T3 Token Proposal

Intro

The first decentralized, on chain protocol hard merge between NuCypher and Keep Network will form KEaNU, a new network governed by a DAO and inheriting the best aspects of the founding original networks.

This is a joint proposal prepared by @nahuus123 @evandro_saturnino and @Estebank, with advise and consultation of @corollari, for the creation of T token to act as the governance and work token in KEaNU.

We’ve used bits and pieces of the proposals prepared by State and Ben, and have attempted to bring additional thoughts and options to the table. Logically, amongst ourselves there were different ideas and opinions on details as well, so in some cases compromises were made. All details are up for broader debate.

Summary

  • There are existing KEEP and NU owners. These are passive holders, stakers in nodes and LP’s.
  • For KEaNU a new T token is created to act as the governance and work token.
  • All owners of KEEP and NU can claim their allocation.
  • New investors can acquire additional T tokens in exchange for WBTC.
  • Furthermore, there are additional T tokens that will be earned through active participation, meaning staking in nodes, LP’s and the Coverage Pool.
  • Initially the allocation for earned T rewards is based on active participation with KEEP and NU.
  • Eventually the weight of KEEP and NU in this rewards scheme will go down, and the weight of active participation for T will increase.
  • Stakers who ‘opt out’ and want to keep their KEEP and NU can do so, in fact anybody will keep their founding token.

Goals

  • Simple design.
  • Considering all holders; rewarding active current and past participation.
  • Fixed Supply.
  • Bootstrap TBTC V2 launch.
  • Partially locked up Treasury, with refill, for future projects.

Total Supply

  • 500 Million T token
  • All minted at launch
  • Proposed Distribution :
  • 45% (225 Million) Drop to current KEEP and NU holders
  • 5% (25 Million) Drop to past stakers in both networks
  • 15% (75 Million) Treasury (Sale → TBTC)
  • 35% (175 Million) Treasury (T)

Drop

45% General T Drop :

  • This applies equally to all existing token holders.
  • Existing KEEP Holders are allocated half of the General T Drop.
  • Existing NU Holders are allocated half of the General T Drop.
  • All existing vesting schedules should be carried over.
  • Should be claimed in exchange for 0.001$ for each coin (taxing purpose) paid in ETH, which will kickstart Liquidity Pool with treasury T tokens.

5% Past Stakers T Drop:

  • All stakers running nodes in both networks (half for each network) are allocated an additional 5% of the total supply.
  • This additional allocation is for past and current stakers who have taken on the risks of running nodes and helped kickstart both founding networks, as proposed by Ben.
  • It will be calculated based on total time and capital staked.

Sale

15% Sale (TBTC Treasury) :

Purposes of the sale

  • Generate liquidity, high initial float, awareness+publicity and getting new investors in the project, as proposed by State.
  • Selling T tokens for WBTC, accumulate a compelling amount of WBTC and then turn them into TBTC V2.
  • TBTC V2 goes into Treasury, and will be used to bootstrap the launch of V2.

Sale Method

We did some research on Liquidity Bootstrapping Pool (LBP) as a method for the sale.
Balancer’s Liquidity Bootstrapping Pool (LBP) is a special type of Balancer pool that automatically adjusts the pool weights over time. This applies downward pressure to the price of the token and discourages bots & market speculation.

Since it’s not part of this proposal to decide on the sale method, we leave the link here to our research doc.

Treasury

Breakdown

The treasury will have the 50% of Total supply. Being 35% in T token and 15% in TBTC, proceeding from the sale.

Purposes

The treasury will be used for 3 main purposes:

  • 25% of total supply: for TBTC V2 Bootstrapping (aka Stakedrop)
  • 5% of total supply: for Grants, Bounties, Community services
  • 20% of total supply: locked up for Future projects, merges and bootstrappings. Gradual unlock over 5 yrs.

TBTC V2 Bootstrapping (aka Stakedrop)

Goal : Kickstart & develop an huge adoption of v2 towards a goal of 150k TBTC market share.

In order to achieve this goal incentives must be in place for :

  • Node Operators
  • Coverage Pool
  • Liquidity Providers
  • Minting Subsidy
  • Other Initiatives

1. Node Operators

  • 80% of the stakedrop
  • Staking through the contract developed by both teams
  • 18 mth stakedrop duration (incentives gradual declining)
  • Two staking stages:
  • First Staking Stage:
    • First 90 days
    • Equal KEEP/NU staking weight (meaning all NU staked receive 50% of the T rewards, same for all KEEP staked)
    • Opt in/out possible
    • T token should be staked and function as a boost (multiplier) for rewards.
  • Second Staking Stage:
    • Gradual wind down of KEEP and NU weighting over next weeks.
    • T token becomes only staking asset

Reasoning behind First and Second Staking Stages

We must respect original promises to stakers: everyone will have the chance to opt in / opt out.

But we believe that T token should be the only governance and work token for Keanu. So we established 2 well defined Staking Stages.

  • Founding tokens operate business as usual during first staking stage.
  • T token acts as a bonus, multiplying the share of stakedrop received.
  • Transition:
    • We think that after these first 90 days we will have a conclusive idea if all node operators are happy on KeaNu or how many stakers don’t want to be part of KeaNu.
    • Teams should decide if/how they continue with their networks/tokens as independent entities.
  • Nevertheless in this proposal T becomes the only work token active in the protocol during second staking stage. KEEP and NU, the founding tokens, will have less and less staking weight over a few weeks.

2. Coverage Pool :

  • 8% of the stakedrop
  • Max Cap: 0.5% of TBTC market share (as laid out in TBTCV2 Blog Post).
  • Goal: Good apr vs some capital loss risk
  • 18mth (gradual declining)

3. Liquidity Providers

  • 7% of the stakedrop
  • T/ETH + TBTC/ETH initial pools (Saddle, mStable, could be added later)
  • 6 mth minimum

4. Minting subsidy

  • To stimulate and increase the number of Bitcoin bridging over we propose that minting should be subsidized initially
  • 2.5% of the stakedrop

5. Other initiatives

  • 2.5% of the stakedrop
  • e.g. Creation of Community Front Ends could be induced.

TBTC V2 System Economics

Eventually fees from minting/redeeming TBTC V2 will be the only revenue for the whole system until more services run successfully on top of KeaNu.
Achieving the 150k TBTC market share goal will mean a considerable revenue stream.

These gained fees could be exchanged to T tokens at market price increasing value and buy pressure to T. We think that some of that revenue should flow to stakers operating nodes, some to the Coverage Pool and some to the Ttreasury as a refill.

Adding capital in the treasury allows resources to be available for more projects and serves as a safeguard of value. DAO could even decide on a token burn for value flow to holders.

Our proposed V2 Fee distribution :

  • 82% for Stakers running Nodes
  • 8% for Coverage Pool
  • 10% for Treasury

Phases

Timing and planning these phases is critical to being successful. It should be fleshed out with the teams and their schedules. As expressed by State this should occur having V2 ready to launch.

We imagine the following phase scheme :

  1. Merkle Whitelist for Drop. T tokens in a contract. Planning for DAO & Representative Democracy formation.
  2. Holders should exchange their assigned T against $0.001 payable in ETH. Tokens locked until phase 4 to avoid weird market issues.
  3. T sale event. 15% of the Supply. Accepted currency is WBTC. Later changed to TBTC. Will be part of the treasury.
  4. V2 Launch. Launch of staking contracts, Launch of incentives: Stakedrop/LP/Coverage Pool/Minting incentives.
  5. First Staking Stage:
  • First 90 days
  • 50/50 K/N staking weight (meaning all NU staked become 50% of the T rewards, same for all KEEP staked)
  • Opt in/out possible
  • T token staked function as a boost (multiplier) for rewards
  1. Second Staking Stage:
  • Gradual wind down of KEEP and NU weighting over a few weeks.
  • T token becomes only stakeable asset

Future Projects

Projects bootstrapping for which funds may be needed and treasury allocation could be used in the future :

  • Proxy Re Encryption
  • Threshold Signature
  • Random Beacon Relaunch
  • Other threshold cryptography and privacy preserving services
  • Future partnerships & Merges
7 Likes

Great work @nahuus123 @evandro_saturnino @Estebank and @corollari

Keep has ~1B tokens and a fully diluted market cap of $513M
NuCypher has 536M tokens staked and 408M circulating tokens which gives a market cap of $448M

Combined the holdings of both networks current holders is around $1B

If 15% of $T3 tokens are sold by the treasury that would imply the treasury sale would need to raise around $225M (4500 of WBTC) to preserve the existing holders token value.

Does this seem like a reasonable target for a raise?

What’s the thinking of doing this as a one off allocation rather than inflation?

I really like the two staking stages and longer stakedrop approach.

3 Likes

Great job on this proposal @nahuus123 @evandro_saturnino @Estebank and @corollari, thanks!

My main concern is similar to @benlongstaff on the amount needed to be raised for the Treasury based on current MarketCap. I feel that is a very aggressive target and a likely outcome is to get a lower amount of WBTC in, meaning overall a lower Market Cap for the T token as a result. Following Ben’s reasoning, raising ~$225M may be possible but would require a lot of things to go very well, including a raging bull market to help out…

One edit: Current Marketcap on floating tokens are

KEEP $216M
NU $167M

Total $232M

This is the Marketcap that would be a reference, not the Full Diluted Value MarketCap (i.e. the $1Billion referenced above)

2 Likes

Thank you @benlongstaff for your prompt reading and answers !

As a matter of fact we based our math on Market Cap values, not FDV. Just as @ramaruro (thanks for your reply as well) writes in his answer below. If this sounds to aggressive for a sale we could think of lower that in favor of a higher drop.

How much WBTC could be raised ?
We are curious to hear other opinions here.

Regarding inflation yes or no :
Inflation is a great and flexible tool for future incentives.
But it raised the concern around uncertainty about not having a specific max supply
and value dilution that could potentially mean.
Having this model where you can lock up treasury, releasing it gradually and have a way to replenish it with part of the fees seems correct with respect to preserving/increasing value in the protocol and not diluting it.

1 Like

What will happen with existing networks of $KEEP and $NU. Is KEaNU / $T in addition to the existing networks and remain separate working tokens or will both $NU and $KEEP be fading out and no longer be a worker token (no developments) due to KEaNU (after winding down in second staging phase). This to me is not clear.

2 Likes

In this proposal KEEP and NU will remain to exist, but their staking weight would decrease and go to 0 in the KEaNU network in favor of T.

On the current existing networks KEEP and NU would remain the staking asset. We also don’t have all details what will happen to these after the merge, and if there would be any future developments, so from a valuation perspective hard to predict. In general I think this is not set in stone yet

2 Likes

Great job @nahuus123 @Estebank @evandro_saturnino @corollari for coming up with the proposal !!
I like the proposal.

Just a comment - Public sale of $T3 should be at a much lower price than the current market price. So not sure calculating the sale amount raised based on current price is an accurate metric.
Or is the price intended to be current price ?

1 Like

https://status.nucypher.network/ shows 536,447,758 staked tokens, coinbase shows the circulating supply as 641M NU.

Keeps market cap is $232M as not all tokens are circulating but the fully diluted market cap is $551M, however all these locked tokens have owners

I think a token raise could be difficult to do in a way that is fair to existing holders, raises a large amount of BTC and gets a lot of hype.

Projects that have been massively oversubscribed on coinlist tend to only sell a small amount of tokens. They get oversubscribed as the price is low and the lottery winners get to buy the tokens and flip them for 10x - 100x gains. I don’t think this contributes to the long term success of the project.

My view is that the strength of both teams is around building deep tech and shipping code and that doing the marketing for a raise in a relatively short timeframe would distract effort from shipping v2. Curious to hear what @maclane and @mhluongo think.

Ethereum doesn’t seem to have had an issue with fixed inflation

Allowing new investors to buy at a lower price to existing investors doesn’t seem fair to me unless the tokens had a long lockup period and an onchain requirement to have staked all of the tokens before being able to sell them.

3 Likes

I think it’s a fair point, and that’s also a debate we had. The reason and intention to keep a sale in was to generate additional funds & attention to help bootstrapping of tBTC and future projects, and with that increase existing holders value as well.

Also on the coverage pool side it would give a T token price decoupled treasury, that would scale with BTC price increases regardless of the T price.

So our reasoning was: it’s bringing something to the project to help it grow, similar to liquidity incentives, stakedrop and others.

But interested in other opinions as well.

I like the potential addition that you made to make it with a staking requirement & lock-up

Drop vs Exchange of T Tokens

I don’t think a Drop of T tokens to existing KEEP / NU holders is the best way. I think an exchange is a better way.

Why? Because KEEP for sure should eventually be worthless or almost as it could only be used in TBTC v1, which would eventually be an abandoned network.

By dropping, early/fast traders could offload their KEEP tokens right after the snapshot and get out before the prices crashes; so if you fast on your feet, you win, if you buy those tokens for whatever reason, you lose big time.

By exchanging you avoid that situation.

3 Likes

Reason we stayed away of a swap is two-fold, our thinking was

  • existing holders of KEEP and NU can be locked, so they can’t swap at this stage → swap process would need to remain open for a long time. A swap would have to also take into account a dynamic swap ratio to offset for future NU inflation because of this.
  • the requirement of existing networks Keep and Nu to remain to exist

Although a swap would lead to the simplest / easiest understandable model, we could not think of a way to match it with above 2 topics

2 Likes

The challenge with a swap is that it may create a capital gains tax obligation in some jurisdictions for token holders.

I agree that this is a concern. Having a staking contract to accrue staking weight over time (maybe a couple of months?) in the new network may prevent this. The KEEP and NU token prices should decrease more gradually as the amount of value left to be extracted from accruing stake weight decreases.

Killer proposal @Estebank et al. Thoughtful and comprehensive.

I’m trying to keep my feedback on these proposals light, and make sure there’s room for everyone to get their thoughts down. Responding to a couple points here.

Clever. We haven’t publicly discussed how rewards should be earned in the new network, but normalizing all rewards to the T token rather than splitting them between multiple tokens is a good move. This does imply that we need to make sure T/tBTC is a liquid pair and routes well, and/or leave the liquidation periodically up to governance.

The tBTC v2 design requires that governance be able to balance the staker vs coverage pool rewards periodically. I don’t think these numbers are too far off, but calling out that it’s part of the security model.

  • 10% for Treasury

I’m leery of returning funds to the treasury right at launch, though I think including the lever to do so is the right move. Our network is a middleman between stakers and users, and we want to be light on charging any “rents” until we have significant fees coming in.

There are pros and cons to a sale. Having WBTC in the treasury is a powerful tool to bootstrap v2, and it could be used to earn yield and otherwise participate in the market in the meantime. Bringing in new blood and growing the number of potential stakers are both worthwhile.

But a real caveat…

I agree with @benlongstaff here. A small DAO-led sale is fine by me, but neither dev team has the appetite to widely promote AFAIK. Modifications to this where less is sold, or it’s sold with a staking requirement + lockup, or it’s only sold to existing holders, or the DAO partners with a distribution group like Coinlist… all of those are interesting, but outside the team’s capacity to manage.

I still think it can happen, it would just need to be community run.

A small capped “optional” inflation certainly hasn’t been a problem for Uniswap (3% a year max, only on a DAO vote).

Some additional thoughts about value

With KEaNU we all are trying to accomplish something huge here. Running TBTCV2 and later Proxy Re Encryption, Random Beacon, Threshold Signature and other threshold cryptography services on a joint decentralized network of 2200 nodes is tremendous.

What both teams are capable of and how they execute is well proved.
This hard merged protocol would really mean the whole being much greater than the sum of the parts.
From all angles: development, community, services, projects and last but not least value. And it would mean huge value.

Every aspect of our proposal is thought of to preserve, and build up this value. But it’s a long run. And not meant to satisfy short term speculators.

So what price will have T initially is something very difficult to deduce from actual FDV or Market Caps.

With T we are creating a new token, without actually burning/swapping any of the founding tokens.
What this actually implies is that value is created and not diluted, and that everyone will have their NU+KEEP tokens and on top of that will receive T tokens.

@ramaruro’s post describes some of the concerns I have around proposals that replace/deprecate the existing tokens without a swap.

It risks creating a significant group of people who, out of ignorance, acquire NU or KEEP post-drop and end up losing big. I’m not sure if the best way to solve this is via an exchange, by allowing NU and KEEP to be staked in KEaNU in perpetuity, or some other mechanism.

This is true of everyone who holds NU or KEEP prior to/as of the drop, but not anyone that acquires the tokens afterwards during the rush to the exits. I think this risks creating a significant population of disillusioned/upset token holders, which would be distracting at the very least.

6 Likes

Thanks for this proposal @Estebank et al. Please find below some constructive questions.

1/ In the timeline you have suggested, when do you think we should have the snapshot/drop after submitting the final proposal on the 10t of May?

2/ As stated in the previous discussions, prices for each project token will certainly dump after the snapshot. It also seems that the current 3 proposals would do the same instead of swapping for tax reasons. Since there is a locking period for stakers if they unstake, does it not mean that stakers have a disadvantage here by not being able to sell immediately ? Maybe the rational is that stakers should not sell their tokens to stake both in KEEP/NU + T tokens to have more rewards in tBTCv2?

3/ Why allocate 5% of the T token to stakers instead of e.g. 40% in the first proposal?

Cheers!

1 Like

To point 3. This 5% is an additional reward for existing stakers.

In proposal #1 (the way I read it) it’s not 40% going to existing stakers. It’s 40% going to whomever stake in the new contract. The staking in this case is used as distribution method for the new token.

In the proposal it states

" How users can stake in the staking contract, on the KEEP side:
The following KEEP holders should be able to stake in the staking contract, with all KEEP having equal weight:
-KEEP stakers
-KEEP grantees, vested or not
-KEEP-ETH LPs
-KEEP holders
"

1 Like

After reading the entire thread, I still don’t understand what will happen to the existing keep tokens, if I keep them in the liquidity pool KEEP Token Dashboard, what should I do? Will there be a 1: 1 exchange or is it better to stay away from the project now? I am a large holder, I support liquidity, I like the idea and project, but why is there no clear specifics of what to do for existing token holders?

Thank you for sharing your concerns @Black_Man

All existing token holders will be able to acquire the new T token based on their existing holding.

The exact mechanics are still being discussed across the three proposals and will be discussed on a community call on Friday April 30th at 12pm EST (dial in details will be shared on discord just before the call)

We want to make sure that the process is fair and doesn’t create a large tax obligation for existing holders.

I believe it’s more likely that existing holders will be able to claim the new tokens for a small amount (I am proposing $0.0001 per token to establish a cost basis for the new tokens).

A 1 to 1 exchange could be a taxable event in some jurisdictions.

1 Like

Thank you for your reading and questions.

In regards timeline it probably will be discussed in the community call friday since it involves careful planning with both teams.