Dora Factory: Launching a new Staking paradigm, which may be the "emerging" LSD killer

Author: G.

Ethereum Transitions to PoS, Rise of the LSD Track

In 2023, the most关注ed track in the cryptocurrency field is undoubtedly LSD (Liquid Staking Derivatives). LSD emerged with the ETH2.0 upgrade, and the Merge upgrade signifies Ethereum's transition from PoW to PoS, allowing any user to stake 32 (or multiples of 32) ETH in the beacon chain to become a validator, with the opportunity 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 emerged: users can deposit ETH through LSD platforms to participate in network validation, with no restrictions on the amount of ETH deposited.

According to data from Dune, the current staking amount on the Ethereum beacon chain has exceeded 16.74 million ETH, accounting for 13.90% of the total ETH supply; among them, 31.2% of the tokens are deposited through LSD platforms. In the LSD platform space, Lido holds a market share of over 90%, almost monopolizing the LSD market.

Image source: Dune

The LSD track has undoubtedly become one of the biggest trends in 2023, and the most concerning question for the market right now may be that Ethereum has just transitioned to PoS, maintaining a staking rate of 13.9%, while large PoS projects that have been operating stably in the market for many years have their staking rates generally stable at 60-70%.

If this serves as a reference, the market scale valuation of the LSD track will also rise with the increase in Ethereum network staking rates, potentially reaching hundreds of billions of dollars in the future. A market of such a large scale is unlikely to be monopolized by a single project for long; many projects in the market are already gearing up, hoping to seize a portion of the early opportunities.

Dora Factory Launches Public Good Staking Protocol, Entering the LSD Space

Previously, the Dora Factory team announced that it would release the Alpha version of the Ethereum Public Good Staking Protocol at the end of this month, aiming to establish a decentralized Ethereum 2.0 staking standard that allows users to participate in staking without permission while also contributing to the development of ecological public goods.

Compared to Ethereum 2.0 staking protocols like Lido, the most innovative design point of Dora Factory's Public Good Staking Protocol is the implementation of a block incentive-driven ecosystem financing scheme.

As we know, the two most important tasks in any blockchain are network security and ecosystem development. In the existing market, most chains distribute native tokens as block rewards to miners or validators to maintain network security.

However, the equally crucial ecosystem development for chains requires alternative funding sources, which commonly include: 1) raising funds through initial token sales, managed by foundations or DAOs to provide donations for ecosystem development; 2) investments from external venture capital firms; 3) community grants or hackathon rewards. Compared to block incentives, funding for ecosystem development cannot match it in terms of scale or long-term sustainability.

Based on this, Dora Factory proposed the Public Good Staking Protocol, which essentially uses part of the block rewards as a funding source for ecosystem development, specifically divided into three parts: 1) the mechanism for sending block rewards; 2) the unit for temporarily holding funds; 3) the protocol for distributing funds to ecosystem builders. Each part is composed of separate modular components, effectively avoiding issues such as network paralysis due to single points of failure.

Image source: Dora Factory

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, to control the scale of the fund pool, ensuring it meets the funding needs for ecological development while avoiding large amounts of idle funds.

However, we all know that projects like Ethereum and Solana have their ecosystem development funds managed by foundations, meaning the use and distribution of funds are concentrated in the hands of a few, which is clearly contrary to decentralization and has long been a subject of controversy in the community.

Therefore, in designing the Public Good Staking Protocol, Dora Factory adopted a DAO-managed fund pool approach to achieve maximum decentralization.

2) Managing the Ecosystem Development Fund Pool through DAO

The Public Good Staking Protocol uses a Grant DAO smart contract to control the fund pool. In each round of ecological funding, the list of projects eligible for funding support and the amounts will be determined based on the results of community governance voting. Once the voting results are out, they are uploaded to the chain and encrypted by the moderator, verified by the Grant DAO smart contract, and sent to the fund pool's smart contract; then, after signature verification and checks by the fund pool's smart contract, the funds are directly distributed to the addresses of the candidate projects.

3) Governance Rights and Fair Fund Distribution

In designing the governance system, Grant DAO adopted an off-chain voting + on-chain result design, where off-chain is responsible for counting the voting results, which are then uploaded to the on-chain smart contract and encrypted. However, since the fund pool is intended for long-term support of ecosystem development, fund distribution is a cyclical process, and achieving fair distribution of funds while avoiding witch attacks and identity attacks has become a challenging issue in the governance process.

The Dora team has added a fair distribution funding algorithm and a voting weighting mechanism based on vcDORA on top of the secondary governance voting.

The fair distribution funding algorithm means that after each vote, the algorithm sets a maximum price difference between the highest and lowest amounts that can be obtained from the fund pool, dynamically adjusting the funding results to reduce the wealth gap between the highest and lowest BUILD recipients.
Compared to other protocols, the Public Good Staking Protocol encourages users to stake tokens to gain voting rights, filtering out early potential projects in ecological development through community voting, providing continuous funding support for non-profit public goods, and offering more opportunities for ecological builders who come from ordinary backgrounds and are not favored by capital.

Reconstructing the DORA Token, Introducing VeToken Design

In the early design of Dora Factory, DORA was still used as the governance token, but now it has introduced the governance token vcDORA based on the VeToken design model of Curve, allowing users to stake DORA tokens and earn vcDORA tokens weighted by time, granting them the right to participate in Grant DAO governance.

Similar to veCRV, the longer the DORA tokens are locked, the more vcDORA tokens are earned. For example, staking 1 DORA locked for 4 years can yield 1 vcDORA; however, if the lock-up period is only 1 year, only 0.25 vcDORA can be obtained. Additionally, the voting weight of vcDORA will decay over time.

Below is the situation of users staking DORA tokens to obtain vcDORA tokens: community users have staked nearly 100,000 DORA tokens, exchanging for 53,000 vcDORA tokens, with an average lock-up time of about 2 years.

Image source: DoraHacks

Aptos Grant DAO, Initial Attempt at Public Good Staking

Dora Factory's first collaboration with Aptos initiated the Aptos Grant DAO funding plan to support project development in the Aptos ecosystem.

The plan consists of two rounds, with the first round concluding on December 20, 2022, attracting 137 project applications, and ultimately 18 projects entered the secondary voting phase, including 4,000 APT from hackathon funding, a matching pool of 4,000 APT, and 6,241.8 APT contributed by the community, totaling 14,241.8 APT in funding. Among them, the highest amount received by a Build was 1,535.85 APT.

The second round is still ongoing, but following the warm-up and positive feedback from the first round, the second round has attracted 220 project applications, surpassing the previous round's interest.

From the participation data, Aptos Grant DAO has already achieved some success as an initial attempt at public good staking. However, given that Aptos currently does not support individual staking, individuals in the Aptos community are still unable to participate in public good staking.

As the saying goes, the first step is always the hardest. Dora Factory has made a good start in its collaboration with Aptos. Recently, Dora has been very active, working on the foundational infrastructure for public good staking: it is about to launch the Ethereum 2.0 staking protocol, support the world's largest social protocol Nostr, and deploy multiple relay nodes. If the Ethereum 2.0 staking protocol is launched as scheduled at the end of the month, it will support users staking ETH and provide funding for its ecosystem, also having the opportunity to capture some user traffic in the LSD track.

In the future, public good staking should be open to the entire network, allowing any community user to gain vcDORA voting rights by staking DORA tokens, voting for promising early projects during the ecosystem construction funding process. In this era of airdrops, early projects may also offer more opportunities to DORA community users.