Distribution Mechanism for DEX and Lending Protocol Tokens

Glue’s approach to distributing DEX and lending protocol tokens is designed to create a healthy, competitive, and innovative ecosystem. By aligning the incentives of the protocol teams, liquidity providers, and market participants, Glue creates a robust foundation for growth. The strategic use of an Investment DAO to manage and deploy significant resources into the ecosystem further ensures that Glue remains dynamic and forward-looking, continually supporting new projects and driving the overall success of the network. This comprehensive strategy not only addresses immediate needs but also lays the groundwork for sustainable, long-term development.

Given that the Glue foundation will play a pivotal role in launching the DEX and lending protocols, it will initially own the governance tokens for these protocols. Distributing these tokens in a manner that maximises the benefit to the entire ecosystem is crucial. While the exact breakdown is not yet finalised, the proposed distribution strategy aims to ensure effective governance, incentivize liquidity, and attract significant investment into the ecosystem.

Proposed Token Distribution Strategy

1. Team Allocation: Each protocol will have its own team dedicated to its development and governance. The foundation will seek to onboard team members who are highly qualified and share a vision for the protocol's success and the broader ecosystem's growth. Allocating a percentage of governance tokens to the team ensures that their incentives are aligned with the success of the protocol and the ecosystem. This motivates the team to focus on both short-term performance and long-term sustainability.

2. Liquidity: A significant portion of the governance tokens will be allocated as liquidity incentives. This strategy helps attract the necessary liquidity to each protocol without causing excessive dilution of the Glue token. Liquidity providers will benefit from receiving both protocol governance tokens and L1 incentive tokens. This dual incentive structure increases the attractiveness of providing liquidity, ensuring that the protocols have sufficient liquidity to function effectively.

3. Investment DAO Tokens: The remaining governance tokens, after allocations for team and liquidity incentives, will be contributed to an Investment DAO. The DAO will be structured as a "Rage Quit DAO," a concept pioneered by Moloch DAO. This structure allows members to exit the DAO with their proportional share of the assets, ensuring fairness and flexibility. The DAO will allow users to buy into it through a Liquidity Bootstrapping Pool (LBP) auction. This auction will sell DAO governance tokens, which will represent ownership of the DAO's assets, including the DEX and lending protocol's tokens. The proceeds from the auction will be reinvested into the DAO, increasing its capital base. The DAO will hire a manager with significant venture investing experience, ideally someone well-known in the industry. This manager will be compensated from the DAO's profits, aligning their interests with the success of the investments. The DAO's mandate will be to invest in other projects within the Glue ecosystem. Over time, the DAO will sell off its DEX and lending protocol tokens to fund new investments, promoting continuous growth and innovation within the ecosystem.

Figure 2: The project’s governance tokens (such as lending protocol or DEX) are allocated to team, liquidity, and the Investment DAO. Funds are raised through a Liquidity Bootstrapping Pool (LBP) auction, where participants purchase DAO governance tokens. These tokens represent ownership in the DAO and entitle holders to a proportional share of the DAO's assets. The DAO itself holds the project’s tokens. LBP participants indirectly own these assets through the DAO but do not receive the governance tokens of the project directly. The raised funds are managed by the DAO and are invested in projects within the Glue ecosystem. Governance token holders have voting rights and can exit the DAO with their proportional share of assets, ensuring fairness and flexibility.

Advantages of the Investment DAO Model

Alignment of Interests: By contributing proceeds from the LBP auction back into the DAO, the interests of DAO members and the ecosystem are aligned. Token holders benefit from the growth and success of the investments made by the DAO.

Capital Efficiency: The structure allows the DAO to manage substantial assets, investing them strategically to support the ecosystem's growth. This efficient use of capital fosters innovation and helps new projects succeed.

Experienced Management: Hiring a well-known and experienced venture investor to manage the DAO ensures that investments are made wisely, leveraging industry expertise to maximise returns and ecosystem impact.