BEAT123: Values DAO is organization to realize and implement a very significant shift in the application of economic theory

Abstract

Values DAO is organization to realize and implement a very significant shift in the application of economic theory. This shift can be expressed in the following way: in digital economy, the economic forces of demand versus supply are generalized into forces of internal coordination versus price coordination. Supply and demand pertain only to price coordination, while entrepreneurship/self-organization (which falls outside neo-classical price theory) pertain to internal coordination. The framework of internal coordination theory is able to explain economic productivity and intrinsic value within digital economy, as distinguished from the more specific materials economy.Internal coordination is still underappreciated as a form of economic productivity, with particular relevance to digital economy. Internal coordination is separate from the forces of supply and demand, and is what equilibrates or regulates supply and demand. Thus, it is what motivates natural self-correction and self-governance by market participants themselves from within the market.

The market requires a human being, an entrepreneur, to recognize and solve existing coordination problems, outside of the price mechanism. This happens through the negotiation of social norms. The market is only self-regulating and self-correcting to the extent that common sense norms are negotiated and shared by everyday participants, through internal coordination.The dynamics of internal coordination versus price coordination were first articulated in transaction cost economics, by Ronald Coase in his essay The Nature of the Firm (1937), and later by Douglass North in Transaction Costs, Institutions, and Economic Performance (1992). Transaction costs are essentially extra-monetary communication costs of operating in a market. They include costs of planning, deciding, and deliberation. Essentially, transaction costs reflect the normative rules that internally self-govern and self-regulate market activity.

How does it work?

At a high level, Values consists of its protocol managed treasury, protocol owned liquidity (POL), bond mechanism, and staking rewards that are designed to control supply expansion.

Bond sales generate profit for the protocol, and the treasury uses the profit to mint $VALUES and distribute them to stakers. With liquidity bonds, the protocol is able to accumulate its own liquidity. Check out the entry below on the importance of POL.

Why is PCV important?

As the protocol controls the funds in its treasury, $VALUES can only be minted or burned by the protocol. This also guarantees that the protocol can always back 1 $VALUES with 1 DAI. You can easily define the risk of your investment because you can be confident that the protocol will indefinitely buy $VALES below 1 DAI with the treasury assets until no one is left to sell. You can’t trust the FED but you can trust the code.

As the protocol accumulates more PCV, more runway is guaranteed for the stakers. This means the stakers can be confident that the current staking APY can be sustained for a longer term because more funds are available in the treasury.

What is Staking?

Staking is the primary value accrual strategy of Values. Stakers stake their $VALUES on the Values website to earn rebase rewards. The rebase rewards come from the proceed from bond sales, and can vary based on the number of $VALUES staked in the protocol and the reward rate set by monetary policy.

Staking is a passive, long-term strategy. The increase in your stake of $VALUES translates into a constantly falling cost basis converging on zero. This means even if the market price of $VALUES drops below your initial purchase price, given a long enough staking period, the increase in your staked $VALUES balance should eventually outpace the fall in price.

When you stake, you lock $VALUES and receive an equal amount of sVALUES. Your sVALUES balance rebases up automatically at the end of every epoch. sVALUES is transferable and therefore composable with other DeFi protocols.

When you unstake, you burn sVALUES and receive an equal amount of VALUES. Unstaking means the user will forfeit the upcoming rebase reward. Note that the forfeited reward is only applicable to the unstaked amount; the remaining staked VALUES (if any) will continue to receive rebase rewards.

What is bonding?

Bonding(1,1) is the secondary value accrual strategy of Values. It allows Values to acquire its own liquidity and other reserve assets such as LUSD by selling $VALUES at a discount in exchange for these assets. The protocol quotes the bonder with terms such as the bond price, the amount of $VALUES tokens entitled to the bonder, and the vesting term. The bonder can claim some of the rewards ($VALUES tokens) as they vest, and at the end of the vesting term, the full amount will be claimable.

Bonding is an active, short-term strategy. The price discovery mechanism of the secondary bond market renders bond discounts more or less unpredictable. Therefore bonding is considered a more active investment strategy that has to be monitored constantly in order to be more profitable as compared to staking.

Bonding allows Values to accumulate its own liquidity. We call our own liquidity POL. More POL ensures there is always locked exit liquidity in our trading pools to facilitate market operations and protect token holders. Since Values becomes its own market, on top of additional certainty for $VALUES investors, the protocol accrues more and more revenue from LP rewards bolstering our treasury.