T6 Token Proposal

This is a joint proposal from @ViktorBunin and @benlongstaff prepared in collaboration with the NuCypher and Keep teams. This proposal attempts to take the best parts of T1, T2, T3, T4 and T5, with a focus on simplicity and fairness.

The biggest challenges this proposal attempts to address are:

  • Not leaving any token holders behind
  • Minimizing the risk of “zombie” NU or KEEP tokens
  • De-risking Keanu

In this proposal all token holders are treated equally.

This proposal does not attempt to prescribe how the Keanu DAO makes use of its resources.

The Keanu community can undertake any governance efforts needed post-launch to support TBTC v2. More specifically, future proposals should address coverage pool incentives, minting subsidies, liquidity providers, and any other TBTC v2 factors that are not explicitly connected to the merge.

Token Distribution

The initial supply of the T6 token is 2B tokens.

  • 45% available to existing NU token holders
  • 45% available to existing KEEP token holders
  • 10% allocated to the Keanu DAO

Making Distribution Fair

In order to make the distribution equitable towards all token holders equally, we must extend the time under which they can enter the network under the same terms as everyone else. However, to do that, we need to have fixed supplies of both NU and KEEP tokens. As such, this proposal assumes that both DAOs have voted to suspend their native inflation prior to Keanu’s launch. This is an important point - NU and KEEP tokens will continue to live on and be tradeable on centralized and decentralized exchanges. If inflation were to continue on either network, we would not be able to have a mechanism under which that network’s token holders could join Keanu on an ongoing basis on the same terms as everyone else. Here we are limiting the ability for individual stakers to opt-out not only to benefit the many community members in both camps but to increase the likelihood of a successful hard merge and long-term community alignment.

In all scenarios we need NU and KEEP Token Factors. Because the allocated token supply of each network is different, we will need to take a snapshot once inflation has been suspended to determine conversion rates between NU and KEEP to T6 tokens. This allows us to maintain an equal split of Keanu tokens between each network’s stakeholders. See below for an example.

Reminder - the data above is for illustrative purposes only of how the Token Factor would work. These are not real numbers. The end result is that both sides would get the same share of the network!

Strategies under consideration for the 90% distribution

As of May 11th, 2021, a single strategy has not yet been selected.

Both of these (and other approaches) are under consideration by the NuCypher and Keep communities. Next steps being taken here include verifying there are no major legal or tax obstacles with the proposed structures prior to moving forward with community signals. Please feel free to provide feedback or suggest alternative ideas in this section, but don’t get too hung up on the details.

Additionally, all approaches assume that both the NuCypher and Keep teams will build “adaptors” that will allow all tokens on their networks to participate in WorkLock 2.0, including vested, unvested, staked, granted, etc.

Approach 1: Acquiring T6 with NU and KEEP

Pre Launch

Over a period of 90 days starting in July, any NU or KEEP token holder can lock their tokens for 4 years for the right to purchase T6 tokens (based on the Token Factors) at a price of $0.001. We are calling this WorkLock 2.0. This allows anyone to pre-commit to participate on the network, which increases the network’s likelihood of success.

When Keanu launches and all participants that locked their NU and KEEP to buy T6 tokens, receive their T6 tokens, the T6 tokens will be in a locked state for 3 months for WorkLock 2.0. During this time, the T6 tokens can only be used to stake. After these locked T6 tokens are staked for 3 months, they become unlocked, and can be unstaked and fully liquid. Our expectation is that similar to the NuCypher and Keep networks today, most participants will continue staking past the 3 month period.

The locked NU and KEEP tokens will become unlocked in 4 years, but our expectation is that by that point all eyes will be on Keanu.

Post Launch

After the 90 day period, NU and KEEP tokens will be exchangeable directly for T6 based on the Token Factors. This will not be a lock and buy interaction, but a simple swap through a liquidity pool that will hold any T6 tokens that have been allocated to KEEP/NU holders, but have not been purchased in the pre-launch period.

Approach 2: T6 CDP

A special lending protocol will be deployed that would enable NU or KEEP token holder to wrap their tokens as collateral and borrow T6 tokens against that collateral based on the Token Factors. This would go on indefinitely and enable NU and KEEP token holders to join the Keanu network without needing to buy or sell any assets.

Logistically, anyone holding NU or KEEP can wrap those assets in order to mint T6. They can also unwrap T6 in order to go back to the underlying asset. Minting and unminting can optionally include an origination fee or ongoing interest rate which can be used to capitalize a liquidity pool.

Since the underlying can be wrapped and unwrapped like in Maker DAO, creating a T6 CDP isn’t a taxable event. This approach retains the benefits of existing liquidity for both assets, provides a clearer price floor for T6, and significantly derisks Keanu.

WorkLock 2.0 would work identically to Approach 1, wherein any NU or KEEP tokenholder that is unable to use their tokens as collateral (because they are already staked, for example) may instead stake them to receive an appropriate T6 stake weight allocation. Whenever the NU or KEEP tokens become available for movement, they can be provided as collateral in this method.

Notes

Both approaches have the added advantage of keeping prices between NU, KEEP, and T6 within a tight range. If T6 tokens are worth more than NU or KEEP (when accounting for the Token Factors), users can sell T6 tokens for NU/KEEP, and swap/CDP those tokens to gain additional T6. But even better, this also means that NU/KEEP supply will be continuously removed from the open market, diminishing the possibility of “zombie” tokens.

We believe that the benefits Keanu brings will be enough to incentivize network participants to remain on the network, but if some choose to leave, this employs a bitcoin-style consensus model. For example - a single or small group of NU stakers could not restart NuCypher inflation on their own because they would not have enough voting power in the NuCypher DAO. They would need to build rough consensus and a critical mass of token holders in order to revert to the original NU inflation regime. We believe this barrier is healthy for everyone as it helps keep the community together, but if some choose to leave, passing this barrier greatly increases the odds that they will be successful long term. Anyone choosing to leave should need to build community consensus. It should not be easy for small, but loud, factions to split the community apart.

Inflation

The goal of an economic policy in a work token model is to encourage new entrants into Keanu’s staking ecosystem. This means having a higher rate of inflation early to incentivize early adopters, but it also means having a low continuous rate of inflation in perpetuity. A low perpetual rate of inflation is useful for several reasons.

First, it creates a more liquid market for T6 tokens. Work tokens, similar to taxi medallions, are not designed for liquidity. They are designed to be staked and to provide useful work. A low perpetual rate of inflation that can be consistently sold by stakers makes it easier for new stakers to enter the market without drastically moving the price.

Second, we want to continue to give more say in network operations to those who are actively supporting the network. A token holder that is not staking is not contributing useful work to the network, for which they should be slowly diluted.

Lastly, and most importantly, inflationary rewards are a great tool to incentivize and provide a sense of security to stakers. Total staker rewards are the sum of the inflationary rewards and fees earned by the node. We would like for these cumulative rewards to be sufficiently large to garner sufficient participation by stakers. As the rate of fees picks up and cumulative rewards increase, the staking rate should increase, which should lead to a lower rate of inflation. After all, why would we use inflation to supplement stakers when they already earn enough income from fees? Conversely, if fee revenue drops and stakers begin unstaking, inflationary rewards will increase for those remaining to supplement their income until usage fees rise back up.

We propose adopting an inflationary model similar to eth2. In it, the rate of inflationary rewards decreases slowly as the staking rate increases. However, as the staking rate increases, this actually results in the rate of reward from inflation experienced by validators to decline.

The exact curve is TBD, but based on other work token models, we suggest the following general relationship.

On an ongoing basis, 10% of all inflation will go directly into the DAO to be voted on by T6 token holders for the purposes of community funding, liquidity incentives, etc.

Timeline of Key Events

  • Selecting one of the approaches and passing this proposal (second half of May) by NU and KEEP token holders
  • NuCypher and Keep DAOs pass proposals to signal in favor of turning off inflation on their respective networks once Keanu inflation goes live (June)
  • Setting up the selected approach (July)
  • NuCypher and Keep both vote to turn off inflation (August)
  • Keanu launches (August)
  • TBTC v2 launch (October)
12 Likes

Thank you! This provides great clarity. Reading between the lines, it appears that all threshold/PRE services unrelated to tBTCv2 that the separate networks would have provided will now be provided by the new merged KEANU network? I also like the CDP option as it seems like it provides an exit strategy in the failure case of tBTCv2 similar to T5. Does that sound accurate?

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I agree with @shoegazer69, this is very well laid out and fairly clear to me. I’m not sure I have a preference between the 2 approaches right now, as I’m still trying to digest the tax implications. I do appreciate that (as I read it) transitioning wouldn’t have to be a taxable event, but the downside of no taxable event is that no cost basis would transfer over. My US tax assumptions (this is not advice, just conjecture):

  • Approach 1: The user has 2 options - they can transition over via the worklock, with no taxable event, but also no cost basis transition. In 4 years they can then liquidate the underlying NU / KEEP, likely for a loss (since the network would have transitioned over) they can deduct on their taxes. Alternatively, users can directly exchange and realize their gains (but also transfer their cost basis).
  • Approach 2: This sounds very similar, but this would effectively give 2 paths for transition, and leave these 2 options open to users indefinitely (one that likely isn’t a taxable event, but doesn’t transition the cost basis, one that is a taxable event, and transitions cost basis). Feels slightly more complex to explain, but potentially more flexible?

I love the control loop-esq inflation model that is similar to ETH2.

In general, I’m very supportive of this approach.

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Enjoyed worklock 1.0. Looking forward to worklock 2.0 :))
Very clear and detailed proposal, thanks for that

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I like this offer, but I’m worried about the frequent interaction with smart contracts that each participant will have to go through which wants to get Keanu at the expense of their Keep and Nu. At current gas prices, such deals could be more expensive than the asset value of small investors.

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I think - this is optimal proposal :clap: :grinning:

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It should be possible to just swap via uniswap if you are a smaller holder, and limit the fees you incur.

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Gorgeous offer :partying_face: :+1:

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Thanks for the feedback!

Yes - the goal is to provide all the services currently being provided by NuCypher and Keep on the new Keanu network. They won’t all come at the same time, however. tBTC v2 will be first, then in some order will come PRE, random beacon, etc…

Also yes on the CDP piece. The way that is structured makes it so that if Keanu isn’t working out, token holders can go back to their respective networks.

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I invested in NU and am considering KEEP. I see the business benefits of the merge.I think that the ideas of making contracts private and not open to abuse are really good. But I really don’t get the hard merge in these details. I see that you really know math and have the best interests of the community in mind but I am concerned that I won’t do the right thing with the KEEP or NU at the time recommended and will lose everything. Why is not that NU holders and KEEP holders don’t just get KEANU when everything is merged? Wouldn’t it be simpler and easier to follow?

Thanks for your comment. Both of these approaches would enable you as a token holder to easily transition to Keanu. The reason is that simply airdropping Keanu on everyone is a huge taxable event, which doesn’t make sense, because it’s a transition/merge, not a net new token. So we need an approach that reflects that reality that is more of a roll over or wrapping.

2 Likes