Tokenomics Evaluation

Tokenomics describes the math and incentives governing crypto assets. A token’s properties can help to determine the quality and value of a token.

Projects with well-designed tokenomics are much more likely to succeed in the long term because they incentive the buy and hold of their token.

QiDao offers zero-interest crypto lending; it allows you to hold on to your crypto while still being able to spend its value. First, it’s necessary to create a QiDao vault, deposit your crypto assets, and start borrowing MAI stablecoin against your collateral’s value.

The protocol works in the following networks: Polygon, Fantom, Avalanche, Moonriver, Arbitrum, and Harmony.

There are two tokens from Qi Dao protocol, the stablecoin MAI backed by collateral, and Qi, the governance token, which is the one I will focus on.

Supply

Supply is one of the essential keys to evaluate a token. Based on supply alone, this token can hold value since it is scarce. It’s not an inflationary token; the supply is fixed and there will not be more coins.

There are metrics that can help understand where the supply is right now and where it will be in the future. Those metrics include market capitalization and fully diluted valuation (FDV)

The market cap is the circulating supply of tokens multiplied by the token price. Current Qi price is $0.63, the Qi circulating supply is 64,338,280 and Qi price is $0.63 then the market cap is around $40,533,116.

The fully diluted valuation is the max supply multiplied by the current price. The total token supply is capped at 200,000,000 Qi so the FDV would be $126,000,000.

The market cap is 32% of the FDV meaning there is still 68% of the supply to be released to the market.

Emissions Schedules

The emissions schedule tells us how and when the rest of the tokens are going to be released. Looking at Qi Dao documentation, it’s possible to see how the Token Distribution is intended to be.

This distribution uses the vesting mechanism which works by releasing X percentage of tokens every certain period of time. This system allows the project to grow to handle the tokens that have been released, by being more established, by being able to show advances or new products . However, the economy has the risk of being affected by the flood of those unlocked tokens when the time comes.

Community Treasury

Will be vested linearly at every Polygon block over a period of 3 years (starting launch) in line with the schedule below:

• Year 1: 50% of the treasury tokens vested
• Year 2: 30% of the treasury tokens vested
• Year 3: 20% of the treasury tokens vested

Strategic Partners

• Vested linearly for 18 months

Keeper incentive

Their role is to provide direction to the network and to maintain and upgrade the codebase following governance votes.

• Vested linearly over 3 years

It is worth noting that at 06:17 +UTC 08/02/22 the crypto streaming protocol Superfluid was hacked. The Superfluid vesting contract that held QI allocations for the core team and early contributors (Keeper incentive) was exploited, as a result all of the Qi in that contract, 19,387,874.05 Qi was stolen and sold on the market.

So it’s worth to explore the actual token distribution.

This graph shows how 63% of the total tokens (200,000,000) are still in the treasury contract and 16% are in the staking contract.

Demand

Having a fixed supply of tokens alone does not make it valuable. So the next question is why would someone hold Qi token?

Qi is the governance token for Qi Dao, changes are made through proposals and voted on by holders of the token. The community needs to address the following matters:

• Collateral types
• Revenue distribution
• Price oracles
• Risk parameters (i.e liquidity ratio, debt value)
• Change repayment fee
• Upgrade to the system
• Qi community treasury decisions

The protocol rewards you with Qi token if you keep your collateral-to debt ratio between ~155% and ~400%.

The protocol incentivizes locking the Qi token for up to 4 years. This allows the holder to earn more voting power and boost their share of the protocols revenue. The longer a user locks their Qi, the larger the boost they receive.

This mechanism is also known as Vote Escrowed Tokens (veTokens), pioneered by Michael Egorov of Curve Finance. veTokens attempt to align the protocol and the token holder’s incentives. Those who are more committed to locking up their tokens are incented to see the protocol succeed.

This model encourages long term oriented decision making, because a holder is making a long-term commitment to the protocol, so this provides the incentive to make decisions that are in the long-term, best interests of the protocol.

The average locking time for Qi is 2.67 years.

Also, this model provides improved supply dynamics. For supply, locking serves as a mechanism to remove tokens from the open market. This can help offset emissions.

Among the risks of this mechanism are the lack of liquidity; if a holder loses faith in the direction of the protocol, there’s no way to exit their investment. This could cause an incentive misalignment, because the holder might be incentivized to make decisions centered around extracting as much value from the protocol as quickly as possible, rather than emphasizing long-term value maximization.

Conclusion

Qi Dao Protocol utilizes some famous tokenomics mechanisms like vesting and vote escrowed tokens for it’s governance token Qi. These mechanisms help to align stakeholders in the long-term success of the protocol.

There are a considerable amount of tokens to be released on the market and it’s uncertain how this will impact in the price.

Still, it’s a relatively new project with a vibrant community and growing revenue.