2-Token Model: Building a Community Battery + Microprocessor

DAO Design Proposals
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Problem

Governance tokens + “price goes up” mentality = inherent conflict between project contributors and investors.

This isn’t a problem for organizations that build private goods since both groups share a common goal: profit.

But for organizations that build non-private goods, maximizing the project’s success at its mission is often at odds with maximizing its revenue.

Solution

A 2-token model solves this by separating these functions:

  • a governance token that powers the community’s microprocessor - optimized for harnessing collective intelligence in decision-making.
  • an endowment token that accumulates power in the community’s battery - optimized for growth in value and sustainably scaling the project.

Both tokens serve as electric current that can transfer between these functions, but by separating them they can both do these jobs better.

The Two Tokens

Screenshot 2025-02-12 at 12.05.26 AM
Screenshot 2025-02-12 at 12.05.26 AM1350×714 112 KB

visual representation of the 2-token model

1. Governance Token

Powers the community’s collective brain.
People hold this token is to have a say in the direction of the project, and its chief function is to power the decision mechanisms programmed for its nonfinancial purpose, values, and culture.

  • Transferability for bottom-up governance with natural evolution cycles, and to enable storage + transfer of value.
  • Stable value to give decision-makers peace of mind (like how microprocessors need stable voltage+current)
  • Dynamic issuance to distribute to contributors in perpetuity, including core team, partners, investors, and anyone else who creates value and cares about the success of the project’s nonfinancial mission.

2. Endowment Token

The community’s value accrual attractor.
People hold this token to get financial upside from the community’s growth, AKA “number go up.” Its chief purpose is to provide scalable, sustainable funding for the project in perpetuity.

  • Fixed Supply with 100% minted at launch and 100% added to community-owned LPs designed to encourage private token ownership.
  • Community-owned LPs that make up a healthy portfolio of underlying assets, designed for long term price appreciation, and with tunable exposure to the project’s governance token.
  • Swaps + LP adds using a portion of project revenue (i.e. fees, grants, donations) as the 3rd and final source of endowment value growth.

For public goods where fees can’t be expected to outpace expenses, combining all 3 of these revenue sources can sustainably power the project in perpetuity.

Implementation Example:

  1. Juicebox or Revnet to mint dynamically issued governance token.
  2. Gardens for the communityOS to govern distribution of governance tokens and portfolio allocations of community-owned LPs.
  3. Mint governance token day 0. Mint endowment token and liquidity for governance token only when project reaches financial viability.
  4. Maintain price stability with periodic swaps with community-owned tokens (soft peg) and/or a redemptions contract (hard peg price floor).
  5. Maintain a minimum ratio of token market caps where endowment token is a healthy multiple greater than governance token.

Conclusion

For non-private goods, a single-token system inevitably creates conflict in decision-making. Like the mythical flying car, the token is doomed to fail at both by compromising on each.

By splitting these functions into 2 tokens we can:

  • Reduce the influence of price speculation on governance decisions
  • Enable dynamic distribution of governance rights to contributors in perpetuity
  • Create sustainable, scalable funding through the endowment

Resources & Case Studies

Dynamic governance token issuance examples:

Endowment-style token experiment:

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Hi Paul, are there any projects you think have done a really good job of this
2 token model at scale?

i’m wondering how to keep it simple for builders, funders, researchers with 2 tokens to think about rather than 1. esp given what we now know about governance fatigue in daos

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ETH and wstETH / rETH is close - hold ETH to pay for gas, hold staked ETH for exposure to Ethereum network value accrual.

For governance tokens - some people point locked and wrapped token governance as similar, but they don’t solve the underlying issue that projects are marketing governance as “utility” and using locked token governance multipliers clearly aimed at convincing investors that these make them a good idea to buy, and ignoring the damage they’re doing to the project’s collective intelligence.

The flying car metaphor is pretty apt. 2 tokens might seem more complex, but the design challenges become a lot simpler when you separate these functions since they inherently compete with each other.

Private Goods = 1 goal, 1 token:

  • make money

Public Goods = 2 goals, 2 tokens:

  • good public goods
  • make money
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