Deep Dive: AladdinDAO’s Governance Mechanism and Incentives Design

12 min readJun 18, 2021

Special thanks to 0xminion, Dave White, Stani Kulechov, Christopher Heyman, Alex Pack, Ashwin Ramachandran , Joe DeTommaso, Matt Beck, Mike Katz, Sharlyn Wu, Liu Feng, for your constructive feedbacks.

AladdinDAO is a community built for value discovery. A group of DeFi veterans started the DAO to curate yield farming. The vision is to provide a one stop shop liquidity mining services.

AladdinDAO uses game theory to build a three sided marketplace: DeFi projects, DAO, and yield farmers, where the DAO curates the best DeFi projects for yield farmers whiling earning the DAO’s governance token.

A three sided marketplace

AladdinDAO is initially supported by a group of legendary DeFi veterans who are the first batch of talent hunters for the DAO. Talent hunters are incentivized to set up the initial talent structure of the DAO known as Boule.

As a group of world class experts in DeFi, the AladdinDAO Boule are responsible for identifying the most promising DeFi projects and enabling AladdinDAO community members to enjoy the returns of their liquidity mining programs.

To initially fulfill the DAO’s purpose of collective value discovery, diverse diligence, decision making and community building, 80% of boule members are nominated by the first batch of talent hunters and 20% of boule members are nominated by the community directly. This structure will ensure boule members come from a diverse background. All the nominated boule members need to be elected by the AladdinDAO community through a decentralized governance process.

Boule members earn Aladdin tokens (ALD) as a result of their participation in the DAO. Both talent hunters and Boule are moving open organizations.

Talent hunters attract the Best Brains

Talent hunters are responsible for attracting and recommending potential boule candidates for the DAO. The first batch of talent hunters — the initial backers of AladdinDAO — are responsible for bootstrapping the talent network. Each of the initial talent hunters can invite up to 5 boule members (it can include themselves). In order to be appointed, the invited members must be elected by the DAO through a decentralized governance process.

Similar to a marketplace where the boule members compete under a gamified algorithm, AladdinDAO cryptographically incentivizes the best brains to identify the best projects.

Specifically, members are given the highest reward when they find projects that bring the most profit to the AladdinDAO community. Rewards come from ALD tokens generated through the protocol’s liquidity mining program and are measured on a per epoch basis. Each epoch is two weeks. This ensures that boule members are constantly surfacing new quality projects rather than sitting on the returns of their existing funds.

Just like the expansion and contraction of the asset management business, the number of boule members will change along with the TVL of the DAO. Top boule members have a promotional path to become talent hunters for the system. For those who do not perform with integrity, the system will rank them lower and eventually force them to exit the Boule in the down cycle.

AladdinDAO will adopt mechanisms to search for talent across the entire community over time. The goal is to decentralize the talent search and decision making process, based on the on-chain track record. The long term vision is to build a decentralized investment engine to harness the wisdom of crowds as human society is swarming into the crypto world.

Strategy developers

Strategy developers at AladdinDAO are responsible for conducting technical integration of liquidity mining programs to the platform and writing strategy contracts. In addition to ALD incentives, strategy developers at AladdinDAO also get part of the performance fee from mining rewards.

Marketplace incentives alignment

AladdinDAO has two game-theoretical structures designed to make sure that talent hunters and boule members’ interests are aligned with Aladdin users for the long haul.

Talent hunters will be rewarded with “talent hunter incentives” for inviting boule members, which give them tokens linked to the collective performance of the invited members. Boule members compete under a gamified algorithm to contribute to discovering new projects, research, decision-making, curation, and community-building.

AladdinDAO’s philosophy is to reward the best performers. Boule members can be rewarded under two scenarios:

The project they support becomes an outperforming pool
The project they reject becomes an underperforming pool

This design is to incentivize boule members to vote responsibly, independently and with a high level of conviction. Only boule members who have the best judgement can win the DeFi game therefore, receiving most rewards.

How are incentives calculated?

To understand how performance of boule members is measured, we have four principals:

Adjusted profits of listed pools. The adjusted profit of each pool is the profit generated from this pool for Aladdin users adjusted by the time decay factor. The time decay factor is designed to make sure that boule members constantly work on new quality projects rather than sitting on the returns from existing finds.
Relative profits of listed pools. The relative profit of each pool is its adjusted profit minus the average of adjusted profits of all listed pools.
Voter weight of boule member i in pool j. If boule member i voted “Yes” for pool j and N members in total voted “Yes” at the same time, then the voter weight of member i in pool j is 1/N. If boule member i voted “No” in pool j and M members in total voted “No”, then the voter weight of boule member i in pool j is -1/M.
Contribution Value (CV) of boule members. CV of each member is the sum of relative profits of the pools they voted for, weighted by the corresponding voter weights.

At the end of each epoch, boule members are ranked by their CV. The percentage of rewards for each member from the incentives pool is calculated in line with the percentage of their CV out of the total on a per epoch basis.

The market will price for all boule members’ performance. The profit generated for each pool is determined by the TVL contributed by Aladdin users and the APY. Once a liquidity pool is listed, it will be part of the CV calculation for every epoch as long as there are still funds available.

The model is dually beneficial. Boule members’ interests are maximized when they recommend liquidity pools which can scale with decent APY and run on a sustainable basis. This behavior also maximizes the Aladdin users’ interests.

The extreme ends of the spectrum where liquidity pools with extremely high APY but collapse after a short period of time and liquidity pools with extremely low APY but massive TVL are suboptimal choices.

The design purpose is to make sure that boule members evaluate opportunities with a long term view, which aligns with the best interests of Aladdin users and DeFi community in general.

AladdinDAO is not created for quick farm and dump trades. Farm and dump immediately is never the best strategy. We want to build our community with people who want to discover value and think long term. AladdinDAO’s mission is to find and support projects that create value for the community. Rome was not built in one day. AladdinDAO is designed to be a project built which helps winners to win — rather than adding more noises to the chaos.

How to get listed on AladdinDAO?

Any project can apply to AladdinDAO for yield farming curation services.

Each boule member has 4 votes every month. As such, boule members need to consider their choice carefully and only vote for the project that they believe has the most potential. They can either upvote or downvote a project.

For any project to be listed on Aladdin for liquidity mining, they must fulfill at least one of the following criteria:

Over 50% of boule members vote and a majority of the votes are “Yes”.
The percentage of “Yes” votes is 20% more than the percentage of “No” votes

These criteria ensure that sufficient consensus can be achieved, given the high costs associated with listing new projects. They also prevent potential attacks and collusions during the voting process.

Decision overturn:If any boule member strongly disagrees with the Boule’s decision, they can call for a vote by all ALD token holders. A decision can be overturned if the below conditions are met:

A quorum of over 20% circulating token holders participating
Over 51% agreement

What is unique about AladdinDAO?

There are 3 mining mechanisms on AladdinDAO.

Proof of Talent: talent hunters compete to recommend the best possible DeFi faculty to the system. They are rewarded based on the collective performance of their recommended members.
Proof of Brain Power: boule members compete to curate the most profitable liquidity mining programs. They are incentivized based on these liquidity pools’ performance and returns generated for the Aladdin community.
Proof of Liquidity: mining users enjoy the curation and one stop shop liquidity mining services and get incentives based on their share of the liquidity contribution to the platform.

With this unique design, AladdinDAO has the potential to scale up to trillion dollars market size — catering to all possible DeFi players, each with different objectives, incentives, cost structures and levels of knowledge.

This creates a virtuous cycle. The smarter the DAO is, the better decisions are, the more quality projects and liquidity the platform can attract, the more value Aladdin tokens can capture. Ultimately, the DAO can attract more talent to put in extensive work and vote responsibly. Repeat!

Incentives Structure

AladdinDAO can be seen as a yield farming curation service governed by a DAO. Aladdin users enjoy the one stop-shop yield farming services while providing liquidity services to the selected DeFi projects. AladdinDAO uses game theory to build a three player marketplace for DeFi projects, DAO and miners.

The most important task of the DAO is to onboard the right projects. To do so, we have to onboard the right people first. Thus, a big part of Aladdin’s incentives are used to compensate for the costs around decentralized decision making and talent search.

People might be curious: why does AladdinDAO reward boule members so generously?

As discussed heavily throughout this article, AladdinDAO adopts a game theoretical decentralized decision making model. We all know the efficiency of centralized decision making. However the downside is obvious as well. AladdinDAO aims to build the most intelligent and powerful decentralized investment engine to harness the wisdom of crowds. We are training this decentralized network of talent to dedicate and structure the chaotic information into order.

Strategy developers also play a very important role at AladdinDAO. Strategy developers are amazing creators of the DeFi world. They are the artists and poets in our era. Strategy developers will be rewarded with ALD incentives and part of performance fees from mining rewards at AladdinDAO.

A new financial instrument to trade human intelligence

Blockchain is a human and capital coordination technology. It enables the creation and distribution of financial assets around the world at minimum cost. It also empowers many new types of financial assets to be created which were not previously possible. It is a perfect playground for the digital economy while all valuable data points can be turned into measurable and tradable financial instruments.

Most of the DeFi projects we see today are based on value exchange models. In abstraction, it is one asset exchanges to another asset based on an algorithm.

AladdinDAO brings human intelligence and decision making capabilities as a new type of productive force to the on-chain world. It incentivizes the collective human hivemind to make correct decisions as human society is turning from tree-like structure into a mesh structure in the crypto world.

The Aladdin token is the first ever financial instrument and crypto native asset to measure and trade human intelligence. The value of the Aladdin token reflects the level of the overall DAO intelligence. If you are a creative and smart person, please join the Aladdin community to make the DAO more intelligent, while getting paid for your brain power!

Selection of DeFi liquidity mining programs is the starting point for AladdinDAO. We have a long journey to reshape every part of the asset management markets and go beyond the meaning and scope of investment to places where the wisdom of crowds are needed.

How does AladdinDAO create orders from chaos?

Crypto is chaotic. Do you still remember the Big Data Protocol drama and many scams brought to the community? The root cause of these projects is information asymmetry.

When most people see information on CT, it is very hard to tell whether it is signal or noise. A lot of opinions are randomly broadcast, and lacking facts and logical support. Sometimes opinion leaders can come up with completely opposite opinions because they are drawing from different information sources or thier incentives are incompatible with yours.

Some influencers may intentionally create an information blackhole. They may play a zero sum game or even negative sum game with the audiences. This massive information asymmetry has led to a huge disruption for the entire community.

AladdinDAO aims to build order in the DeFi world in terms of fundamental values of DeFi protocols. We are trying to build a better signal system to help the community to optimize resources allocations overall.

Re-phrasing, in DeFi, the Rudolf Clausius’s assertion about thermodynamic process, it would be “the arrangement of the constituent parts of the DEFI world”, quantified by a measure of “entropy”.

The process of consensus-making in blockchain, turns miners’ hash power into agreement on what transactions are included in each block to be part of the final ledger.

AladdinDAO, on the other hand, turns boule members’ brain power into ranks of the DeFi protocols through their predicted performance. The algorithm continues to keep the track record of the boule members, since the boule is a moving open organization. The trust of the DAO members is determined by their eventual performance. To secure a seat in the DAO boule membership, one needs to outperform on an ongoing basis.

Through an algorithmic design to elect overachievers over underachievers, AladdinDAO establishes a human oracle. This brings in negative entropy to create a system which rewards and retains the best members on a retrospective basis.

Next time if you see a recommendation on CT, don’t trust it! Bring it to AladdinDAO for human verification! Rest assured, the boule members at AladdinDAO have aligned incentives with you.

AladdinDAO is made not to become a statistical thermodynamics system resulting in the heat death of the universe. It will bring the negative entropy of Schrödinger from outside of the system to make “order in live organisms’’

In the context of Bitcoin, the consensus algorithm rewards the miner with the most hashpower of every single block, and Bitcoin becomes more valuable as the network hashpower increases over time. The network evolves with order as it continues to bring in negative entropy from outside the system. Similarly, the Aladdin algorithm rewards the boule members with the best judgement (measured on a per epoch basis). AladdinDAO creates more value for the community by turning chaos into structured information as its network brain power continues to rise.

Appendix

Examples of incentives calculation

For example, we have 3 Boule Members (Alice, Bob and Susan), they voted for 3 projects (A, B and C). A, B and C have been listed on AladdinDAO for 80 days, 50 days and 20 days respectively. In this epoch, A, B and C have generated $1m, $2m and $3m profit for Aladdin users. DAO Mining releases 27.36/per block, total 2,736,000 ALD per epoch (100000 block). Based on the above algorithms, below charts show the allocation of ALD rewards from the Boule Member incentives and Talent Hunter incentives.