On February 11th 2021, we concluded - what was at that time - the most successful LBP ever. We were shocked, happy, but also rather worried.
Shocked because so many people had decided to bring their support for HydraDX. Happy because we had succeeded in distributing HDX to a large community of participants. Cautious because we were also aware that the implied fully diluted valuation (FDV) of HydraDX had just hit $800 million.
One could have said we had made a mistake. The LBP was done with a low float of 5%, which is something often done by not-so-honest projects in the industry with the goal of pumping the valuation. Our motives were different, however.
Back then, we were thinking we’d be lucky to raise a mere $3-5m DAI. We were on the wrong train of thoughts which led us to a miscalculation. What we failed to acknowledge is that there were already way too many Hydraheads out there. The result:
22m DAI raised from 5000+ contributing addresses for 5% of the total HDX supply.
The Good, The Bad and The Ugly
It was really good that we succeeded but it was pretty bad that our success carried such a high price tag. Our attempt to negotiate a follow-up funding for product development was, to say the very least, ugly. We were looking at ways to sell a small part of our own token allocation (15% in total), but all the deals we could have closed were at prices lower compared to LBP, which sent us on the guilt trip that this would not be fair towards our supporters.
The less informed will ask: “Why do you need to raise more when you already have 22m DAI from the LBP?” To reiterate: These funds were never meant to be used by the team. Their purpose is to provide initial liquidity for the Omnipool. The 22m DAI raised during the LBP is, simply said, owned by the HydraDX Protocol.
The team itself has raised a mere $1.5m at the end of 2020. We say mere in comparison to many other teams in the ecosystem that have raised 3, 5 or even 10+ times more than what we have. Some have managed to raise more with nothing but a deck and handsome investor allocation. Not to bash anyone, but we just have chosen a different route.
Building two chains on a novel technological substrate is not an easy feat. Managing it on a shoestring budget is a monumental (t)ask. We are lucky to have greater contributors that are willing to work for tokens and believe in the project. But we need more as go-to-market speed is critical especially in such a competitive industry.
We have thought long and hard about the future of the protocol. Our values remained unchanged and if our goal is to increase the awareness, the number of stakeholders and builders who will participate in the HydraDX ecosystem, the following proposal should become the foundation for this sustainable growth.
Once the HydraDX Council gets elected and settles down (voting on more trivial issues), it will initiate a referendum with the following proposal:
Retroactively increase the distribution of tokens to HDX LBP participants from 5% up to 15% of the total HDX supply. To achieve this, triple (3x) all HDX wallet balances resulting from LBP purchases, staking rewards and treasury payouts.
If accepted, the proposal would have the following (projected) implications:
All HDX token balances which result from LBP purchases, staking rewards or treasury payouts will be multiplied by 3x;
The distribution of tokens for the early LBP participants will increase from 5% to 15%. This will come at cost of future rewards for collators and post-mainnet liquidity mining, the distribution for which will decrease from 75% to 65%;
The allocation of founders & investors will remain unchanged (15% of total supply);
The 15% of HDX tokens held by LBP participants will match and eventually outweigh the 15% owned by the team & founders. This helps the protocol achieve meaningful and decentralized governance;
The future APY for staking HDX before mainnet will decrease (more concrete info will be shared in the governance proposal);
The implied FDV of HDX will effectively be lowered by two-thirds from $800m down to appr. $267m, potentially facilitating a more sustainable upside for early supporters.
HDX distribution after the proposal is implemented:
5% Stakenet & Incentivized Testnet
15% Founders & Investors
15% LBP Participants (unsold HDX moved to treasury)
65% Collators & Liquidity Mining
Please note that HydraDX LBP participants will still be eligible for a 5% of the BSX supply (remains unchanged). The amount of BSX tokens received by every HDX holder will be determined by a snapshot of all HDX wallet balances. The snapshot will be taken at block #1999999 which should be produced on Tuesday Sep 28th. Make sure to claim any pending HDX rewards from staking or bounties before that.
Alice bought 60,000 HDX at LBP and staked it, thereby increasing her balance to 100,000 HDX.
The estimated value of her HDX portfolio is ~$8,300 (100,000 HDX x $0.083).
If the proposal above gets accepted, the balance of Alice would increase to 300,000 HDX.
The estimated value of her HDX portfolio would remain unchanged at ~$8,300 (300,000 HDX x $0.0267).
Balancing the Power Relationships
Besides lowering the projected FDV of the protocol, the proposed change is intended to forward decentralization by balancing out the power relationships in democracy.
In the current setup, the 15% allocation gives the team & founders a dominant voting position. Practically, the 5% of the protocol owned by the tribe can be easily outvoted by the 3x higher share of the team. This is also the reason why team & founders will abstain from voting in the referendum on the proposal.
Should the proposal be accepted, it would balance out the power relationship between the tribe (15%+) and the founders (15%), effectively transferring the power where it belongs - in the hands of the tribemates.
Finally, it is important to point out that the implementation of the proposal will effectively dilute the projected value of the allocation reserved for the team & founders. Under the existing tokenomics, the 15% stake has an implied value of $120m (as per final LBP price). If the proposal is accepted, this projected value would decrease down to $40m. As we remain bullish on HydraDX, we believe this is a reasonable price to pay for meaningful democracy & sustainable growth.
Organizing the Referendum Proposal
In the coming weeks we’ll be testing the governance with more trivial referendum proposals. The referendum on the changes proposed in this article will take place in two to four weeks. The community can use the time in between to exchange thoughts on the proposal.
We will notify all social media channels once voting is open. If you hold any HDX tokens, please come and vote. It is important that you first make yourself familiar with the voting process.
Important note: The referendum on the proposal will be a community-vote only! The team & founders will abstain from voting since they currently hold the majority of tokens. Your participation is essential.
Stay hydrated and voice your opinion!