Disclaimer: This article is in no way meant to reference specific projects or individuals. It is a point-in-time opinion piece meant to elicit community discussion while offering alternate perspectives to current market sentiments.
As Bitcoin and the macro Crypto markets experience negative price action at times, fear can find its way into the minds of many investors. Along with general downward price action and sentiment, opinions regarding rebasing tokens have changed since their DeFi popularization via Olympus DAO. We now have historical feedback on nearly a year worth of various token rebases, treasury growth, and corresponding price action.
Clear need for correction (in some cases) and evolution (in almost all cases) are among top challenges currently faced by rebasing projects, and present opportunities to reassess the models, figure out what worked and improve upon what didn’t. Just like all good projects, those who adapt and build in bearish times will not only stand this test of time, but improve the state of crypto and DeFi as a whole.
For context, Bitcoin, the king of crypto, has been declared dead countless times, and yet continues to enjoy a macro-scale uptrend that has lasted for several years. This doesn’t excuse BTC from volatility, and as of January 2022, BTC is correcting to levels not seen since the crash of spring, 2021. The point is that BTC’s parabolic rally from 2020 to early 2021 was fueled by mass retail investment capital that simply couldn’t sustain itself without correction. Undoubtedly, we will see during every bear market, posts and media claiming that Bitcoin is once again dead. However, with historical context as our guide, it can be assumed that Bitcoin will continue to benefit from corrections over the long-term.
In the case of rebasing token projects, the larger picture is simply that investors are more or less pioneers within this space. The explosion of high APY rewards was attracted many investors, but made way for a variety of scams and sub-par, ramshackle projects that tarnished and diluted the space. This macro correction across many rebase tokens should not be a surprise, but a dose of reality; a call to reassess the ecosystem. 📷
These ‘rebase 1.0’ models served specific, if not limited purposes: to build a treasury, create a community of investors, and establish a reserve currency in the digital world. A few protocols achieved some of these goals, but greed in the form of leverage, along with an oversaturated market, resulted in an ecosystem that was in many ways toxic. While these projects broke valuable ground, they had clear (in retrospect) weaknesses and disadvantages that need to be addressed. Herein lies the opportunity for quality projects to adapt and evolve, to take what worked in previous iterations and build new and exciting ways to push the space forward.
Many people think Crypto is still just BTC and a handful of doggy coins. They have no idea what DeFi is, or what it can offer in terms of passive income. Indeed, we are very early, and early adoption can often be messy and frightening, fraught with quick iterations and dramatic restarts.
Enter the evolution of reward tokens. Instead of simply offering stratospheric APYs and filling a treasury, it is clear that new projects must offer varied use-cases if they want to gain and retain relevance. Some examples of ‘rebase 2.0’ may include:
- Using treasury funds to build new technology or access new markets. (eg. Bridging DeFi and TradFi)
- Acquiring unique assets that cannot be purchased by normal retail investors. (Rare NFT’s, Metaverse property, or Partnership-Based investment opportunities.)
- GameFi development and the creation of new, innovative Web3.0 experiences.
- Investment in developing projects or incubator-style funds.
- Reduced or even zero APY emissions to avoid dilution of native tokens.
A first improvement to consider might be the development of token utility and/or use-cases beyond merely building a treasury. For example, Layer 1 ‘gas’ tokens, which enable networks and provide other functions, such as liquidity, boast intrinsic value and inherent buying pressure which makes them interesting as investment options. Secondly, the treasuries of some projects offer significant buying power, which can provide investors with an opportunity to share in something that they might not be able to purchase themselves. While stablecoins are solid, safe investments, they definitely don’t have the same curb-appeal as, say, land in the metaverse, VC-type incubation opportunities, or rare/expensive NFTs. For this reason, assets or investments that require substantial capital might improve the theoretical value of a DAO treasury. There is substantial interest in the realm of ‘game-fi’ and ‘play-to-earn’ platforms, which seem to fit nicely alongside the concept of DAO team structures that seek to advance the most profitable strategies on behalf of investors. Finally, the reduction of frivolous APYs is becoming inevitable, but many other reward levers remain. DAO policy teams may turn to ‘gamifying’ of bonding, locked staking, and rewarding holders in stables or partner tokens rather than just increasing native emissions.
While there is no clear way to determine how and when markets or specific types of projects will turn themselves around, the old adage of ‘building in the bear market’ still rings true. Community builders also wield great influence in DAO structures, leaving each one of us with the opportunity and responsibility to share our insights. We would like to invite each and every one of you to continue this discourse as we continue to grow and evolve within this ever-changing DeFi ecosystem.