One of the main functions of the Secret Foundation is to steward and accelerate the growth of the Secret ecosystem while ensuring its sustainability. Since there is currently a large focus on Secret DeFi from multiple participants in the ecosystem and an influx of liquidity and interest, we’re starting an open discussion thread for maximizing SCRT and SEFI value capture and creation.
Here I’d like us to discuss and uncover best practices from research and other ecosystems so that they can be applied in our own products. We can also share threads and writing that can support our thinking in this regard. Any of these practices can be applied to any Secret App or token, and many of these mechanisms can and should also be applied to Secret NFT products as well (a new unique primitive that I believe will be instrumental to growth).
We’ll start with an excerpt from Ryan Watkins’ Messari research piece “DeFi Citadels: How DeFi Protocols Create and Capture Value.”
Protocol defensibility is derived from a combination of a few things:
Community including developers, token holders, liquidity providers, and users
Integrations both between real world institutions and other protocols
Brand and User Experience which is especially powerful when a protocol is the first to succeed in its market allowing it to build brand equity and set user expectations
Protocol Resources such as protocol treasuries and insurance funds
Security which is especially important for application specific chains
~ From “DeFi Citadels”
By the above metrics, we have built a highly defensible protocol - a necessary foundation for sustainable growth. Our community is large, resources are vast, and security is strong. Integrations are increasing as we have constructed some unique fundamental primitives for any chain to take advantage of. Brand / memetics are strong, though user experience and UIs do need improvements. This is a weak point that will naturally evolve as we push from early protocol adopters to the long tail of end users.
However, defensibility simply protects growth - it does not create it.
What Creates Growth?
Simply put, all growth results from an imbalance between supply and demand. And loosely speaking, sustainable demand always comes from increasing adoption (which can have a downstream impact on speculation - the relationship between speculation and adoption doesn’t work well in reverse). Constraining supply, however, must be more carefully considered - it doesn’t naturally occur.
Since all products being deployed on the network rely on SCRT for gas fees, demand for SCRT scales with demand for applications. But creating further incentives for SCRT stakers (perhaps by finding ways that SCRT staking derivatives can be used at the application layer?) increases demand for SCRT while further restricting supply. Identifying other supply sinks at the protocol level will create a spring-loading effect that impacts the application layer and any product integrated with Secret.
An example from the Terra ecosystem of interconnected protocol / application layer
There’s ways to create demand amplifiers for application layer tokens at both the protocol and application level. Example: a share of all network fees (paid in SCRT) goes towards buying certain application tokens via SecretSwap pools. Alternatively, a share of SecretSwap user fees go towards buying SEFI via SecretSwap SEFI/SCRT pool. There’s also potential mechanics involving cashback tokens for SecretSwap traders to incentivize volume.
We should also be prioritizing integrations (as the Messari piece mentioned) for creating sustainable demand. Here is where plugging into existing successful value capture and creation models (where Secret Network and its applications provide additional unique value) is a massive growth lever, especially if done at the protocol level with SCRT. Or we can work with other protocols to create new value capture / creation models across ecosystems. The obvious choices here are within the Cosmos universe (Terra, Thorchain) or in the ETH and BSC DeFi ecosystems, but there are many other potential avenues. Secret Tokens (SNIP-20 or SNIP-721) give us a lot of flexibility in how these integrations can work and they are unique to our chain.
The other piece here, which is delicate, is the biggest supply constraint of all - lowering network inflation. Establishing a lower issuance rate for SCRT is a bazooka that can kickstart a well-structured value capture/creation model that has properly balanced supply sinks and demand creation across the protocol. Right now we should be working to nail that model before pulling this thread, but it may be worth considering in the short term regardless. Perhaps inflation can be dynamically adjusted based on metrics beyond the bonded rate in the network. Perhaps staking derivatives can play a role here.
This is just a jumping-off point for conversation across the Secret community - and others. I’ll be pushing for contributions from existing network participants and potential new collaborators. SEFI holders and SCRT holders should comment here with their own observations on best practices or recommendations. Now that we have confidence in the defensibility of our ecosystem, we can and must be aggressive in establishing these growth mechanics.
I look forward to your ideas and conversation. I will be heavily dedicating myself personally here and recruiting intelligent contributors from around the blockchain universe.
Good luck, Secret Agents