Sustainably Expanding Userbase & Capital Markets

pws · July 15, 2022, 7:47pm

At a high level:

We have had over 5,000 individual wallets mint new CityCoins to date by spending Stacks (STX) cryptocurrency
Today, the total size of our addressable audience of minters is restricted: Stacks is 1/1,000th the size of Bitcoin by market cap
If we could access BTC capital we would have access a potential user base several orders of magnitude larger (Bitcoiners) that the one we have today (Stackers)
On a technical level, we should explore options to unlock direct access to BTC capital
Can anyone participate where the Bitcoin UX is great?
Are DAO proposals funded with Bitcoin or must it be wrapped/swapped?
How do we bring together the Stacks and Bitcoin experience?

Related technology: Magic Protocol, DLC.link

On to the post…

What if we could access a 1000x larger capital market by giving Bitcoin users access to smart contracts on Stacks?

Alt: Further unlocking the connections between Bitcoin and Stacks can open up access to 1000x larger capital markets.

Bitcoin scripts are limited but do have some functionality that we can use alongside the fact that Stacks smart contracts have access to Bitcoin state. It is possible projects like DLC.link and Magic Protocol may hold some answers.

Let’s walk through two minting models that could possibly accept Bitcoin: 1) a daily NFT auction mint and 2) PoX-L minting.

Daily NFT Auction

Imagine a simple nouns-style auction that happens daily, and participation requires a simple Bitcoin transaction.

In this model a newly minted governance NFT is the digital asset that is produced, rather than a fungible token. Auctions work better for NFTs than minting because of the uniqueness of each token and that selecting them can be a matter of taste, whereas a fungible token is the same as all others so there is no taste involved.

Interestingly, the auction model optimizes for the highest price that can be achieved on a more infrequent basis, leading to fewer participants punishing the project because of the arbitrage opportunity.

Also, the emissions schedule can be far more straightforward and memorable (like 1 NFT mint a day forever like Nouns has done) as 100% of proceeds could go toward the DAO.

Is it possible we could use a Discrete Log Contract like the one with dlc.link to accept Bitcoin bids and return losing ones?

Can we associate the winning Bitcoin bid with a Stacks wallet that receives that days NFT mint?

Does the BTC that gets forwarded into the treasury need to be wrapped like xBTC in order to be used in the DAO, or can it handle raw Bitcoin?

PoX-L Minting

We can also evaluate what the current PoX-Lite minting model would look like if BTC bids were accepted.

In this model a newly minted governance fungible token is the digital asset that is produced. PoX-L minting works better than auctions because of the sameness of each fungible token and that selecting them is not a matter of taste but a matter of price.

What if CityCoin minting were available by directly sending a Bitcoin transaction instead of a Stacks transaction?

Would it be possible to mine CityCoins with both BTC and STX? How would the weights be determined?

logan723 · July 20, 2022, 4:19pm

Great thoughts, Patrick. I especially like the idea of expanding PoXL mining to include BTC mining. There are obviously a few things to work through, such as STX gas fees and how STX bids are compared to BTC bids, and/or if the BTC is somehow automatically converted to STX before it is put to use in the existing mining contract. Also, it might be best to focus on Mine Many calls for BTC-based mining vs. individual blocks, simply due to BTC fees and inter-network throughput.

Zooming out though, I’d like to suggest that our most important work for sustainability is the off-chain and STX-native work. While expanding to BTC markets would open the door to more potential, I suspect that community engagement and utility will grow the userbase more efficiently and sustainably than tapping into BTC markets.

The massive growth of L2 solutions in the last two years suggests that participants are willing to enter new environments in order to participate in ecosystems about which they are passionate. I recommend focusing on building out utility and a passionate community first, then presenting that flourishing ecosystem to potential BTC-native participants once it has matured.

Rapha · July 21, 2022, 3:01pm

Great food for thoughts, Patrick.

1/ Daily NFT auction

Auctioning NFTs works well because NFTs are a matter of taste, and auctioning NFTs therefore optimizes for the highest price.

Because a) NFTs can range a lot in value from one NFT to another depending on taste appetite and b) NFTs can be typically more illiquid than fungibles*, arbitraging NFTs can be more difficult than arbitraging fungible tokens.

*Another way to say this: a fungible token gathers all the liquidity under one identical taste whereas NFTs fragment liquidity under different tastes. Less liquidity, less arbitrage.

Pros +
Optimizes for highest bid
Arbitrage made difficult
NFT 2ndary sales commissions

Cons -
Losing bids get refunded
1 happy winner + upset losers

2/ PoX-L bidding in Bitcoin

The masses will not understand the law of large numbers and blame it on a flawed protocol when they get nothing in return for their lost bids (like it has already been observed). Granted, retail can mine in pools, but a) it is mining as a service which involves a fee and b) it doesn’t close the possibility for retail to mine on their own by mistake.

Another point is that the masses don’t understand Bitcoin yet. What they do understand is stable coins…

Bitcoin is a 1000 times bigger than Stacks, but the Dollar is a gazillion times bigger than Bitcoin.

What if we could access a 10^6x larger capital market by giving the masses access to smart contracts on Stacks.

Make the bidding understandable by the masses, and grow exponentially into 10^6x rather than 10^3.

Pros +
Losing bids don’t get refunded
Arbitrage is made possible (good for liquidity)

Cons -
Losing bids create a gap with the masses
Arbitrage is made possible (bad for early stage - over pressure on nascent ecosystem)

3/ Hybrid Dutch Auction (NFTs + Citycoins)

Are you against bundling a mini Dutch auction with a hybrid auction? Every bid goes in, there’s no refund, and bidders get fungibles pro rata of the total bid amount. In addition, the highest bid wins the NFT.

Bidding is made in stable coin because it’s a larger market than Bitcoin.

How do you arbitrage your fungible coins obtained thru an auction bundling NFT and fungible coins? Your bidding cost can be somewhat unpredictable due to the NFT component of the auction.

To stake your Citycoins you need a Citycoin NFT: a piggy bank NFT that you charge with fungibles to activate stacking. Without your NFT, you can’t stake your Citycoins to get USD stable coins from miners**, but you could still do stacking via a pool whose admin has an NFT (stacking as a service).

**the masses will now understand stacking because payment is in stable coin

I’m not a fan of the unity CITY coin because it’s more complicated to understand than this. With this hybrid Dutch auction, yes, you still have mining in entry fragmented per cities, but it’s simpler to understand, again from the perspective of the general public. Every City picks symbols and artists that symbolizes them and their time. An NFT is won by the highest bid of the day, and all bidders get a prorata of Citycoin daily rewards.

The deal breaker for the unity CITY for me is this: “Market forced prices generally create inefficiencies”

The unity could be built at the City Cash level, with a Bitcoin treasury, the king of SoVs (See Muneeb’s vision of a confederation of City Coins)

Pros +

Losing bids don’t get refunded (good to grow treasury)
Arbitrage is made somewhat less obvious if the NFT component holds value compared to bundled CityCoin rewards
Losing bids get CityCoins prorata of total bids, a logic easily understandable by general public
NFTs and Citycoins work in tandem for stacking
NFTs create more branding and sense of belonging / engages artists / memes / tell a different story …
Factor in a %commission for NFT 2ndary sales as well as a fixed commission for any wallet transfer → both go to the artists and DAO treasury

Cons -

No precedent for this?
Dynamics at play in the LT?

Rapha · July 21, 2022, 5:39pm

Hello Logan,

some points come to mind,

Stacking is utility. Greater access to stacking is therefore building utility in my eyes.

Auctioning using a hyperchain allows for greater through put. Same logic. That’s utility in my eyes too.

Give us specific examples of utility you’d like to see be built.

How do you advise specifically to go about building a passionate community?

Thxs.

logan723 · July 21, 2022, 6:58pm

First off, kudos on the thorough and thoughtful post above this, definitely some good food for thought there! Also, to be clear, I’m not advocating against any of the protocol expansion ideas discussed, just making the case that the community’s bandwidth is very limited, so we need to be very deliberate about how we prioritize our efforts. I’m of the opinion that when one zooms out and looks at the project wholistically, there are a number of pain points that need to be addressed first. With that said, here are a few responses to your queries.

This is very true. Stacking is utility, and expanding access to stacking is indeed expanding on that utility. I’m very much in favor of building this out at some point. Again, I’m just making the case that there may be higher-priority issues to address first.

Very good point again. While this is not an issue in today’s Stacks environment, this is definitely something to keep in mind when throughput does become an issue. I would like to eventually see a CityCoins-specific hyperchain in the future, especially when ecosystem features with a wider-facing audience roll out.

For brevity, I’ll stick to one example of Proof of HODL discounts and perks, which seems like the most accessible to users and most technically-feasible utility. In its most basic form, this could be accomplished without any additional technical development. A user could show their CC balance in the XVerse mobile wallet using technology available today to access various types of rewards, many of which have been suggested in Discord server. All that’s needed is work with local organizations, businesses, and communities. We need to build awareness of what we’re doing, and build relationships so that participants on both sides of that interaction feel enabled and compelled to participate. The one technical piece that directly impacts this is the formation of DAOs to unlock the community benefits that help make the compelling case to participate.

We need to improve as a community in engaging members who want to get involved, and building better pathways for individuals to contribute. There are many community members who used to be regular participants in discussions, offering ideas and offering their help building relationships in their cities. We need to create educational and informational materials to support these efforts. We also need to increase our bandwidth for regular community engagement so these questions and requests for assistance don’t go completely unanswered. We also need to improve our ability to support builders in the ecosystem. We’ve had a number of interested parties offer their services either as developers, idea-bringers, or leaders in their community. Ultimately many have left because they don’t find any sustained engagement or help matching resources to their needs. It’s ultimately a combination of increasing our bandwidth for engagement, getting access to funding (DAOs) to support these efforts, and building out off-chain framework. There’s a lot to unpack in there, but that’s a bit of a starting point.

Rapha · July 21, 2022, 9:05pm

Thxs Logan. The work that is being done currently on DAO formation seems solid & diligent. It’s great to finish it in times like now, with below 100 STX for 50k MIA and 100k NYC in mining proceeds. It’s quiet, unlikely to have power battles and thus a great time to finish designing DAO structure in a diligent fashion (less risk of it being “corrupted”).

See this recording:

However, I see the opening of the protocol as a priority for 2 reasons: 1/ accessing more capital (funding of City Treasury/ growing stacking utility of City Coins / funding of DAO) and 2/ serving the city community members at large.

Narrowing the aperture of Citycoins could mean something as simple as allowing a broader base of City members (not only a crypto friendly base) to earn while participating in the success of their cities (stacking).

logan723 · July 22, 2022, 2:09pm

I couldn’t agree more about the DAO work being done. Honestly I’m a bit embarrassed that I didn’t include governance as most likely the top utility. The community is doing great work with the DAO development and I’m excited to see it come to fruition.

I see your point about prioritizing the expansion of the protocol. Our discussion on priorities would probably be best suited for the community roadmap discussion so I’d love to continue our conversation there. I don’t want to impede the flow of ideas here within the protocol expansion topic any more than I already have. I’m excited to hear what others have to add, and to build on the ideas you put forth above!

Rapha · July 22, 2022, 5:08pm

Agreed, althou 1 is better than 0. We’re at least making this conversation alive here.

Rapha · November 7, 2022, 2:20am

The direction community leaders are choosing is likely superior. I realize this now. Using Bitcoin NFTs.