Distributing a Governance Token

Resolve Token Distribution

Fair distribution can be accomplished through a smart contract that functions as a pyramid scheme which inverts a centralizing force as an incentive engine for distribution. I believe this method of distribution can be used to enhance the delegate layer of D/PoS sidechains, sharding, and other protocols, or function as the fundraising & governance distribution mechanism for DAOs.

How is this distribution accomplished? By inverting a pyramid scheme contract. Jochen Hoenicke's "Ponzi Token" is an example of a pyramid scheme contract.
The contract has an internal balance of “bonds” that it generates and burns on buys and sells respectively. The price of these bonds   is controlled by the contract with the bancor formula. Every time someone buys into the contract using ETH, the price of the bonds increases as the supply increases, and every time someone sells, the price decreases as the sold bonds are burned and the supply decreases. Some people may know this as “proof of weak hands”.

In the example above, there is also a 5% fee. A fee is necessary, but that will be addressed later.

Like in all pyramid schemes, there are many more losers than winners, but this is what creates the opportunity for this “perfect” distribution. The contract will be distributing Resolve tokens every time someone sells their bonds back into the contract. They get the ETH value of the bonds they sold back and they also get resolve tokens. The amount of resolve tokens they receive is based on this formula:

Resolve tokens = input ETH * ( input ETH / output ETH )

There are three assets to note: ETH, contract bonds, and Resolve tokens.

For example: They invested 10 ETH into the contract and receive bonds. Later, they sell their bonds for ETH again, but the price of the bonds has since gone down twofold, so they get less ETH, represented in the above formula as 10 ETH * (10 ETH / 5 ETH)= 20 Resolve tokens. If the price had gone up twofold, it would look like this: 10 ETH * (10 ETH / 20 ETH) = 5 Resolve tokens.
Therefore, ETH spent in the contract is either multiplied by its loss in value or divided by it’s increase in value. Here are some more examples. Let “in” denote ETH paid in and “out” denote ETH paid out.
50 in * (50 in / 10 out) => 250 resolves and 10 ETH received
16 in * (16 in / 256 out) => 1 resolve and 256 ETH received
100 in * (100 in / 25 out) => 400 resolves and 25 ETH received
10 in * (10 in / 50 out) => 2 resolves and 50 ETH received

   Note: All above examples do not take the a fee into account. Below you will find an example with the fee included.

As you can see, those who benefit in the upward price change of the pyramid don’t receive as many Resolve tokens. Those who take the hardest hit in loss of value receive the most Resolve tokens.

The input and output happen in between the buy and sell fee. Assume the fee is 5%. The input is recorded after the first fee is subtracted, and the output is recorded before the final fee is subtracted. For example, if you put 20 ETH in, the 5% fee is subtracted and your input is recorded as 19 ETH. Assuming no price change/volatility in between the input and output, your output is recorded as 19 ETH as well and only then is the final 5% fee subtracted which gives you 18.525 ETH. This fee is paid in ETH to those who stake Resolve tokens into the contract and the fee percentage can also be changed by resolve-weighted votes.
However, this is not the entirety of the ecosystem. This fee exists in the first layer of the ecosystem to start rewarding those who have lost but is also necessary to prevent contracts from spamming rapid buys and sells. If there wasn’t a fee then someone could multiply their resolve tokens without actually taking a loss.

What are resolve tokens used for? They can be staked in the core contract for dividends or staked in a D/PoS sidechain or other extensions to the ecosystem. In theory, they are for weighted votes applied to functions that span the scope of the ecosystem. These votes can be applied to configurations that are typically static in traditional PoS networks. Resolve holders can dictate the transaction fee, staking requirement, delegate requirements, number of delegates and other features.

   This is a proof-of-stake token that whales can’t buy out. They can’t centralize the supply, because the moment they create demand for resolve tokens (purchasing in mass on an exchange), the supply inflates at a disproportionate rate as bonds are sold to match that demand. Also with any attempt to control the majority of the supply the whale is transfering value to previous holders while leaving themselves with nothing.
Finally no whale would want to generate resolve tokens by buying at the top of the pyramid just for everyone to dump on them.

Holding bonds in the core contract means believing in the growth of the ecosystem, much like purchasing government bonds. When the ecosystem, instead, shrinks, it gives power to those who have lost the most.