like Juicebox, Gnosis Safe, Snapshot, Discourse, etc. Why? Because we don’t have funding, we are an international group of volunteers with a vision of how to use crypto for good. But what if funding was not a problem? What could we do in that case? In this article I’m going to dare to dream big and propose a vision of what HubCityDAO version 2 could be.
NFT Unlocking
To provide additional utility to the HUB token while at the same time increasing liquidity on DEXes for the pair HUB/ETH, LP (Liquidity Provider) staking could be introduced. By staking LP tokens a reward in HUB tokens is accrued over time proportional to how much liquidity the user has provided to a DEX. The kicker is that the staker can’t claim those rewards, those rewards can only be used to purchase NFTs created by Togolese artists who will receive those HUB rewards as a payment for their digital art.
This system will strengthen the value of the HUB token, allow for wealth to trickle down to the Togolese economy and enable the local community to have a voice in HubCityDAO. The downside is that staking creates inflation for the HUB token but this inflation, at least in theory, is countered by an increase in utility for the HUB token and an increase in its network effect by putting HUB in the hands of more people (artists).
You might be wondering, why not just create an NFT marketplace that only accepts payments in HUB? Although this would be a much easier system to implement and understand, it doesn’t promote the creation of liquidity pools which is crucial for the price discovery of a new token. Another thing to consider is that even though HUB will have a max supply, that max supply is not available from the beginning, it will only be reached over time via staking rewards. Bitcoin for example, has a max supply of 21 million coins but when it started its supply was minimal and it only grew over time due to block rewards (inflation). A regular NFT marketplace wouldn’t have staking rewards and thus the HUB token could only ever be sold at a fixed price.
RestitutionDAO
HubCityDAO is not the only web3 project that has been brewing with the Togolese community. RestitutionDAO is a project whose goal is the restitution of the myriad of cultural artifacts stolen from Togo during European colonization and that are now in control of museums across Europe. The main idea is to create digital representations of each one of those cultural artifacts as NFTs in an effort to not only raise funds for the restitution of the physical item but to shed light about its cultural value for Togolese society.
HubCityDAO and RestitutionDAO could join forces by listing those NFTs for sale on their platform and automatically splitting the profits between the artist who created the digital representation and a multisig wallet controlled by a council of Togolese priests who could use that money to advance the cause of cultural restitution. Of course, another added benefit is that now the Togolese priests will also have a voice and vote on HubCityDAO.
L2 Deployment
We decided to deploy HubCityDAO directly on Ethereum and not on a layer 2 like Arbitrum or Optimism mainly because Juicebox is not available on either one of them and this dapp was at the heart of the crowdfunding effort for the DAO. With additional resources we could develop and deploy our own Juicebox-like smart contract on Arbitrum with a simpler UI. This would allow us to set the initial price of HUB instead of the hardcoded value of 1 million tokens per ETH defined on Juicebox and to take advantage of much lower transaction fees that would encourage participation.
Direct selling of HUB tokens will only be available until a set goal in ETH is reached. After that the smart contract will stop receiving contributions and new HUB can only be minted by staking LP tokens on the NFT marketplace described above.
Challenges
This is a much more ambitious system that could be hard to understand and to onboard new users. The added complexity would affect development costs as we would need to develop our own dapps for the initial sale of HUB, LP staking and NFT marketplace. Complexity also opens the door for security vulnerabilities in the smart contract design that needs to be mitigated by security audits that are costly and could take a long time to complete.
Staking rewards is another area where careful planning would be needed as inflation could have a detrimental effect on the token price if running too hot and because the rewards need to decrease over time to not overshoot the planned max supply of the token.
Newly created liquidity pools can be easy targets for MEV (sandwich attacks) as they are easily manipulated by bots in detriment of people performing swaps. This could be mitigated by either using a DEX like Mist or by training users to configure their MetaMask wallets to use a Flashbot protected RPC node.
Finally, migration from HubCityDAO v1 on Ethereum to v2 on Arbitrum has its own challenges as bridges and wrappers might need to be used.
Conclusion
DAOs are very powerful organizations native to the blockchain. HubCityDAO could evolve in many different ways in an effort to have a more profound impact not only in Togo but other African nations as well. At the heart of this effort lies a custom dapp that’s a hybrid between a staking protocol and an NFT marketplace where digital representations of looted cultural artifacts from West Africa are traded in support of the restitution of the physical item.
Ethereum layer 2’s open the door for cheap transaction fees while keeping the security guarantees of Ethereum itself. HubCityDAO might benefit by migrating to Arbitrum, an optimistic layer 2 solution, and by creating its own dapps on top of it.
The challenge as always, is to have the resources to build what one can only imagine.