Preface
Due to my (short) time working on Raiden and (currently moonlighting) at Hub20, I got quite a bit familiar with the different crypto projects that were coming with the “DeFI” wave. Something in common to most of these projects is the fact that they don’t really have any idea where their actual money will come from. Being a witness to the emergence of “DAO governance” tokens that pay absolutely zero dividends to ideas based on bad economic principles and outright scams, I started to develop a good sense of what projects were building any kind of actual wealth and could be considered proper investments and which were just playing some sort of ponzi game.
Out of the “good” crypto projects, there is one that started even before the DeFI craze, in 2017: the Basic Attention Token from Brave.
BAT and Brave, quickly explained
Brave is a web browser that focuses on privacy and protecting users from data tracking and the exploitation of personal data made by Big Tech. It offers a built-in ad blocker, blocks third-party tracking cookies and does a lot more.
Brave’s business model is based on the idea that they can offer advertisements that don’t depend on exploiting personal data. Users from the browser can opt in to receive ads (as system notifications) which are from Brave’s ad network. Users participating in the program receive a share of 70% of all advertisements they receive. These payments are made using BAT, a cryptocurrency that is based on the Ethereum blockchain.
BAT is a token that has fixed, limited supply. During the ICO, it was established that a total of 1.5 billion BAT would be minted, divisible in up to 18 decimal points.
How much is the price of BAT affected by Brave’s growth?
It’s important to notice: Brave’s revenue is in USD, the payouts are in BAT. Advertisers buy space in the inventory from Brave, and Brave takes part of that money to buy BAT in the open market. This means that the price of the token has no direct influence in Brave’s revenue or in the dollar amount from the payouts.
At the moment, Brave’s ad rewards requires ~0.1% of the whole BAT market cap (~1.25 billion USD), so these monthly buys are not enough to cause any kind of noticeable change in BAT’s price. The price of token is mostly determined by speculation and oscillates with the rest of the market - notably BTC.
Solving the lack of utility and overabundance: a crypto-cartel.
BAT has in its favor the fact that it has at least one buyer that is always going to be interested in acquiring the tokens regardless of its price. However, the supply is too large for the overall economy. Given that there is no easy way to increase the demand, perhaps we can think of appoaches that reduce the supply?
MakerDAO Vaults
At first, my idea was around using another solid project from the DeFI world, MakerDAO. MakerDAO has built the first decentralized stablecurrency on ethereum, called DAI. It is based on a set of smart contracts that takes some volatile crypto asset and provides collaterized loans in DAI to users.
BAT is one of the few tokens that is accepted by MakerDAO, and while there is a whole other post that I could write about the advantages of using stabletokens, let’s just point out that more people creating BAT vaults would lead to a reduction in BAT’s circulation.
However, it is a collaterized loan, which means that it costs to leave the money locked, and if the price of the token oscillates too much, it may lead to users losing their funds.
Improving on the idea: lock BAT, make withdrawal dependent on Brave’s revenue
The next idea has no existing implementation, but (I believe) could be developed by any reasonably experienced smart contract developer. Like MakerDAO, it takes the idea of locking BAT into a vault and it would also lead to users having stabletokens as the “usable” currency.
Such protocol would be based on a smart contract with the following functionality:
- Anyone can deposit BAT to be controlled by the contract, which would then lock these funds.
- The smart contract would then mint another token which would represent the ownership of a share of the funds locked by the contract.
- Every month, the contract would unlock (allow for withdraw) an amount of BAT corresponding to 70% of Brave’s reported revenue from their ad distribution. To withdraw the allowed BAT, the contract would accept stabletokens (e.g, DAI/USDC)
- The received stabletokens would then be redeemed by the BAT depositors.
In effect, every one locking their BAT would be giving away their chance of making a profit with BAT speculation, but would receive a perpetual dividend proportional to Brave’s revenue.
Brave has been growing at a good pace and it seems to be a safe bet in the sense that it will be around in the coming years. Those that want to look at defi as serious investment vehicle can easily be interested in this system where the risks are relatively low and that can lead to a continuous cash stream.