Dora Factory: Launching a New Staking Paradigm, a Surprise Debut that Could Dethrone LSD
The first collaboration of Dora Factory and Aptos launched the Aptos Grant DAO funding program to support the development of projects in the Aptos ecosystem.
As Ethereum transitions to PoS, the LSD race is on
In 2023, the most talked-about market of the cryptocurrency world is undoubtedly LSD (Liquid Staking Derivatives), a protocol for liquidity staking derivatives that emerged with the ETH2.0 upgrade. The Merge upgrade means that Ethereum is transitioning from PoW to PoS, which also means that any user can become a validator node in the Beacon Chain by staking 32 (or a multiple of 32) ETH, giving them a chance to participate in network validation and earn block rewards.
However, the minimum threshold of 32 ETH is not a small amount for many retail investors, which is why LSD platforms have come into the spotlight: users can participate in network validation by depositing ETH into the LSD platform, and there is no limit on the amount of ETH they can deposit.
According to data from the Dune website, the current total amount of ETH staked on the Ethereum Beacon Chain has exceeded 16.74 million, accounting for 13.90% of the total supply of ETH, of which 31.2% of tokens were deposited through LSD platforms. Among the LSD platforms, Lido’s market share is over 90%, almost monopolizing the market share of LSD.
There is no doubt that the LSD market has become one of the biggest opportunities in 2023, and the most pressing issue for the market right now is probably that Ethereum has only recently transitioned to PoS, with a staking rate of 13.9%, while the staking rate for large-scale PoS projects that have been running for years stably in the market is on average stable at around 60–70%.
If this is taken as a reference, the market valuation of the LSD platforms will also rise with the increase in the staking rate of the Ethereum network, and may even reach hundreds of billions of dollars in the future. Such a large market is unlikely to be monopolized by one project for a long time, and there is already a good number of projects waiting to take the opportunity and seize the first mover advantage in this market.
Dora Factory launches Public Good Staking Protocol to compete in LSD
Previously, Dora Factory team announced that it will release the Alpha version of the Ethereum Public Good Staking Protocol at the end of this month, with the aim of establishing a decentralized Ethereum 2.0 staking standard that allows users to participate in staking freely and permissionlessly, while also participating in the ecosystem’s public good development.
Compared to other Ethereum 2.0 staking protocols such as Lido, the most innovative design highlight in Dora Factory’s Public Good Staking Protocol is the implementation of a block incentive-driven ecosystem financing plan.
As we all know, the two most important tasks in any blockchain are network security and ecosystem development. In the existing market, basically all chains distribute their native tokens as a block reward to miners or validators to maintain network security.
However, ecosystem development, which is equally important for blockchains, can only seek other sources of funding, which is usually provided by: 1) raising funds through initial token sales and then managing the funds by Foundations or DAOs to provide grants for ecosystem development; 2) investment by external venture capital institutions; 3) community funding or hackathon rewards. Compared to block incentives, the funding for ecosystem development is not comparable in terms of volume or long-term sustainability.
It is precisely for this reason that Dora Factory has proposed the Public Good Staking Protocol, which actually uses a portion of the block rewards as a source of funding for the ecosystem’s development. It can be divided into three parts: 1) the mechanism for sending block rewards, 2) the denominating currency unit for temporarily held funds, and 3) the protocol for distributing funds to ecosystem builders. Each part is composed of separate modular components, which can effectively avoid problems such as network crashes caused by single points of failure.
1.) Sending block rewards to the ecosystem fund pool
Dora Factory proposed a solution for taxing block rewards and on-chain transaction fees, with the tax rate dynamically adjusted based on the historical performance of the ecosystem fund pool. This is done to control the size of the fund pool, so that it can meet the funding needs of ecosystem development while avoiding large amounts of funds laying idle.
However, as we all know, projects like Ethereum and Solona are managed by their Foundations when it comes to ecosystem development funds, meaning that the power to use and distribute funds is concentrated in the hands of a few people. This approach clearly contradicts the principles of decentralization and financial transparency, and has long been a subject of controversy within the community.
Therefore, when designing the Public Good Staking Protocol, Dora Factory adopted a DAO to manage the fund pool to maximize the extent of decentralization.
2.) Managing the ecosystem development fund pool through DAO
The Public Good Staking Protocol utilizes the Grant DAO smart contract to control the smart contract of the fund pool. In each round of ecosystem funding, the list of projects eligible for funding and the amount of funding they receive are determined based on the results of community governance voting. Once the voting results come out and the moderators will upload and encrypt them to the blockchain, the Grant DAO smart contract will verify and send the results to the fund pool smart contract. After the fund pool smart contract then signs and verifies the results, the funds are distributed directly to the addresses of the candidate projects.
3.) Governance and fair distribution of funds
In designing the governance system, Grant DAO uses the design of off-chain voting and on-chain result storage, with counting the voting results off-chain and uploading the results to on-chain smart contract, which is then encrypted. However, since the fund pool provides long-term support for ecosystem development and fund allocation is a cyclical process, achieving fair distribution of funds while avoiding Sybil attacks or identity hacks has become a difficult challenge in the governance process.
In addition to quadratic governance voting, Dora’s team has introduced a fair fund distribution algorithm and a weighted mechanism based on vcDORA’s voting. The fair fund distribution algorithm refers to setting a maximum price difference between the highest and lowest amounts of funding that can be obtained by BUIDLs from the fund pool, dynamically adjusting funding results, and reducing the wealth gap between those BUIDLS who receive the highest and lowest funding.
Compared to other protocols, the Public Good Staking Protocol encourages users to stake tokens to gain voting rights, and to select early projects with potential in ecosystem development through community voting, providing continuous funding support for non-profit public good, while offering more opportunities for ecosystem builders who may not be favored by capital.
Redefining DORA token, introducing veToken design
In Dora Factory’s early design, DORA was still used as the governance token. Recently, the governance token vcDORA was introduced, following the veToken design model of Curve. Users can stake DORA tokens and receive vcDORA tokens weighted based on staking time, giving them the right to participate in Grant DAO governance. Similar to veCRV, the longer the DORA tokens are locked up, the more vcDORA tokens can be obtained. For example, staking 1 DORA token for 4 years will yield 1 vcDORA token, while staking for only 1 year will yield only 0.25 vcDORA tokens. Additionally, the weight of the voting power of vcDORA tokens will decay over time.
As of now, the community has staked nearly 100,000 DORA tokens and received 53,000 vcDORA tokens, with an average staking time of approximately 2 years.
Aptos Grant DAO, a first attempt at Public Good Staking
Dora Factory and Aptos have collaborated for the first time to launch the Aptos Grant DAO funding program to support the development of projects in the Aptos ecosystem.
The program consists of two rounds. The first round concluded on December 20, 2022, with 137 project applications and 18 projects entering the second-round voting phase, receiving a total of 14,241.8 APT tokens in funding. That includes 4,000 APT for Hackathon sponsorship, 4,000 APT from the matching pool, and 6,241.8 APT from community contributions. Among the top projects, one BUIDL received the highest amount of funding of 1,535.85 APT.
The second round of the program is still currently under way, but with immensely positive feedback from the first round as warm-up, the second round has already attracted 220 project applications, generating even more interest.
As a preliminary attempt at Public Good Staking, Aptos Grant DAO has achieved some success, but since Aptos does not currently support individual staking, individuals in the Aptos community cannot participate in public good staking as of yet.
As the common saying goes, “Every beginning is difficult.” Dora Factory has made a promising start in its collaboration with Aptos. Recently, Dora has been actively developing the infrastructure for Public Good Staking and is about to launch an Ethereum 2.0 staking protocol, supporting the world’s largest decentralized social protocol Nostr and deploying multiple relay nodes. If the Ethereum 2.0 staking protocol is launched as planned at the end of the month, users will be able to stake ETH and receive funding support for their ecosystem, and have the opportunity to capture some user traffic in the LSD market.
In the future, Public Good Staking should be open to the entire network, and any community user can obtain vcDORA voting rights by staking DORA tokens and vote for early-stage projects that they believe in during the ecosystem development funding process. In this era of airdrops, early-stage projects may give back more opportunities to the DORA community.