Announcing Kolibri DAO

Kolibri DAO will power governance for Kolibri, an algorithmic stablecoin built on Tezos

Kolibri is an algorithmic stablecoin based on Tezos that was launched earlier this year. It has quickly become one of the most popular DeFi projects on Tezos, with over $10M in TVL locked in the protocol and $1M+ worth of kUSD backed by that TVL.

When Hover Labs launched the Kolibri protocol in February of this year, we expressed that our governance philosophy was to prove the safety of the protocol, and to slowly decentralize over time, with the goal of ensuring on our way out that no other entity can ever unilaterally control the protocol. We’re excited to announce the next step in this plan — decentralized and programmatic governance controlled by a Decentralized Autonomous Organization (DAO).

Kolibri DAO

What’s a DAO Anyway?

How does it work?

The DAO also uses a snapshot system that can determine a user’s kDAO balance at the moment a proposal goes live, and requires they hold that balance for at least one block, which ensures participants cannot use flash loans to exert undue control over a vote.

We plan on upgrading Kolibri to be completely governed by the DAO in the coming days, but with some additional guardrails for safety (Read on to “Safety Precautions” below).

Proposal Lifecycle

A proposal is considered passed if it achieves both a quorum (a minimum amount of votes) and a super majority of voters vote “yay”. The quorum value is a floating value that adjusts using an exponentially weighted moving average and has both lower and upper caps. It is currently set at 30% and 80%. The super majority is currently set at 80%. Both the super majority and quorum caps are adjustable via governance

Once a proposal has been passed in the DAO, it is put into a timelock, akin to the multisig system today. This provides a programmatic guarantee of buffer time between a proposal and implementation, which provides safety and time for users to exit the system if desired before changes take effect.

Like Kolibri, the DAO is an upgradeable piece of software, which can be upgraded from the DAO itself. We expect Kolibri to upgrade over time.

kDAO and Token Distribution

The details are as follows:

(Note: An early version of this article listed a now defunct token contract address. Please prefer the address above.)

If you feel strongly about any of these token parameters, please come discuss this in our Discord, and we may change them based on community feedback.

Token Distribution

The distribution of kDAO tokens

Tokens will be distributed in the following fashion:

  • Airdrop to Ecosystem Users: 15%
  • Liquidity Mining Incentives : 30%
  • Hover Labs Token Grant: 20%
  • Reserved for Community Fund: 35%

Airdrop to Ecosystem Users

Methodology:

Hover Labs took snapshots of the Tezos blockchain every 1440 blocks (1 day, assuming all blocks are priority 0) from block 1330056 (when Kolibri was deployed to mainnet) until block 1461096 (Roughly Friday May 7).

Please note, actions taken after Friday May 7 do not count towards airdrop token allocations.

If an account met any of the following criteria on any snapshot block, we award them 104.602510460251046025 kDAO:

  • Borrowed more than 10 kUSD at a snapshot
  • Supplied kUSD Liquidity in any amount to Dexter
  • Supplied kUSD Liquidity in any amount to Quipuswap v1.0
  • Supplied kUSD Liquidity in any amount to Quipuswap v1.1
  • Supplied kUSD Liquidity in any amount to the Kolibri Liquidity Pool
  • Executed a Kolibri governance proposal

Rewards are not stackable (for example, executing two governance proposals is only worth ~104 kDAO, not ~208 kDAO) and can be earned across multiple snapshots (example: a user who provided liquidity to Dexter at block 1330056 and then moved liquidity to Quipuswap at block 1331496 would earn ~208 kDAO). It follows that the maximum amount an account can earn is ~ 624 kDAO.

Hover Labs has provided code to calculate distributions and a prospective list of rewards on our GitHub. We highly recommend that all interested users validate their allocations and reach out to Hover Labs as soon as possible if they believe it is incorrect.

No airdrop is perfect, but Hover Labs feels that this represents a fair distribution for kDAO. The criteria is selected to not be financially exclusive (we prefer to reward a broad pool of participants vs a small cabal of whales). Providing any amount of Liquidity ($0.01 USD or more) to a liquidity pool, the collateral required to borrow 10 kUSD, and paying the transaction fee to execute a governance proposal. Put together, the total cost of meeting all criteria is less than $25 USD.

We were specifically targeting 3 “personas” when thinking about how to distribute kDAO tokens equitably:

  • Experimenters: These are people who actually opened an oven and actively engaged with the Kolibri protocol by locking XTZ and generating kUSD. Our community is full of amazing folks who have given us super valuable feedback on how to improve, and we think they have a real interest in ensuring Kolibri is healthy and stable long-term.
  • Liquidity Providers: These folks are the ones who are providing liquidity on decentralized exchanges like Quipuswap and Dexter, which is a critical component to the economic balancing act that backs kUSD.
  • Early Governance Participants: As we did our stability adjustments to help stabilize the price of kUSD, we put in a number of governance proposals, all of which were proposed by Hover Labs, but executed by the community. As these executors were directly participating in the governance process in its earliest iteration, we want to ensure they’re given kDAO tokens as well.

Put together, we hope this group of users represent a set of people who are knowledgeable and curious about Kolibri and will help steer the protocol, favoring long term growth and stability.

One final note on airdrops: since Hover Labs is getting a founders grant equivalent to 20% of the total supply, we’re removing our wallet addresses from the airdrop.

Liquidity Mining Incentives

  • Users can deposit kUSD and earn kDAO tokens
  • Users can deposit kUSD Quipuswap LP tokens and earn kDAO tokens
  • Users can deposit QLkUSD (obtained from the Kolibri Liquidity Pool) Tokens and earn kDAO tokens

Exact allocations for each of these contracts is yet to be determined. The farms are intended to run for two years, ensuring that Kolibri provides long term incentives for users to participate in the protocol until additional incentives develop.

Lastly, control of these contracts (revocation of funds, adjustments to reward rates and length of farms) is programmatically controllable via Kolibri DAO. If the community feels sufficiently differently than Hover Labs, a DAO vote can adjust these allocations, cancel the farms, or launch new farms at any time.

Hover Labs’ Token Grant

Community Fund

The remainder of kDAO in the community fund is intended to be used for the good of the protocol. The DAO has control of these funds and could choose to do a number of things with them, including:

  • Paying a grant for additional features or development on Kolibri
  • Paying for a security audit of the DAO code
  • Incentivizing user behavior by extending or creating new farming contracts
  • Any other action which decentralized governance approves.

Safety Precautions

In line with Hover Labs’ previously communicated governance philosophy, we intend to continue to decentralize slowly, and lock the privileges we have when safety is proven. Given that Kolibri contains over $10M of TVL, and use of DAOs is still highly experimental, we’re optioning to have a “break glass” mechanism to be able to quickly fix/defang any issues found in the DAO or core protocol as result of independent report or security review.

On day 1 that the DAO goes live, the community (if it so chooses) can put in a governance proposal to remove this “break glass” mechanism, though we discourage it until the security review has been completed. If a security issue were to be discovered without this break glass mechanism, we’d find ourselves in a situation where we’d have to elect a new DAO or central Kolibri component while simultaneously trying to prevent the discovery or exploitation of the underlying security issue. While obviously security issues can happen at any time, there’s a higher likelihood that if these issues exist, they’ll be discovered as part of the security review, which is why we’re only recommending this measure be in-place until the security review is complete and any issues are fixed.

Break Glass

A visual representation of how the proxy contracts interact

A firewall of proxy contracts, called the “Break Glass” contracts will be deployed to act as governor of the Kolibri protocol. These contracts provide a set of safety guarantees which reduce Hover Lab’s privileges while maintaining safety.

If the contract is passed a lambda from the DAO, the Break Glass contract will execute the lambda as the governor of the protocol. This makes the break glass a direct proxy for the DAO contract.

However, the Break Glass is also controlled by a multisig. In case of emergency, the Multisig can “Break Glass” and ask the contract to revert control of the Kolibri protocol back to the multisig. This acts as an emergency button which could be used in case:

  • An unknown vulnerability is discover in the DAO or a Kolibri component which allows malicious users to gain control of the Kolibri protocol, or
  • A programming error in Kolibri DAO renders the DAO inoperable.

Philosophically, Hover Labs will never use this Break Glass functionality to block a governance proposal they disagree with. It’s a security control, and will never be used for anything else. We pledge to communicate across all standard communication platforms (Discord, Twitter, Agora) if we ever need to use it.

As before, the keys to the multisig are held by Hover Labs:

Keefer Taylor:
edpkuLh768382911CBbWkCN9joZkaZinKKeqPeMnxSoUb3X4TV7GpJ
Luke Youngblood:
edpktxA2V59rHy8FyHyfkiayz3y4cTYBcTWpooKJnREgBzJzLV7ZMT
Ryan Sears:
edpkuPu3FQqWPFTXRT21BBCy5pstVoM6ynwzz9SaFnr6TVrg5Z7GrK

Next Steps

In fact, Hover Labs supports the removal of the Break Glass mechanism as soon as reasonable. After a security audit has been completed any findings have been remediated and publicly disclosed, Hover Labs intends to submit a governance proposal to remove the Break Glass mechanism and lock ourselves fully out of the system, finally crossing the threshold into full decentralization. Hover Labs has begun sourcing a review and anticipates this work will be complete in the coming months.

Timeline

We’ve labored over many aspects of our decentralization and governance token distribution plan, and tried to explain our reasoning for everything above. If there’s something that’s not clear or an aspect you disagree with, please come join us in our Discord to discuss things. We’re planning on having this RFC period run for at least a week (May 27) to let the community digest it before taking the actual actions to switch the Kolibri Protocol’s control over to the DAO. As things progress, we’ll give updates via the same channels as we did previous governance proposals.

We know you’ll have questions. The best way to participate in the discussion is to join the new #decentralized-governance channel in our discord.

Developer Goodies

  • Murmuration DAO: A complete and generalizable DAO, including flash loan resistant governance token, DAO, community fund, and grant contracts, along with automated deployment scripts
  • Farming Contracts: A repository containing a generalizable farming contract and deployment scripts. Based on the great work from StakerDAO and Stove Labs.
  • FA1.2 Airdrop Scripts: The script that will be used to batch and airdrop kDAO. Based on the awesome work being done at StakerDAO.
  • Break Glass Contracts: The firewall proxy contracts used as a safety mechanism

Hover Labs loves when developers use our code. If you’d like help deploying any of our tools above, please contact us.

Thank You!

  • Cryptonomic — For our deploy scripts
  • ECAD Labs — For Tezos Taquito, a Tezos SDK which powers Kolibri’s front end
  • Jacob Arluck, TQ Tezos — Governance advice and feedback
  • SmartPy — Who implemented feature requests and builds the most accessible smart contracting language on Tezos
  • StakerDAO — For helping to produce both the tezos airdrop scripts and the farming contracts
  • Stove Labs — for their awesome work on the farming contracts
  • TzStats — For providing API access that powers our Airdrop scripts
  • TzKt / BetterCallDev — For the awesome API that powers the airdrop scripts and a smart contract explorer that keeps us sane

And lastly, thank you to everyone who has engaged with the Kolibri protocol, the Kolibri community and Hover Labs. You drive us to keep building!

Want to keep up with Hover Labs? Give us on Twitter or Medium, or connect with the team on Discord!

Kolibri is a system of smart contracts on Tezos which issue kUSD, a trustless, algorithmic stablecoin that is collateralized to XTZ and soft pegged to USD.