[PROPOSAL] Token Bonding Curve Examination & TBC Templates

Hey everyone! Our team (Delphi Digital) has been working in close collaboration with the core Rally team and we are happy to present our initial findings and proposals for Rally’s token bonding curves. Please note we’re always looking for feedback and hope this can serve as a catalyst for more dialogue around these topic areas!

The PDF link to the full formal proposal can be found here, as well as a drafted Google doc version for anyone who’d like to provide specific commentary or feedback; the Appendix also contains the links to the TBC curve simulations.

Our primary goals with this phase of the engagement were:

  • Update the Rally community with our observations thus far, specifically as it relates to the demand and transaction activity of creator coins (CCs).
  • Dissect the current token bonding curve model to better understand its advantages and challenges as a pricing mechanism for creator coins.
  • Analyze the advantages and disadvantages of a sigmoidal curve for different-sized creator economies (i.e. small vs. large).
  • Examine the impact of liquid secondary markets for creator coins following an initial bootstrapping phase.
  • Propose an alternative TBC template to complement the current sigmoidal curve, targeted towards larger creators expected to attract significant engagement and demand for their creator coins (see Recommended Action Items below).
  • Provide context on the potential amount of total RLY locked under various scenarios using both the current sigmoidal curve and linear TBC (see end of proposal).

We examined these dynamics in the attached proposal from several angles, including the shape of the curve, genesis CC supply, optional pre-sales, and the impact of liquid secondary markets.

In addition, we propose to introduce a linear token bonding curve to complement the current sigmoidal curve, targeted more specifically for larger creators we expect will attract significantly greater demand and engagement. Below is a quick summary of our recommended action items.

Quick note: While our initial focus was primarily on the structure of the bonding curves, we recognize the potential impact RLY’s price can (and likely will) have on both the perception and adoption of creator coins, which is one of the reasons we’re proposing to implement an optional bridge from the Rally sidechain so creator coins can trade more freely (with the bonding curve still serving as a liquidity backstop).

This will be a core consideration of our next phase, where we will be digging deeper into RLY’s economics, the design of network usage rewards, and additional ways RLY can be used or leveraged to the advantage of creators and their communities; all of this builds on the work we’ve been doing, which also goes beyond the scope of this proposal. We could not be more excited and look forward to any and all feedback as we progress!

Recommended Action Items

  • Create an alternative linear bonding curve to complement the current sigmoidal curve; our example assumptions include a 5MM genesis supply and 21MM max creator coin supply cap, though we plan to iterate on these as larger creator economies develop. This type of curve would be recommended to new creators with volume expectations indicating varied liquidity pools could aid with market-based price discovery (more detail can be found in the full proposal) .

  • Implement an optional “pre-sale” period that allows a cohort of early participants to acquire a batch of new creator coins at the same price before the bonding curve’s price dynamics begin. Our initial proposal is not to limit the amount of pre-sale tokens available as it offers an option by which potentially a significant amount of RLY can participate if each participant knows they are being offered at the same price; the final price for the pre-sale will determine a creator coin’s starting price on its bonding curve. This eliminates the incentive to immediately sell post-sale, mitigating the potential downside risk for early participants.

  • Implement an optional bridge allowing individual creator coins to move from the private sidechain to a public L1 (initially Ethereum Mainnet). This will encourage liquid secondary markets to form, aiding in a coin’s price discovery as market-based forces determine its value (after an initial bootstrapping phase). It will also open up the design space for CC integrations, driving more utility and value for creators and their communities.

8 Likes

Awesome Kevin! Especially the move to the secondary market. Really smart!

I have a few questions about that, as I am not an bonding curve expert :slight_smile: About the arbitrage part. "let’s say a CC is trading for $15 in the secondary market but its TBC price is 10 RLY, if the price of RLY increases from $1 to $2 traders can take advantage of the spread by buying CCs from the secondary market at $15 and burn it against the curve for 10 rally ($20).

  1. Do I understand it correctly if I say that the price on the secondary market is a pure USD price and has nothing to do with the Rally ecosystem? And your assumpion is traders will pair the price by doing arbitrage? Price in the Rally ecosystem is “leading”
  2. So if a CC price on the secondary market is 10 dollar. RLY price is 2 Dollar, and CC Price in RLY ecosystem is 4 dollar. If a new Coin of that specific CC is minted, 2 Rally are needed to back that newly minted CC (not 5), correct?
  3. If price of CC on the secondary market is higher then in RLY ecosystem, with arbitrage you will burn CC into the curve. Does this have a neutral, positive or negative price pressure on RLY? If people Buy CC in secondary market for USD, sell the CC on RLY ecosystem for RLY. And sell that RLY again for USD a negative price pressure for RLY or not? Are you worried about that use case?

One more question. As I try to get my head around it.
A large creator has a max CC supply and of 21 MM and a max RLY backing of 210MM RLY.

Assume in 3 years there are 100 highly succesfull creators/community, all hitting the max CC supply and price pushes them to the max RLY backing of 210MM. 100 coins X 210 MM Rally is 21B RLY more then total supply. What will happen? Will there be a big upwards pressure on the price of RLY? And therefore a decrease in the demand for the CC (as it goes up a lot in USD?) Can you maybe explain this use case?

1 Like

Thanks @martinmartin! And really appreciate the questions - provided some thoughts below:

  1. Yes and no. The price on the secondary market would be driven by the supply and demand of a given creator coin, so in a sense it would trade only on a USD basis, but we expect developments in the Rally ecosystem will continue to have an impact on CC prices even after secondary market trading begins. This ties into your other questions but we’d expect a rather constant push-pull between the two prices with arb traders helping to keep them relatively in line with one another, so demand for a CC on the secondary market will be driven in part by its corresponding TBC price.

Our hope is by encouraging the development of liquid secondary markets, creator coins will be less impacted by price fluctuations in RLY and driven more by the value and utility creator coins provide for their communities. Having said that, we acknowledge that having a TBC “backstop” will likely cause the two prices to remain connected to a degree.

  1. Yes, correct. Minting a new CC in that scenario would cost ~$4 or 2 RLY. And that spread is the profit someone can earn by minting new CCs at a lower price ($4) and selling them in the secondary market at a higher price ($10).

  2. If the price of a CC is higher on the secondary market, you’d actually want to mint new CCs from the TBC to sell them on the open market in order to take advantage of the higher selling price. This does assume a rather seamless transaction process (e.g. no delays when bridging between sidechain and mainchain) but as for its impact on RLY itself, I think any buy / sell pressure for one CC will likely be offset by sell / buy pressure for another, at least to an extent.

If we saw a situation where all creator coins on secondary markets traded below their corresponding TBC price (where arb traders could buy “cheap” CCs on the open market before selling them against the TBC to unlock a larger $ amount of RLY) then we could see a scenario where it materially impacts the price of RLY. Given the various other factors that will impact the price of RLY, it’s not a huge concern of ours at this time.

Thanks Kevin, for taking the time to answer. With question 3 I made a misstake, I ment if price of CC on the secondary market is lower then in Rally ecosystem. But I already get your point. If you have time to also answer my other post would be great! I try to get my head around how much Rally will be locked to CC’s and how big the price effect of tier-A CC’s can be on $RLY. Do you have a base case of how many Rally will be locked to CC’s in 1 year, 3 years, 5 years. Or even a base, bull, bear case?

Good question. In our view, it would take some extreme demand for a given CC to mint all 21MM creator coins, especially if the price of RLY appreciates as the Rally ecosystem grows. In a way, the price of RLY almost serves as a check on these “mega” creator economies because, to your point, if we do see 25 to 50 creators capable of generating this much demand for their CC, their TBCs will soak up a significant amount of RLY’s circulating supply, which would put upward pressure on its price (assuming no material decline in demand); these large creator TBCs would serve as a sort of supply sink.

If the price of RLY appreciates significantly, our initial expectation would be demand for these CCs would decline as it would become increasingly more expensive for each new fan or supporter to acquire a newly minted creator coin, especially during the later stages of their bonding curve.

It’s important to note these parameters can be adjusted and iterated on as we see more real world examples of larger creator economies develop.

2 Likes

We outlined a few potential scenarios at the end of the proposal related to the total # of RLY locked assuming a certain # of small, large, and mega creators that should provide some additional color on this. Obviously it’s still very early and there’s a lot of unknowns, so the assumptions we used were partially for illustrative purposes to highlight the potential impact large creator economies can have on the demand (and therefore price) of RLY. This topic is also important for the next phase of our engagement so it’s certainly top of mind for us.

Really great work here @kevindelphi - this report helped me better understand how CC’s work under the hood and opens a lot of cool design space.

Some thoughts on the Recommended Action Items:

Love the idea of different curves for different creator profiles. Only thing I would flag is presenting it in a way that feels digestible for creators. meTokens offered a similar experience - allowing creators to choose which type of curve to issue on. While great on paper, 99% of creators have no clue (and likely don’t care) what curve they are using. To this, I would challenge the Rally team to find a way for creators to either be active in these decisions or abstract it enough so that a creator doesn’t need to make a conscious decision on what curve they’re using.

Assuming this is legally plausible, this is a fantastic idea. Even more so if that pre-sale can be gated or whitelisted to existing community members to provide early-access to true fans over speculators. Right now the start of a Creator Coin is basically a race to be the first in, regardless of if you’ve ever heard of them before. While these dynamics still exist to a degree, this pre-sale period definitely levels the playing field out of the gate for those paying attention. I would strongly push to allow this pre-sale period to be customizable, such that a creator can choose a duration, price and private/public option based on their preference.

Again acknowledging possible legal ramifications here, this is the single most important piece of this proposal in my opinion. It’s my belief most creators would likely not use the bridge, but for those keen to explore mainnet liquidity and composability, this option opens up a world of possibilites for Rally creators while reducing the need for Rally to build all these tools (governance, treasury management, liquidity rewards) in house. Fully in favor of supporting this.

Overall these are all solid suggestions and I would be in favor of seeing all of them implemented.

Great work as always Kevin and the rest of the Delphi team! Looking forward to an extension of this engagement :muscle:

4 Likes

Really appreciate all your thoughtful comments here @coopahtroopa. You raise some great points so adding a few comments piggybacking on your thoughts below.

  1. Agree on the need to simply the process for creators, especially when it comes to TBCs. Last thing we want to do is overwhelm them off the bat and risk them shying away from Rally, which is why we’re also planning to have some educational type content that explains the differences in a more simplistic way. Very open to other ideas when it comes to introducing creators to the optionality Rally TBCs can offer, especially given your experience with social tokens / tokenized communities.

  2. That’s exactly how we’re thinking about optional pre-sales as well. We can introduce a vesting period for those who choose to participate to minimize the number of speculative participants vs. true fans. We also suggested for pre-sales to be customizable and “cap-less” as to not limit the number of early participants, but we can explore other ways to tailor these to the specific wants/needs of creators too. Our initial thought was a time-based sale or silent auction mechanism, but again open to other ideas here too.

  3. I believe from a legal perspective this is possible (but will confirm with the team). Building off your comments, this is one of the areas we’re most excited about because it completely opens up the design space for future creator coin models and use cases. Composability is obviously thrown around a lot in DeFi, but we believe the creator economy / tokenized community movement is on the verge of experiencing an explosion in new creative use cases for both creators and fans alike, some of which we can’t even imagine today. I also think this will help solidify the importance of creator coins at the center of every creator’s economy because of this increased utility.

someone mentioned a lock out period/farming for CC presales in another Forum… in that lockout period if there was some type of incentive like farming that might be interesting to help stabilize the launch if there is some type of presale. The presale is a great idea. The CC should be available to everyone at the same price but of course maybe only a limited number on the presale? This way the true supporter has a chance to get in vs the investor?

You really need to consider the “evil” investors as a key part of this system, especially while it is growing. These include, the new ones created from following your creators and seeing the potential of your offering, and the old ones, who are early adapters are supporting your system. If you keep beating them with a stick you may find your delicious wrapped chocolate treat is now no longer that at all. And right now, from my perspective, that is what seems to be happening.

Incidentally, rally is the closest crypto to what I was going to eventually do, and that is why I believed in it. But right now, not so much. I would offer up suggestions, but see, those are key parts of my concept and I don’t do that. Good luck though.

Hi Kevin,

What a piece of work! I enjoyed this analysis and the thoughtful questions/insights from @martinmartin and @coopahtroopa. I’ve added in some additional questions in the document itself. My reading of the document is that you’ve taken a lot of care in designing ways to accommodate large Creator communities with 4 recommendations that I’m generally a fan of and would summarize with a Tl;DR for folks: 1.Linear bonding curve instead of Sigmoidal 2. 100x the supply. 3. pre-sale option. 4. L1 bridge.

I like the recommendations for incoming Tier1A creators. Great work!

As far as the rest of the creators go, I only saw the “recommendation” to examine an alternative sell curve, but I agree with your reservations for pursuing it. I hope in the next phase of your engagement with Rally over the next 3 months, that I fully support, you can include an analysis of the emerging patterns around coin launches.

Namely, I’d like to know what else we can do to improve the experience for the largest cohort of creators - small and medium creator coin communities. I’m not sure if that might mean changes to the bonding curve design.
Did you examine the effects that an alternative sigmoidal curve with a less extreme slope might have for smaller CCs, such that the post market maturity price might level off at something that is still in range for most fans?)
Is the current bonding curve design well-tuned enough to meet the needs of the majority of current and future creators? It was unclear if the pros and cons added up to a “yes or no” here.

I do agree with your rationals for a linear curve for larger creators (mostly because explaining TBCs is challenging enough and sigmoidal curve adds unnecessary complexities) and it certainly makes the pre-sale easier to integrate as well, but ultimately I would love to see some pre-sale optionality extended to creators of all sizes to reach their most dedicated fans ahead of frontrunners present at listing on rally.io.

Perhaps something like 4% of the genesis supply could be unlocked at launch and restricted for giving out to true fans…whatever it is, I think we need recommendations for the 90% of creators no matter what % of fans that ends up equating to in the longer term.

I hope you can examine the emerging participation patterns at and after launch for creator coins since the latest iteration of flow controls in the last month or two, along with the wider participation of crypto enthusiasts over the same time frame have led to what seems to be new patterns that are different than what was happening in back in February and before. I’m sure it is part of your plan as you look to evaluate the network rewards.

Apologies for repeating myself above a bit…there was a lot to read back on in your paper and this little box on forums is so damn small! I look forward to hearing back from you all and want to reiterate my thanks for all the hard work in looking at what Rally is doing and what can be done better! I do hope you’ll reach out to the community maybe 1/month moving forward to solicit feedback as you progress through your work on this next phase.

Cheers,

Grand

Hey all - thanks so much for all the feedback on the proposal! We wanted to aggregate some of the most salient points that have been raised so far + some additional commentary from our team. Note: we’ll be putting together a more concise proposal within the next couple days for the community to begin voting on the major recommendations.

We also added several topic areas we’ll be digging into more over the coming weeks and we encourage additional suggestions from the community!

Community Feedback

● The optional pre-sale also seemed to garner support from the Rally community. We initially proposed to keep it open or “capless” as to not limit the number of early participants, but it was also suggested to allow pre-sales to be more customizable, including the duration, price, and a public or private option depending on whether the creator wanted to whitelist existing community members or leave it open to the public. We also support this idea and suggest allowing pre-sales to be customizable; the pre-sale price could be determined by the creator (with help from their community or Rally’s) or could choose to use an alternative pricing mechanism like a silent auction if they wanted price to be determined based on demand and their followers’ willingness to pay (the auction mechanism is something we can look into adding with the Rally team).

There have been requests for us to explore implementing this for the current sigmoid curve and for other TBCs focused more on small/medium creators, which we certainly plan on looking into, but the focus of this initial proposal is on including a pre-sale option for the new linear bonding curve.

● The newly introduced linear TBC is targeted at larger creators, but the current parameters require 210MM RLY to back a CC before the final coin in minted. Our rationale for introducing a linear curve seemed to receive positive feedback (predictable supply, less price volatility, etc.), especially with the optional pre-sale. We will be including the introduction of a new linear bonding curve in the first community vote, but we plan to examine the potential for an alternative linear TBC for small and medium sized creators to use as well.

@coopahtroopa made a great point about the risk of overcomplicating things for creators if we offer different bonding curves. We need to ensure we present these different options to creators in a digestible way. Eventually, the selection process could be abstracted away, but in the immediate term creators will likely need additional resources or guidance to understand the major trade-offs between each.

We’re also adding another piece to the original proposal to address questions on the appropriate vesting schedule for a creator’s genesis supply. For the new linear TBC, we propose 50k creator coins unlock immediately, representing 1% of the proposed genesis supply (5MM). These 50k coins would be subject to flow controls so they wouldn’t be able to sell immediately. The rest of the genesis supply would be subject to a 6-month cliff and a time-based vesting schedule. Our initial proposal is for 10% of the genesis supply to unlock after 6 months with an additional 3% unlock each month through the end of year 3. This would equate to 150k coins each month after the 6-month cliff and all CCs would be subject to flow controls. We also recommend a limit on the number of coins unlocked so that a creator’s ownership of circulating supply never exceeds 50%. Put simply, in order to unlock all 5MM coins in the genesis supply, a creator must build an economy with 10MM+ coins in circulation. For flow control purposes, we assume creator coins locked for vesting would not be counted in circulating supply.

● We also recommend subjecting CCs bought in pre-sales to vesting but on a shorter timeline (at least 3-6 months). In the future, we envision adding the optionality for pre-sale participants to commit to longer vesting schedules in exchange for additional community rewards, giving early supporters the opportunity to pledge a longer-term commitment to their favorite creators while being compensated for locking up their funds for longer.

● The optional bridge to allow creator coins to eventually trade outside the Rally sidechain received a lot of attention with most community members expressing approval towards the idea. We believe this will open up a lot of design space for creators as they experiment with new ways to create value for their CC holders and communities. To reiterate, our hope is by encouraging the development of liquid secondary markets, creator coins will be less impacted by price fluctuations in RLY and driven more by the value and utility creator coins provide for their communities. Having said that, we acknowledge that having a TBC “backstop” will likely cause the two prices to remain connected to a degree (see point below for more detail).

● There were also several questions on the impact of liquid secondary markets on the price action of creator coins. Specific questions focused on the dynamics between secondary market pricing and the expected price represented by a creator coin’s bonding curve. To clarify, the price on the secondary market would be driven by the supply and demand dynamics of a given creator coin, but we’d expect developments in the Rally ecosystem to continue to have an impact on CC prices even after secondary market trading begins. In addition, introducing a slip-based fee to more CCs would give creators (and their communities) additional RLY via a tax on CC sales against the TBC.

● We were asked how many RLY we expect to be locked up over the next 1-5 years and what impact large/mega creators could have on the price of $RLY. For starters, we set the max CC supply for the linear bonding curve to 21MM coins and 210MM RLY locked. It’s our opinion we’d need to see some extreme demand for a given CC to mint all 21MM creator coins, especially if the price of RLY appreciates as the Rally ecosystem grows. In a way, the price of RLY almost serves as a check on these “mega” creator economies because if we did see 25 to 50 creators capable of generating this much demand for their CC, their TBCs will soak up a significant amount of RLY’s circulating supply, which would put upward pressure on its price (assuming no material decline in demand); these large creator TBCs would serve as a sort of supply sink. If the price of RLY appreciates significantly, our initial expectation would be demand for these CCs would decline as it would become increasingly more expensive for each new fan or supporter to acquire a newly minted creator coin, especially during the later stages of their bonding curve.

We included a few possible scenarios at the end of the proposal but this is an area we’ll be exploring in more depth in the next phase because it can have such an outsize impact on the price of both $RLY and, therefore, creator coins.

● How can a pre-sale option help new creator’s avoid a situation where their newly launched CC gets bid up in the first week, thus creating a high hurdle rate (in terms of total RLY locked) they must overcome in order to earn consistent RLY rewards? The 4-week MA of total RLY backing their TBC would be abnormally high for at least 3 weeks until the first week drops out of the calculation.

We also wanted to add some additional topics that have been raised / requested for the next phase of our engagement (aside from our work on community activity rewards, etc.).

Additional Topic Areas of Interest

● How can a pre-sale option help new creator’s avoid a situation where their newly launched CC gets bid up in the first week, thus creating a high hurdle rate (in terms of total RLY locked) they must overcome in order to earn consistent RLY rewards?

● Expanding slip-based fees to more creators (and their potential impact).

● How do we improve the experience for small and medium creator coin communities? Specifically as it relates to the structure of the current sigmoid curve and alternative slopes/linear options. Is the current bonding curve design well-tuned enough to meet the needs of the majority of current and future creators?

● Examine the effects of alternative sigmoidal curves with less extreme slopes on smaller creator coins such that the post market maturity price might level off at something that is still in the “affordable” range for most fans.

● Analyze the CC distribution patterns of creators to understand the various ways creators are engaging their communities in these early stages.

● Extending pre-sale optionality to creators of all sizes to reach their most dedicated fans ahead of frontrunners or large speculators.

● Examine the emerging participation patterns at and after launch for creator coins since the latest iteration of flow controls.

3 Likes

Thanks for this awesome summary! It’s very helpful to have this all in one place. I’m really looking forward to the proposal so you can get going to put these things in place and start in on CAR.

The current net deposit reward system seems to create a strong incentive to sell CCs that have reached their 4-week MA for new coins that have great short term RLY rewards upside. Although flow controls provide some disincentives, I think it is great that you are looking at ways to provide more sustainable RLY rewards to creator communities. For most coins in the network however, the current rewards system just seems at odds with the steep slope section of the bonding curve design since few can make it over the hump to market maturity.

I’m excited to see your fresh look and how your team may balance the rewards to be inclusive of donate and purchase activity, or do something like lengthen the time for the RLY rewards to vest or begin granting rewards on net-deposits after 100k RLY backing is reached. At any rate, very much looking forward to a fresh evaluation of the Rally’s goals with CAR, and how to tune or overhaul them based on your analysis!

Should we expect a separate rewards pool/system for the linear bonding curve and their larger communities?

These should be very fun and challenging balancing acts for your team! If it is helpful or necessary to work through it with live testing/experimentation as has been the case with flow controls. I hope you’ll include language in the proposal for the community to provide your team some flexibility to experiment and pursue live testing in order to really make this work and not slow your roll along the way!

However you decide to implement the pre-sale CC vesting, it will be great if possible for those participants to still have their pre-sale CC count towards the holding thresholds for discord gating and such beyond any additional community rewards that might be granted.

Most def! Since RLY rewards are currently claimed on the sidechain, will things get messy trying to distribute rewards for CC holders beyond rally.io? Something I’m sure you will consider as you re-evaluate the community activity rewards.

Just a final thanks for all your continued work and attention to Rally, and let us know what else we can do to support your efforts to improve the network.

Cheers,
Grand

1 Like

In this new TBC, how many tokens are issued to the creator as genesis coins? 5M?

I am getting an estimate of about 450-475K total out there right now. So they probably have between 35-45% of them. But they clearly don’t have the balance of what is shown unless they don’t get rewards on them. The programmer likely just has an error in total shown if they meant to shown how many exist like in other CC’s.

Very cool analysis @kevindelphi!
Any chance you could share the historical data that you used? It would be great to play around with it!

Thank you!
Hans