Quadratic Acceleration (q/acc)

A Mechanism for Protocol Bonded Tokenization

Justice Conder Tamara Helenius Griff Green

Introduction

An overwhelming majority of tokens fail, some quickly and some painstakingly slow. Tokens once considered the next big thing are buried beside the best-intentioned experiments and the worst-intentioned scams. This sobering reality is that this rate of failure has caused negative sentiment about token systems in general, both from the public and the web3 community.

Tokenization has been a thorn in the side of many web3 projects because on the one hand, it epitomizes their primary attraction to web3: to build and participate in novel token networks, this new and weird innovation that takes the best from traditional networks while offering unique social and economic solutions those others do not. On the other hand, there remain some major headwinds: the complexity and cost of tokenization and widespread regulatory ambiguity. These challenges make tokenization impossible for many web3 projects.

Another well known fact in web3 is that successful token protocols raise vast amounts of capital in revenue. They often seek to incentivize the adoption of their protocol by allocating their tokens through grant programs. According to the report State of Web3 Grants, between 2017 and 2023, thirteen grant programs allocated over 800M USD to web3 projects. That report only represented a fraction of the web3 grant programs that existed at the time. There are now even more web3 protocols, with most allocating increasingly larger amounts of capital to their grant programs. Hundreds of millions of USD are now allocated annually.

Despite the number and sheer size of web3 growth programs, existing grant models fail to align the incentives of the key grant stakeholders: protocols, projects and community.

Protocols allocate large amounts of capital via their own token, which ends up creating predictable sell pressure but not predictable protocol adoption or token hodling, neither does it produce long-term commitment from builders.

Projects want to benefit from the advantages of tokenization, but the costs and complexities involved are often prohibitive. Instead, if they do not meet the criteria for VC investment, or do not choose to go down that path, they can slip into a cycle of grant chasing to stay funded.

Communities want access to a stake in web3 projects, but those opportunities remain closed to most. Web3 communities are constricted to hoping for an airdrop and speculating on the vast universe of unvetted tokens, where it is often impossible to tell the scams from those with real potential for future value.

What is needed is a web3 growth mechanism that results in increased stakeholder alignment through safe-guarded tokenization. One where:

protocol grant capital is directed to programs which directly benefit their token value and produce measurable commitment to their ecosystem by the project recipients.
carefully screened projects are uninhibited by the complexity of tokenization and enabled to launch durable token economies via an open and fair token distribution, creating value in a truly decentralized manner while remaining focused on building.
communities actualize the web3 potential of community ownership in novel web3 economic systems.
there is inherent ecosystem support through better stakeholder incentive alignment.

Stakeholder Alignment

We define the three stakeholders involved in the web3 ecosystem as follows: