Problem Statement & Objectives
Fiat currency is a contentious issue that substantiates a primary narrative in cryptocurrencies. The current means of issuing currency typically involves no underlying collateral. Currency issuance tends to follow a top-down model. Banks, governments, and institutions have unfettered access to freshly printed fiat currency that trickles down through funding their investing activities, specifically into stocks and commodities. Cryptographic assets, particularly in DeFi, are subject to currency issuance experiments to incentivize user liquidity. Recently, DAO treasuries have emerged as protocol insurance and backup collateral for governance tokens. These treasuries behave as index funds; however, utility is often limited to niche use cases. Beyond the evolving use cases, there is no incentive to hold a governance token in unfavourable market conditions. This paper explores creating utility for governance tokens through seigniorage and diversifying the utility of DAO treasuries by providing fee-for-service assets under management (AUM) solutions.
It is impossible to achieve an intermediate-advanced understanding of Bitcoin without understanding money. Bitcoin has inspired an exponential wave of innovation built upon the conceptual foundations of the core value propositions. Still, it is simple for users at any knowledge level to understand that there will only ever be 21 million Bitcoin.
When we understand that fiat currency has an uncapped supply that gets issued at will, we can begin to see and anticipate the broader impacts.
Fiat is not sound money, nor is it pristine collateral to substantiate the value of denominations outside of the US dollar.
A key element of fiat currency is a universally shared belief that it has value within an economic jurisdiction. Supply often increases faster than consumer demands. Following issuance, investors, large corporations, and governments purchase Bonds. These are said to have stable yields acquired through seigniorage that is also often more profitable due to the interest obligations of newly printed currency. If an entity has faith in a currency’s value, it will buy bonds below their market value. When a fiat currency’s value follows a bond investor’s thesis, they realize arbitraged gains upon bond redemption.
The problem with this system is that bonds are not accessible to regular citizens.
Given the inherent economic complexity around monetary policy, many people are unaware when the fiat currency in their bank accounts is deteriorating in purchasing power. They have limited access to hedges and asset management opportunities in the face of currency devaluation. Cryptocurrencies have changed the game entirely in this manner. For quite some time, if you wanted to invest in stocks, you would need to set up an account with a bank and give commissions to a broker to facilitate trades on your behalf.
One of the promises of cryptocurrencies is that we have an opportunity to replace modern monetary policy and provide services for regular citizens to alternate between risk-on and risk-off assets.
Yield from risk-off assets like bonds is possible through seigniorage. But, what happens when participants are not well-positioned to purchase bonds that collateralize the currency’s value?
Without a line of defence, market forces may likely impose downward pressure on the value of an issued currency.
This signals us to consider hedging against market forces. Investors consider macroeconomic market forces to varying degrees when making investments. When the market is on a downtrend, many do not have the knowledge required to know when it is time to hedge. Primarily as the need to do so is often a requirement of macroeconomic forces that cause the market to become uncertain. War, increases in inflation, and increases in CPI are recent events that have dampened market sentiment.
To protect ourselves during these events involves exiting risk-on positions into risk-off assets. Depending on market conditions, it may be necessary to liquidate assets into stablecoins, physical assets (Gold, Silver, Precious Metals, Crude Oil, Wheat, Property, etc.), government bonds, and narrative-backed assets that can hold up under negative macroeconomic conditions (DeFi, NFTs, Metaverse, Play-2-Earns, Censorship-resistant assets, etc.).
Throughout the documentation, we will explore and substantiate the following value propositions:
  1. 1.
    Peak Finance’s issuance of a currency algorithmically pegged to a native ecosystem asset ($METIS). We believe the network effect has yet to fully manifest as the network continues to build greater functionality to attract new users with novel use cases. In addition, we recognize the success and praise the ingenuity of Tomb Finance through our modified fork of their protocol. Based on Tomb’s success in pegging to $FTM, we recognize the opportunity for upside in the Andromeda Ecosystem. Peak Finance will issue the $PEAK token pegged to the value of $METIS.
  2. 2.
    The issuance of bonds as a low-risk investment vehicle. Giving all investors access to bonds offers an opportunity for stable yields in unfavorable marketing conditions. Peak Finance is an AUM of Aeacus Capital, assets are managed in the Prometheus DAO treasury. The DAO fund will also play a role in reducing the risks associated with bond investments and algo-pegged currency deviations.
  3. 3.
    The issuance of the Prometheus token ($PRO) is a vote of confidence in Peak Finance and an actively managed risk-off asset and index fund. While seigniorage protocols and actively managed DAO treasuries are concepts existing in isolation, they are novel when interwoven.
Peak Finance is an AUM and the first step towards the Prometheus DAO Treasury, Aeacus Capital actively manages the DAO treasury to ensure returns from DAO investment activities and lend resilience to the Peak Finance protocol. When market forces are unfavourable, the Prometheus portfolio alters the DAO investment thesis by vacating high-risk positions into risk-off or low-risk assets and downtrading the market with professional strategies.
  1. 1.
    Aeacus Capital, through Prometheus DAO, will provide AUM-for-service for external DAO treasuries. There are many actively managed DAO treasuries. However, they are often niche investments. DAO Fund managers likely specialize in pursuing yields in DeFi instruments, NFT opportunities, discretionary trading strategies, long-term investment theses, portfolio hedging to risk-off. It is impossible to obtain a yield from every opportunity in existence, resulting in a lack of risk diversification. Aeacus Capital intends to provide services to existing DAO treasuries in yield generating opportunities they do not possess the skills to optimize yields. Further, Aeacus Capital offers risk-management services for DAO treasuries to protect assets during unfavourable market conditions. External DAO treasuries may deposit an allocation of their capital into an escrowed smart contract. An API linked to the core Prometheus treasury will enable external DAOs to copy trade. The internal taxation schedule of the Prometheus treasury and escrowed smart contracts applies a 10% tax to all treasury transactions that will invariably increase the price floor of the $PRO token.
  2. 2.
    Aeacus Capital intends to conduct viability studies in blockchain and real-world business start-ups. DAOification of business models will disrupt the traditional economy, giving investors access to equity in businesses that would otherwise be reserved to publicly listed companies on the stock market. Aeacus Capital seeks to advocate an investment model that enables equity at a grassroots level. We argue DAOification as a solution to centralized and increasingly fragile supply chains. Aeacus Capital believes in the disruptive potential of distributed ledger technology in the long term and wishes to unlock opportunities for retail investors that would otherwise only be available for institutional investors and venture capitalists.
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