Understand the Investment Potential of the Decentralized Autonomous Organization DXdao in 5 Minutes

This article was published on ChainNews, author: LeftOfCenter.

Since its launch, the decentralized autonomous organization DXdao has seen its token DXD soar from $45 to a peak of $467, a tenfold increase. Although the price has since experienced a significant pullback, it still remains at $251 at the time of writing, with an increase of over 450%. DXdao adopts a model of joint governance by holders of its governance token REP, while holders of the native token DXD have the right to share in the profits generated by these products. So, how exactly does DXdao operate? What is the profitability of its products? Is there still growth potential? And why does the comprehensive data platform for decentralized autonomous organizations, DeepDAO, refer to it as a mature decentralized management model?

What is DXdao?

DXdao was initiated by the Gnosis team in March 2019, built on DAO Stack, with the aim of developing DeFi products in a decentralized organizational model. After the project is deployed, Gnosis will withdraw to ensure that no type of control or pre-mined assets remain in DXdao, guaranteeing that everything is fair and just.

The initial purpose of DXdao was to manage the parameters of the DutchX protocol, a fully decentralized trading protocol that uses the principles of Dutch auctions. Users trading on DutchX can earn DXdao's "reputation token" REP, which grants voting rights within DXdao. Additionally, you can earn the "reputation token" REP by locking ETH or other ERC20 tokens supported by DutchX.

Although DXdao's initial goal was merely to manage the DutchX protocol, since DXdao participants can vote to drive logic upgrades, DXdao can actually evolve into anything that can be realized on the Ethereum blockchain.

So far, all members of DXdao jointly own and operate a series of DeFi applications, including the decentralized prediction market Omen.eth, the permissionless DEX Mesa.eth, privacy tool Mix, and the token swapper DXswap, among others.

DXD is another token issued by DXdao in addition to the "reputation token" REP. DXdao uses a joint curve to issue the native token DXD for fundraising, and holding DXD tokens allows one to enjoy the profits generated by a series of DeFi products under DXdao. In May 2020, DXdao launched a crowdfunding campaign, issuing a total of 12,000 DXD tokens aimed at raising $300,000 worth of ETH. However, this was not the first issuance of tokens by DXdao, as the team had previously claimed to have pre-mined 100,000 DXD. Two months after the public launch of the joint curve issuance plan, the price of DXD reached 0.51 ETH, with a total supply of DXD exceeding 124,000. As of now, DXdao has generated 48,837 DXD based on the joint curve, earning 2,485 ETH.

As the native token within the DXdao ecosystem, DXD grants its holders a series of rights, including a share of DXdao's total revenue and access to services and advanced features of DeFi applications such as gas-free transactions.

Sources of Revenue for DXdao

DXdao has two asset pools: the joint curve reserve pool and the DAO treasury (i.e., balance sheet). The adjusted balance sheet of the DAO is approximately $12,441,257, while the joint curve reserve is about $9,144,800.

To fund ecosystem development and growth, DXdao channels 90% of its revenue to the DAO treasury. Whether from the creation of new DXD tokens or revenue generated by its products, only 10% is retained for the reserve, with the remainder directed to the DAO treasury for ecosystem growth.

According to data from DeepDAO, a comprehensive data platform for decentralized autonomous organizations, DXdao consists of 428 members, who collectively own and operate a series of DeFi applications, including prediction markets (Omen), auction platforms/DEX (Mesa), privacy tools (Mix), token swappers (DXswap), and the still nascent layer 2 payment application (Rails). Among these, Omen is built on Gnosis' Conditional Token Framework, Mesa is based on the Gnosis protocol, Mix integrates tornado.cash, DXswap is a clone of Uniswap V2, and Rails utilizes Loopring's zkRollup technology.

Among these products, only Omen and Mesa have just been launched, and DXdao is hardly able to generate any revenue from these early-stage products. However, once any product generates income, its native token DXD holders can share in that revenue.

Additionally, another important source of revenue for DXdao's balance sheet is the native token assets issued by various DAO projects under its umbrella. In April of this year, the DeFi Money Market Foundation (DMMF) allocated 2% of the total supply of DMG governance tokens to DXdao, allowing its members to help manage the DMM DAO. On July 1, the decentralized arbitration platform Kleros provided DXdao with a reward of 4 million PNK tokens. However, this reward is conditional; the dispute resolution service provided by Kleros integrates with DXdao's prediction market Omen, and for every prediction market transaction on Omen, Kleros can become one of the arbitration options. The condition is that the reward will only be activated if Omen generates at least $20 million in trading volume for Kleros. Similarly, if the interface of DXdao's applications generates $20 million in trading volume for the Gnosis protocol, it can receive a grant of 10,000 GNO from Gnosis. Data shows that just the Mesa application has already achieved this trading volume target, meaning DXdao has already obtained these tokens.

The above image shows various token assets included in DXdao's balance sheet.

On-chain Governance of DXdao

Due to concerns about centralized control, many decentralized projects currently adopt off-chain governance, leading to decision-making paralysis or stagnation. DXdao believes that consensus is not a goal, but a process. In response to the current situation, there is a need to improve and build a new system to help these decentralized projects reach consensus in a scalable, decentralized, and effective manner. Specifically, DXdao's core goal is to build tools, products, and processes to facilitate decision-making and consensus among large decentralized communities globally.

DXdao employs holographic consensus for governance, a mechanism that expands the scope of decision-making. Specifically, there are two ways to execute proposals: for regular proposals, as long as they receive a majority (over 50%) of votes from REP holders within a specific timeframe, the proposal will be executed. The other way is that before voting, community members can stake GEN tokens on regular proposals, and once the staked GEN tokens reach a certain threshold, the proposal will be upgraded to an "enhanced" proposal, which will attract more attention, making it easier to achieve the voting rate needed for approval. After that, if the proposal receives a majority (over 50%) of votes from REP holders within a specific timeframe, it will be executed.

In the DXdao system, there are 3 types of tokens: the native token DXD, the governance token REP, and the staking token GEN. Holding the native token DXD allows one to enjoy the profits generated by DXdao's products; REP is the reputation token, primarily used for voting and governance within DXdao, which cannot be purchased but can only be earned through contributions to the community, and it is associated with an Ethereum address and cannot be transferred. GEN is a staking token, mainly used for staking in support of or opposition to proposals.

DXdao employs a relatively complex governance mechanism that separates economic benefits (DXD) from voting rights (REP), allowing for as much decentralization as possible, maximizing the distribution of REP and expanding into the largest decentralized organization in the world.

Overall Ranking and Data Performance

Based on the adjusted balance sheet ranking, DXdao ranks first, followed by The Lao, and in total number of members, DXdao ranks third, while it ranks second in total votes and proposals generated.

Data shows that the top 10 holders of the reputation token REP control 52% of the voting power. Despite an active community on the forum and an increase in the total number of proposals, the overall number of voters is gradually declining.

Before the launch of DXdao, 100,000 DXD were pre-mined, and these funds will be gradually unlocked into the DAO treasury over three years. Before the release of the 100,000 pre-mined DXD tokens, only 48,837 DXD were in actual circulation in the market. Therefore, before all 100,000 DXD are fully released, the market value of DXD can only be calculated based on 48,837 DXD, which, at the current price, gives DXD a market value of approximately $12.69 million. The complete DXdao treasury reserves can be viewed here.

DXdao's treasury reserves are primarily intended to fund the future growth of its products, with most of the funds allocated to product development and marketing costs. According to DXdao's budget proposal, it is evident that DXdao's monthly regular expenditure arrangements are relatively reasonable. Without increasing new DXD purchases, products generating revenue, fluctuations in the price of currently held tokens, and without the inclusion of the 100,000 pre-mined DXD tokens released monthly, based on the current inventory of funds, DXdao can maintain operations for 6.3 years.

So, how profitable is DXD? Perhaps we can calculate the price-to-book ratio of its native token DXD.

Based on DXdao's balance sheet, the net asset value per DXD can be calculated. As shown in the figure below, it is calculated that the price-to-book ratio of DXD is 0.91, which indicates that DXD still has some upside potential. Additionally, DXdao's products have yet to generate revenue but possess significant revenue potential. For example, the trading volume of the prediction market Omen has greatly surpassed that of AugurV2, while Mesa's monthly trading volume is slightly below that of IDEX.

Price-to-Book Ratio (P/B PBR) refers to the ratio of the stock price to the net asset value per share. The price-to-book ratio can be used for stock investment analysis; generally, stocks with a lower price-to-book ratio have higher investment value, while those with a higher ratio have lower investment value. However, when assessing investment value, one must also consider the current market environment as well as the company's operational situation and profitability.

On August 23, the cryptocurrency research firm Delphi Digital announced its joining of the decentralized autonomous organization DXdao (DXD) and proposed a series of recommendations for the current state of the organization:

1. So far, DXdao's products have generated almost no revenue. Delphi Digital suggests that DXdao learn from Costco's business strategy and model to maximize the value of its various applications and members in the ecosystem, i.e., to charge membership fees once the ecosystem reaches critical mass. Before this, non-members can receive the same benefits as members to better expand capital scale and enhance adoption;
2. Delphi Digital recommends that DXdao build the entire ecosystem on layer 2 solutions to increase scalability and flexibility;
3. The current joint curve of DXD hinders the project's short-term development, leading to a lack of liquidity that prevents potential members from purchasing DXD and causing significant discounts in the secondary market. Delphi Digital suggests that DXdao update its joint curve;
4. DXdao's current governance design is overly complicated, lacks user interface, and holding DXD does not directly equate to voting rights. DXdao can further update its liquidity mining program and allocate some tokens;
5. DXdao needs to standardize and make its project development process transparent.