The Decentralized Autonomous Trust

Decentralized Autonomous Trusts

Decentralized Autonomous Trusts (DATs) are innovative financial tools designed to operate within continuous organizations. The DAT is a smart contract built to incentivize long-term stakeholder participation and discourage speculation. The smart contract is implements a bonding curve that regulates buy/sell token prices and distribute dividends.

Continuous Organizations: The Foundation

DATs work hand-in-hand with continuous organizations (cOrgs). These are a new breed of organizations that combine traditional structures with blockchain-based tools. They might have a board of directors and employees, but also leverage smart contracts for greater transparency and efficiency.

Aligning Interests Through Code

DATs can be programmed to incentivize behaviors that benefit the entire ContOrg in the long run. Here are some examples:

• Goal-Based Distribution: Funds can be automatically distributed based on achieving specific milestones or performance metrics. This aligns token holder interests with the organization's success.

• Discouraging Speculation: DATs can have built-in mechanisms that make it less attractive to buy and sell tokens quickly. This discourages short-term speculation and promotes long-term investment.

DATs are a relatively new concept and are still under development. However, they represent a promising approach for managing finances within the evolving landscape of continuous organizations.

Revenue-based Bonding curves

A revenue-based bonding curve (RBBC) is a special type of bonding curve designed for continuous organizations. It tackles some of the limitations of simpler bonding curves by introducing a mechanism that ties token price to the organization's revenue. Here's a breakdown of how it works:

Two Bonding Curves: Unlike a standard bonding curve with a single mechanism for buying and selling tokens, an RBBC has two separate curves:

• Minting Curve: This curve utilizes a the mint function $B(x)$ which dictates the price at which users can acquire new tokens by depositing funds into the organization's treasury.

• Burning Curve: This curve utilizes a the burn function $S(x)$ that determines the price at which users can sell their tokens back to the organization, essentially receiving a portion of the treasury funds.

Mechanics

Continuous Organizations utilize a revenue-based bonding curve, employing two distinct functions: one for buying(minting) $B(x)$ and another for selling(burning) $S(x)$. Through this mechanism, the bonding curve contract issues $COT$ Securities, which essentially serve as a claim on the organization's Decentralized Autonomous Trust $DAT$ . It's important to note that while $COT$ Securities provide holders with financial rights to the reserve, they do not confer ownership of the organization itself. Rather, they grant investors a stake in the organization's future revenues, as the $DAT's$ reserve is directly linked to the organization's revenue streams.

$$B(x) > S(x) ∀ x ∈ [0, ∞)$$

The mint price function $B(𝑥)$ defines the price at which $COT$s (Continuous Organization Tokens) can be purchased from the $DAT$ (Decentralized Autonomous Trust). In the given image, $B(𝑥)$ is a linear function with a positive slope $𝑏$, represented as $B(𝑥)=𝑏⋅𝑥$, where $𝑏∈\mathbb{R}$ and $𝑏>0$.

The value of $𝑏$ determines the rate at which the price of $COT's$ increases with each unit purchased. A higher value of $𝑏$ results in a steeper slope, indicating a faster increase in price per unit token bought. Conversely, a lower value of $𝑏$ leads to a shallower slope, indicating a slower rate of price increase per unit token purchased. In essence, the higher the value of $𝑏$, the more valuable each unit token becomes, while a lower value of $𝑏$ corresponds to lower value unit tokens.

If s is too low, investors may be unable to sell their $COT’s$ at a fair price, potentially leading to a liquidity crisis (insufficient reserves for buyback) which could lead to a decrease in investor confidence and negatively affect the organization's growth. On the other hand, if s is too high, investors may be able to sell their $COT’s$ too easily, potentially leading to a destabilization of the organization's cash reserve.( easy liquidity drain ).

It is important to note that this choice of slope $b$ does not have a considerable financial impact on the organization, as it only affects the granularity of the fractional rights that investors can acquire.

The slope $s$, on the other hand, is more critical to the financial stability of the organization, as it determines the rate at which the organization can buy back its own tokens using its cash reserve.

The crucial aspect of an RBBC is the relationship between the minting and burning curves. The price for minting tokens is always set higher than the price for burning them. This ensures that revenue from new token sales gets deposited into the treasury, creating a sustainable financial model for the organization.

Revenue-based bonding curves offer a promising approach for continuous organizations seeking to align token value with long-term financial health. However, careful consideration of its complexities and the organization's specific context is crucial before implementation.