“To change something, build a new model that makes the existing model obsolete.” - R. Buckminster Fuller

Preamble

On-chain governance enables democratisation in a way not seen before, but in order to realise this potential, it is important for governance tokens (and, therefore, decision-making power) to be distributed amongst the ecosystem in a way that accurately represents each participant’s role. We can assume the majority of communities would want decision-making power distributed proportionately according to participation, without casual participants being left out.

This balance is hard to achieve when governance tokens also need to have monetary value in order to take advantage of tokenomics. Many projects try to achieve wider distribution through highly-publicised token sales or large-scale airdrops and incentive schemes, however these initiatives often fail to have the intended effect. A study titled The Illusion of Democracy—Why Voting in Decentralized Autonomous Organizations Is Doomed to Fail found that a large number of DAOs are still plagued by centralised decision-making power, and they highlighted one major DAO in which 66% of voting outcomes could have been influenced by four or fewer voters.

The core problem here seems to be rooted in the mixing of decision-making power together with economic value in a single token. Market forces will naturally trend towards greater accumulation by the wealthy, and yet it is beneficial for decision-making power to be more equitably distributed. As long as tokens have value they will be influenced by these market forces, however we can continually push back on these effects through a better design for token issuance.

As 0xJustice.eth states in his recent thoughts on Ethereum, “economic equality is a phantom”, and we owe it to ourselves to reconsider the norms commonly accepted throughout the crypto ecosystem.

An Introduction to Epoch-Based Issuance

In an earlier essay we presented the view that most crypto projects can be thought of as network economies, and as economies, they require constant refinement in order to respond and adapt to market forces.

The crypto ethos often aspires to diverge from legacy finance, with many crypto projects creating a fixed supply of tokens in an attempt to mimic the “sound money” principles of assets like Bitcoin. The downside is, this requires them to try to predict the lifetime requirement of their token allocations before the project is even launched. Conversely, traditional corporations employ ongoing share issuance which allows them to adjust decision-making power as the situation evolves. Since these companies are also successful at simultaneously having their shares represent financial value and decision-making power, perhaps there is still a lesson to be learned from them. It would seem irrational for a traditional company to start with all their shares allocated for the next decade, so why is this considered the norm for crypto projects?

Our Approach

Taking the best of both worlds, we would like to propose a system in which governance tokens are continually issued over multiple epochs, with the space between each epoch serving as a discrete period for adjusting allocation parameters through formal voting.

Within each Epoch we identify relevant stakeholder groups based on the needs of the project:

• Founders should have the power to enact their early vision

• Investors bring the starting/ongoing capital

• Labourers spent time on community efforts and should be compensated for their contributions

• End users are the ultimate beneficiaries of the community and indicate which activities should be prioritised

• A treasury holds additional assets owned by the community

• And other categories, as required

For each new epoch, criteria for allocating tokens and determining stakeholder groups could be adjusted based on learnings from the previous period. The resulting decision could then be enshrined on-chain to provide the unique transparency and accountability made possible by blockchain tech. Any fluctuations in expectations across these groups could become feedback for subsequent epochs.

We believe this type of system would allow decision-making power to be shifted towards those who are most actively providing value at any given time. Investors and speculators who wish to maintain their share of economic value would be best served by actively participating in the ecosystem, which will surely make the community stronger and more valuable as a result.

Modelling Example Scenarios

Our goal with this article is not to authoritatively prescribe a specific setup for token issuance, but instead, demonstrate that epoch-based issuance will, in theory, allow a community to achieve a better distribution of decision-making power over time. To test this, we came up with multiple token issuance schemes based on common narratives, and modelled how the distribution amongst stakeholder groups for each would change over the course of 6 epochs.

In our modelling, each scenario aims to deploy 100MM tokens over 36 months, with adjustments made to stakeholder allocations at the end of each epoch:

The Baseline Model represents a generic template for token issuance. It features a fairly even distribution across token holders, and issues more tokens to end users and community participants with less going to founders and early investors.

The Community-Centric model prioritises rapid distribution and broad participation. It implements accelerated vesting schedules across all stakeholder groups while directing a larger share of tokens to labor contributors and end-users. This variant encourages wider participation by accommodating more founders and contributors, and uses shorter early epochs to achieve faster initial distribution. It notably reduces institutional investor allocation in favour of community ownership.

The Institutional Focus model takes a more conservative approach, emphasising controlled distribution and concentrated ownership. It employs significantly slower vesting schedules and allocates higher portions to founders and investors. This variant maintains fewer (but larger) stakeholders in each category, distributes tokens evenly across epochs, and retains a larger treasury allocation. It also sets more conservative targets for user growth, prioritising stability over rapid expansion.

The Progressively Democratised model implements a planned transition from centralised to decentralised control. It begins highly centralised with founder and investor control, then orchestrates a dramatic shift toward community ownership through back-loaded token distribution. This variant features exponential community growth targets and quick vesting for community tokens, deliberately engineering a progression from concentrated to distributed ownership over time.

The Balanced Growth model emphasises stability and predictability in token distribution. It implements even allocation across stakeholder groups and maintains steady, consistent vesting schedules. This variant follows linear or geometric growth patterns and maintains a larger treasury to ensure stability. By front-weighting token distribution while focusing on sustainable growth rates, it aims to achieve balanced, long-term development without favouring any           particular stakeholder group.

The results of our modelling is below, as we look at different metrics to measure the effectiveness of epoch-based issuance. We used cadCAD to build our simulations and have a (currently closed) Github repository where we would like to gather feedback from the community and iterate on our methodology. While we prepare the repo to be open-sourced, please join our guild to obtain access.

Equality of Token Distribution

To start, we want to look at the distribution of tokens between community participants. If the goal is to avoid situations in which a small number of people are able to dictate the outcomes of community decisions, we would hope to see tokens become more fairly distributed amongst community participants over time.

Distribution of Influence

If we run the HHI calculations again, looking at stakeholder groups to assess their respective market share, we can see how each scenario accomplishes its intended goal of shifting decision-making power to certain demographics over time:

Conclusion

Tokens are more than just a financial instrument—they also embody governance power. These attributes are deeply intertwined, and any system that leverages tokens for decision-making must recognise that market dynamics can influence governance outcomes. Ensuring that economic value does not distort decision-making power requires continuous refinement in token distribution.

Network economies are inherently dynamic and must adapt to remain relevant. A rigid approach to token issuance can lead to stagnation, misaligned incentives, or excessive centralisation. By contrast, a flexible model—one that allows governance to steer issuance according to evolving needs—offers a more sustainable path forward.

Epoch-based emissions provide a structured yet adaptable framework for distributing governance power. By leveraging governance mechanisms to adjust token distribution over time, projects can optimise for inclusivity and decentralisation while mitigating the risk of entrenched control by early stakeholders. This periodic reassessment ensures that decision-making power remains aligned with those actively contributing to the ecosystem.

If you have any thoughts on epoch-based emissions, including ideas for the types of metrics that should be collected and leveraged to adjust emissions trajectory, please don’t hesitate to get in touch.

Supplementary Reading

1. Tan et al. (2024). Open problems in daos. https://arxiv.org/abs/2310.19201

2. Harrigan et al. (2023). Emergent Outcomes of the veToken Model. https://arxiv.org/abs/2311.17589

3. Liu, Xaun (2024). The Illusion of Democracy—Why Voting in Decentralized Autonomous Organizations Is Doomed to Fail https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4441178

4. Hall, Andy (2024) Liquid democracy in the wild, https://a16zcrypto.com/posts/videos/liquid-democracy-in-the-wild/

5. Hall et al (2024) What Happens When Anyone Can Be Your Representative? Studying the Use of Liquid Democracy for High-Stakes Decisions in Online Platforms https://www.gsb.stanford.edu/faculty-research/working-papers/what-happens-when-anyone-can-be-your-representative-studying-use

6. Chain et al. (2024). Measuring the concentration of power in Optimism, - https://gov.optimism.io/t/measuring-the-concentration-of-power-in-the-collective/8956

7. https://coffee-cheap-marten-178.mypinata.cloud/ipfs/QmV9hQxERHU137e1DD2ex2Eiev5BmkUHNmTjdxV9fpRfzd

8. Austgen et al (2023). DAO Decentralization: Voting-Bloc Entropy, Bribery, and Dark DAOs https://arxiv.org/pdf/2311.03530