¶ Basic Overview
First, we want to thank all of our delegators for waiting patiently while we crafted our tokenomics. In addition to rewarding our delegators with $KLEO, we will also implement KLEO staking to grant users the opportunity to earn other tokens from our bonus rewards pool. Our delegators should read this document thoroughly before deciding what to do with their KLEO tokens. We look forward to building this DAO together and hope you will support us as we strive to create an organization that brings value to its users and the greater Cosmos Ecosystem.
Let’s dive into an overview of our tokenomics…
- Delegators included in the early and final snapshot are entitled to 333,000,000 KLEO (45% of total supply).
- KLEO tokens from both the early and final snapshots will vest every month over a 12 month period. Users must claim their KLEO tokens on our website each month. Unclaimed tokens are clawed back to the community pool. Users who delegated on Kava, Lum, Desmos, or Vidulum must process a magic transaction to assign a JUNO wallet for the airdrop before August 25th, otherwise their allocation is clawed back.
- 80% of validator commissions will be split between KLEO liquidity, KLEO buybacks, and staking rewards. We included graphics below to illustrate the breakdown of these allocations over time.
- Initially, we will focus on building up liquidity for KLEO since the circulating supply will be low.
- Liquidity will be in KLEO/JUNO, and as a DAO, we can vote to use KLEO from the liquidity incentives pool to build LP. This enables the DAO to own its liquidity without paying out incentives to rent liquidity on a DEX.
- Protocol owned liquidity (PoL) minimizes the risk of fleeing mercenary liquidity and gives us more flexibility to explore other possible LP pairs in the future. For example, the DAO may opt to create a stablecoin pair at some point in the future, and owning our liquidity allows us to choose how much to allocate to each pair.
- Monthly snapshots to determine which delegators and stakers are eligible for rewards.
- Initially, the percentage of revenues used for buybacks will be high and then taper down over time. This should attract delegators upon launch and improve our position in various active validator sets.
- KLEO buybacks will be used to reward delegators – there is no net change to the LP if all rewards are sold. If rewards are held, then we will continue to see positive price action over the long term. If people dump their airdrop allocation, that creates an opportunity for users who see long-term value in KLEO to buy at a discount. Our success relies on our ability to continue generating revenues on the chains we validate.
- 20% of validator profits are reserved for our stablecoin treasury (15%) and self-bonding on the chains we validate (5%). As a DAO, governance will always decide on how to use these funds and if their allocations should be changed. Self-bonded assets will reside within the DAO’s treasury.
- Given that UST de-pegged recently, we will diversify our stablecoin treasury across 3+ assets. Initially, we will use axlUSDC via the Axelar bridge. The DAO can decide which other stablecoins to diversify into.
- KLEO can be staked for defined periods of time to earn bonus rewards. These bonus rewards will be paid out in tokens that we receive as commissions (not KLEO). These rewards may include a single asset or a basket of assets. To minimize sell pressure on any single token, we will rotate rewards regularly. Staking rewards will initially be paid in JUNO, so no sell pressure is created on KLEO as a result of staking.
- KLEO price is loosely related to validator revenues – as our revenues grow, the APR for staking will increase therefore encouraging users to buy and stake KLEO. If the price goes too high, the staking APR will go down and people will likely sell. If price goes low, staking APR will be high which encourages users to stake their tokens. Market dynamics will ultimately determine the appropriate price of KLEO and APR for staking.
¶ Specifics
¶ $KLEO Token Allocation
The total supply of KLEO will be fixed at 740 million tokens. The majority of supply will be airdropped to delegators.
45% of supply will go to our delegators with 15% allocated to our early delegators on JUNO and the remaining 30% going to those who delegated on all other chains we validate. The details of our two airdrops can be found here. These tokens will be claimable monthly for 1 year. We have included the emissions schedule in the next section.
The governance pool will be allocated 40% of total supply. This includes our development fund (5%), liquidity incentives (5%), marketing fund (5%) and the community fund (25%). Community members who contribute to the DAO in meaningful ways will be eligible to receive KLEO from the community fund. Every month we will highlight the contributions of our DAO members, and our community will be able to vote on how much each contributor is eligible to receive from the pool. Liquidity incentives can either be allocated for external incentives on DEX’s or can be paired directly with JUNO from validator revenues to create protocol owned liquidity. This will be determined by a governance vote. The DAO will also be responsible for voting on how to use development and marketing funds.
The core team is allocated 15% of supply. All team members are subject to a 1 year vesting cliff, which means that no tokens will become liquid during this time. However, the team will be able to vote with locked tokens according to a linear release of voting power during year 1. After 1 year, the team allocation will vest linearly over the course of a year. In summary, all team tokens will be fully vested after 2 years. Again, the team will have their tokens activated for voting during the first year, and voting power will be released according to a linear vesting schedule.
¶ $KLEO Airdrop Emissions Schedule
KLEO is vested to all airdrop recipients over 12 months to prevent supply shock and to facilitate a high initial staking APR for KLEO. This also allows us to build liquidity with early revenue and attract more delegators for revenue growth. The supply increase is fixed for the first 3 months and then increases by 18% per month thereafter.
We initially proposed a 20/30/50 profit distribution (treasury/liquidity/buybacks) for our rewards model. After running some financial projections, we realized that a dynamic revenue sharing plan would better serve the DAO during our first year of operations. First, we reduced the stablecoin treasury allocation to 15% so that we could allocate 5% of profits to self-bonding on the chains we validate. We can continue to modify this ratio to increase the self-bonding rate during bearish market conditions. The remaining 80% allocation will continue to be used for DEX Liquidity and KLEO Buybacks and the allocations will be fluid to promote early liquidity growth for price stability.
We will initially use 55% of profits to build liquidity for KLEO and the remaining 45% for buybacks and staking rewards. Over the course of the year, the liquidity allocation will taper down to 15%, while the buyback and staking portions will ultimately make up 85% of profits. This strategy allows us to build a healthy amount of protocol owned liquidity while token emissions are low. It will also serve as an incentive for users to continue accumulating and staking KLEO. Users who chose to buy and stake KLEO early on will receive a larger share of the bonus rewards pool in the future. By the end of our first year, Kleomedes delegators and stakers will earn a healthy share of the rewards.
¶ Staking
We have decided to create single sided staking for KLEO to earn a share of our bonus rewards pool. Staking will have an unbonding period and if you unbond your tokens, you will not receive staking rewards during the unbonding period. Additionally, you will not be able to vote on governance proposals with unbonding tokens during the unbonding period. The unbonding period will initially be set to 3 months and can be reduced or increased based on governance vote. A long staking period will serve to attract users who see value in our staking rewards system and users who plan to regularly participate in DAO governance.
Since our supply is low early on – staking incentives will be particularly attractive. Remember, the APR is dependent upon the price of KLEO – if the price goes up too much, the APR will go down. If the price goes down, then the APR will increase and thus encourage users to stake. Market forces should allow us to settle in a reasonable range.
Delegators
Why delegate with Kleomedes? Because we are the only validator in the Cosmos that puts 100% of profits under the control of governance. This means that all operations and allocations will be modifiable by DAO governance.
Some people have voiced concerns around our validator soaking up delegations, leading to a concentration of voting power. However, we argue that having a fully decentralized organization operating a validator in the top 10 actually promotes decentralization. Because Kleomedes is run as a DAO, we will be the most decentralized option in the active set. All our operational expenses will be publicly available and delegators will control the future of the DAO through governance votes. Kleomedes is using DAO_DAO’s governance tooling and we look forward to contributing to their platform and improving the governance experience on Juno.
Our delegators will also benefit from the success of our DAO through KLEO rewards. Every month, we will take a snapshot of our delegators, and these wallets will be eligible to claim KLEO that is purchased during our buybacks. Distribution will be based on each chain’s respective APR, the user’s share of delegations on each chain and the USD value of the token on each chain. Given the attractive staking rewards for KLEO, we anticipate that many users will stake KLEO to boost their revenue share rewards. Our monthly revenues can be monitored here.
¶ Valuation and Liquidity
KLEO’s valuation will be based on our operating revenues, which at the moment is primarily tied to the price of JUNO. Once we approach token launch, we will release the valuation model for KLEO. This spreadsheet will also estimate how much of our revenues will ultimately be provided for liquidity after 12 months. At this time, we are targeting a minimum of 20% of the total value of KLEO distributed by the airdrops. We believe that this is an appropriate ratio, because most of our users will be incentivized to stake their KLEO to earn rewards.
The LP will be launched as JUNO/KLEO on JunoSwap. We decided to pair with JUNO because it is our primary revenue source and our profits are likely to scale with JUNO price. We also plan to collaborate with other projects that were founded on JUNO and hope to create value on-chain through these collaborations. Since the value of our token will track well with JUNO, this should keep our staking APR relatively stable.
We have two options to build our liquidity. One option would be to pair JUNO from our revenues with KLEO from the Liquidity Incentives Pool, and the other option is to create an incentivized LP on JunoSwap. By using KLEO from the Liquidity Incentives Pool, the DAO will effectively own all its liquidity. This forgoes the need to rent liquidity on JunoSwap and it also means the DAO will retain all trading fees.
Ultimately, the community will need to vote on keeping the Liquidity Incentives Pool for the DAO (rather than allocating external incentives to JunoSwap). We will also have a vote agreeing to use JUNO from profits to create the LP for KLEO. We believe this strategy ensures stability of the LP and predictable growth over time.
¶ Assumptions and Risks
- The validator profits scale with JUNO price, but so does the KLEO price – so a 50% increase in JUNO price will end up with the same staking and delegating APR. This may lead to profit taking on KLEO that was accrued when the price was low.
- If the price of KLEO drops significantly, then more KLEO will need to be provided to make up the KLEO half of the LP. The DAO can vote to buy back additional KLEO for this purpose out of the liquidity share – since the liquidity incentives may not be sufficient.
- The staking APR was assumed to be sufficient – this varies based on risk, for some projects staking APR will be SIGNIFICANTLY higher to be attractive. This may mean that KLEO is overvalued – but can’t be determined ahead of time.
- Airdrop tokens will be distributed before staking goes live, but no liquidity will be added. If liquidity is added before staking goes live, tokens will be dumped. We will launch staking first, then the LP.
- The 15% that goes to the stablecoin treasury could be used for anything the DAO deems fit. We could donate it to charity, help fund another Cosmos project, or increase our self-bond allocations. This will all be decided by DAO governance.
- Active sets with an APR higher than JUNO will increase the KLEO staking APR. Active sets with a lower APR than JUNO will decrease the staking APR. We will continue to validate chains that we believe bring value and innovation to the Cosmos, and this may mean adding chains with a lower APR.
¶ Economic Modeling
Due to fluctuations in our validator revenues and JUNO price, we will hold off on publishing our economic models. One week prior to token launch, we will release a spreadsheet that shows how the launch price will be determined. This will ensure that you have access to the most up to date information prior to liquidity being added for KLEO.
We will also publish documents that explain how the airdrop allocation was determined. Our formula included the price of each token, the USD value of assets delegated on each chain, the APR of each chain, our commission rate (5%) and the revenues for each chain.
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