In a few months, Aragon Fundraising will be online and on main-net. This article aims to explain what it is and how it works.
Aragon Fundraising will be a funding platform where people who have projects or organisations can issue tokens on the market and receive money to help them finance their project. This platform will be the materialization of an idea presented one year ago by Vitalik Buterin and known under the acronym of DAICO (Decentralized Autonomous Initial Coin Offering). The general idea behind this model is as follows : A Decentralized Autonomous Organization (DAO) issues tokens that give its owners privileges in the organization or rights on the production of the DAO.
Let’s remember that a DAO works like a program which allows collective control of a wide variety of things such as a GitHub repository, an ISP, a car or even a piggy bank. This means that things owned by a DAO immediately become collective because the DAO which controls these things can give permissions or rights to anyone through its collective decision process. A DAO, therefore, works first and foremost like a program that defines a set of permissions on things connected to it. Here, we used the word “things” in order to emphasize the broadness of possibilities offered by a DAO.
Aragon Fundraising allows anyone to become a patron of a project-DAO by staking token on it (DAI or ANT). In return patrons receive a Token specific to the DAO.
Two central points characterise this “organization-specific token” :
1- It gives the owner a series of rights and privileges in the DAO
2- It is fungible and can therefore be transferred or sold at any time on a secondary market
Blurring the barriers between capital and commons
With Aragon Fundraising the usual boundary between patrons and a project’s community is abolished since each act of staking triggers the issuance of a token specific to the DAO which truly integrates patrons in the project. Therefore, each DAO can issue a token with its own specific features.
Through this mechanism the patron is no longer a distant being disconnected from the project but a real part of the community with a clear set of associated rights and privileges inside the DAO.
Let’s take a simple example :
1- Imagine that Bob opens a github repository for developing a piece of software and controls this repository through an AragonDAO using the Pando app.
2- He then presents his project in a whitepaper and launches a fundraising campaign on Aragon Fundraising app.
3- Some people truly believe in Bob’s project and start to stake DAI on it. In return, they get tokens from Bob's DAO.
4- Token holders could then be allowed to vote on sensitive decisions such as increasing the tap if the DAO wanted to hire more developers.
In this simple model, we clearly see that the ordinary separation between project leaders and patrons is greatly reduced. Aragon Fundraising thus materializes the long-awaited opportunity to participate in a project in which we are not originally a member. This enables a more intimate link between financing and participating in a project.
With this model, stakeholders compose with the community of the project because they are able to collaborate with it. This means that financial contributions are always a way of experiencing the collective and therefore the feeling of "being in common".
Distributing intellectual property
But Aragon Fundraising also makes it possible to offer patrons a set of rights on the product developed by the DAO. One of the most interesting use-cases is what could be called the "continuous sale of intellectual property rights". Indeed, it will be possible to sell intellectual property (IP) rights of a product from the very start of the project by indexing the ownership of the IP to tokens which represent part of this IP and which are available for purchase. An intellectual property transfer agreement,which takes the form of a smart-contract, will thus be able to issue non-fungible tokens that represent a given percentage of a product’s IP.
In this model, intellectual property becomes liquid and part of this liquidity is tapped and then redistributed for research and development of the project-DAO. This also implies that a DAO does not need to sell its entire product but only part of its intellectual property to finance the development of its product. Linking usage to a price function, it allows for customized market mechanics to be deployed by the IP creators.
Thus, this method of selling intellectual property makes it possible to avoid the emergence of monopolies by radically opening up the ownership of intellectual property to the crowd.
A project like Molecule is working on applying this model to the pharmaceutical industry. As Paul Kohlhaas said:
“Individual tokens could now represent license rights, enabling holders to receive royalties whenever the IP is used. This means beyond the token representing a part of the overall value of the asset, they could also provide a steady revenue stream in the form of royalty payments.”
Soon Aragon Fundraising will be able to extend this model to many sectors such as software development, art, cultural industries or land ownership, i.e. all sectors where ownership of a thing can be crystallized in a contract.
Incomes generated by a DAO could then be used to create new mechanisms for remunerating the commons. If patrons and project leaders agree, they could, for example, take the decision to allocate a certain percentage of the reserve pool to a UBI chain. This will allow us to go much further in our fight against the tragedy of the commons.
Valuing the belief of the crowds
Aragon Fundraising will function as a huge attention market where hundreds of DAOs attempt to fund their projects by issuing tokens that allow a strong collaboration between project leaders and stakeholders. The value of those tokens issued by DAOs are indexed by a "bonding curve" that will evolve according to its formula and the purchase and sale of the token. As Billy Rennekamp said :
“The slope can be linear, exponential, logarithmic or completely arbitrary depending on the use case but most often the price increases with the number of tokens in circulation”
This means that the economic incentive is encoded in the formula: a project that would like to finance itself quickly can opt for a curve adapted to this need and a project that wants long-term financing can opt for a curve designed for this purpose. For each project, it will be a question of finding or building the bonding curve adapted to its needs.
Here is a diagram that roughly shows how Aragon Fundraising works :
From economic incentives to anonymous supporters
Thanks to Aragon Fundraising’s highly modular nature, token holders are granted a wide range of rights and permissions in the organizations they invest in. A possibility that traditional market has so far been unable to implement. Thus, Aragon Fundraising will not only offer users the opportunity to discover projects that could bring them profit, but also grant them the opportunity to discover projects in which they can participate and be part of the social structures that interest them.
Bringing project community and patrons closer together also implies sharing skin in the game by reducing the usual asymmetry of traditional fundraising models. Thus, we end up with strong incentives on both sides.
- Project leaders are encouraged to communicate on the progress of their project and to share information on an ongoing basis with those who support them. Open sourcing the project becomes at this point a real necessity for the creation of mutual trust and attracting investors.
- Patrons have a real interest in helping to develop the project, communicating it, helping on the adoption of the future product or just sharing their opinion on a particular point based on their knowledge of the project’s field.
All of this means Aragon Fundraising could be a very powerful mechanism for building and disseminating ideas around the world. The hardest thing when you have an idea is to be alone when trying to make it exist. We will soon have a tool that can help each one to come out of this kind of loneliness, a tool that help to open up your idea by making it a collective project. From solitary ideas to collective projects; this is, perhaps, the fundamental proposal of this future platform.
Crédits illustration © Lohengrin Papadato, http://lohengrinpapadato.fr