Exchange-traded funds have significantly reduced cost structures in comparison to mutual funds and allow investors to maintain the same levels of diversity amongst asset classes. Exchange-traded funds have allowed retail investors to gain exposure to multiple assets and asset classes through the purchase of just one asset. These assets, although sometimes passively managed, are made up of one portfolio manager's decisions based on what they see is the best fit during the current market conditions. This forces all investors to trust the portfolio manager with their funds while having minimal to no say in what their funds will be invested in.
DAO-operated asset management is simply the next evolution forward for investment solutions, lowering the barrier of entry for all investors. DAMO leverages blockchain technology to minimize trust while providing the user with robust incentives and arbitrage opportunities that will play a key role within the ecosystem. Through the use of an open governance structure and DIVs, the power is returned to those feeding the hand.
Decentralized Investment Vehicles (DIVs)
DIV tokens are collateral + treasury backed crypto assets whose value represents a composition of other tokens. It is synonymous with a share of QQQ or SPY in the traditional financial markets, although the method of capitalization is significantly different.
After a user deposits collateral in a vault, they can withdraw up to 75% of their collateral’s worth in DIV tokens. This method ensures that the value of each DIV token is overcollateralized and thus ensures its base price at a minimum. After a DIV has been minted, it can be used the same as any other token; capitalization, provided as liquidity, or traded on an exchange.
Why is there a need for DIVs?
Investment vehicles have played an integral role in finance, especially for the retail investor. The idea of offering an investment vehicle to lower a barrier of entry was originally a response to volatility in the market. Offering an investment solution to more risk-averse investors has allowed for the inflow of trillions of dollars to equities, commodities, real estate and soon crypto.
Lowering the Barrier of Entry
DIVs are a solution to jumping through the hoops of various exchanges to attain different crypto assets. By minting or buying a DIV off the secondary market you can gain exposure to multiple crypto assets in one wallet with a click of a button.
Key Actors and Their Roles
The DAMO Protocol relies on several different user types for the platform to function efficiently. Therefore, it is our responsibility to adequately incentivize each user type to participate.
DAMO holders will be able to stake their tokens and earn rebase rewards. Rebase rewards are correlated to the amount of revenue in which the protocol brings in. This aligns incentives across the whole protocol while rewarding governance participants.
Token holders can indefinitely lock up their DAMO in a staking contract to receive sDAMO. sDAMO is used for voting rights within the protocol.
The Capitalization Method is a key component of the protocol. It provides the protocol with extra revenue streams to sustain solid APYs, a means to own token liquidity, and other treasury assets.
Minting is another way the DAO accrues value. The process of minting occurs when a user deposits an approved ERC-20 into a collateralized vault. In exchange for the approved ERC-20 token, the user will receive their desired DIV token. DIV tokens are decentralized investment vehicles offering diverse exposure to a basket of assets.
What is POL and Why it Matters
POL stands for protocol-owned liquidity. POL occurs when users elect to unlock DAMO by selling their LP tokens or DIV tokens to the protocol. This process has several benefits for the protocol. Not only does it align the interests of all participants in the ecosystem, but it also allows HAI DAMO to guarantee the market that there will always be liquidity to facilitate buy or sell transactions. Additionally, HAI DAMO does not have to payout farming rewards to incentive liquidity providers. HAI DAMO then becomes the largest liquidity provider in the pool which will translate to an additional source of income for the treasury as LP fees are accumulated. The POL can also be used to back the newly minted DAMO as well as DIV tokens.
Protocol Owned Liquidity ensures that there will be a party that will facilitate all transactions within the protocol. This party is the protocol itself. This enables users and the protocol to not be reliant on traditional LPs but instead, be reliant on the protocol itself to pay people out and facilitate the market.
What is PCV and It's Important
PCV simply stands for protocol-controlled value. The protocol controls the funds from the Treasury. While DIV tokens can be minted by anyone, only the protocol can burn them. This ensures that DIV tokens will always trade at their net asset value (NAV).
As PCV grows this guarantees a sustainable APY for stakers of DAMO over the longer term as more funds are available in the Treasury.