One of the major problems with our economy today is that the needs of working people are subordinated to the pursuit of profit. Within blockchain-based governance mechanisms, standard token voting practices rely on the neoliberal notion of “voting with your dollar.” Like the capitalist market, this means wealthy investors can simply purchase large amounts of tokens on the market in order to hoard voting power. This system allows these capitalist robber barons, or “whales” to greatly influence the outcome of proposals submitted on “decentralized” applications. In other words, financial power becomes directly correlated with political power.
At Breadchain, we believe that this standard governance system does not reflect the core values of our project. Our approach instead seeks to keep financial influence out of governance. In this blog post we will illustrate our method of leveraging the technical standards pioneered by the Ethereum blockchain, specifically as utilized on the Polygon network, to build what we call the Breadchain Crowdstaking Protocol – a core funding engine for the project.
A little while ago, we published the second in a series of articles on how we see blockchain and its potential for building Dual Power. In that article we announced the soft launch of our Breadchain Crowdstaking Application which is the first attempt to build what we’re calling solidarity primitives uniquely afforded by the use of blockchains and smart contracts. We define solidarity primitives as a rethinking of what is commonly referred to as financial primitives in web3. Rather than using blockchains for profit maximization, solidarity primitives use them to help forge solidaris tic relationships between individuals and collectives.
The application is essentially a UI for a smart contract on Polygon, a side chain of Ethereum, that forwards crowdstakers’ DAI (a US Dollar pegged stablecoin) into an Aave lending pool. All of the interest earned on this DAI is owned by the Gnosis Multi-Signature Safe Wallet which is democratically owned by the Breadchain Cooperative Members. In return for participating, Crowdstakers receive a token called BREAD in the same quantity as they gave in DAI. We call this baking BREAD. The token acts as both a form of collateral as well as a digital local currency which will be used within the Breadchain Network of projects and broader ecosystem. Digital as in crypto and local not as in geographic locality, but local as in to the community which supports, shares and shapes the mission of the network.
It acts as a form of collateral not only because it represents the exact amount of DAI provided by the Crowdstaker, but also because Crowdstakers can burn their BREAD token to receive an equal amount of DAI back. In this way, Crowdstakers are not simply donors but co-conspirators for post-capitalism. Staking DAI in our pool, crowdstakers grant Breadchain permission to collect the interest generated to fund the cooperative projects in its network. Crowdstakers may also remove their funds at any time as guaranteed by the contract. This means that as a Crowdstaker you have two fundamental modes of interaction with the cooperative: funding the cooperative (baking BREAD) or defunding the cooperative (burning BREAD), either posing a stark contrast to their counterpart modes of investment and divestment.
The BREAD token is similar to a US Dollar pegged stablecoin in that it is given in the same quantity as the DAI provided and can be redeemed at any moment in a 1:1 ratio. It is essentially wrapped DAI. The implications of this are deeper than what you may initially think. We can think of the Breadchain Network as a digital town in which its citizens are people who align with the Breadchain principles. The BREAD token serves as a digital local currency for this town and can be used by its citizens. It can even be used by those who aren’t citizens but by doing so will support the project. It can be transferred and traded just like any other ERC-20 token all while keeping a stable value of roughly $1.
The Breadchain Crowdstaking Protocol acts like the currency exchange for building and interacting with a post-capitalist economy within the confines of present-day capitalism. With the combination of 24/7 access to burning your BREAD for DAI and a clear price point, it’s always possible to bake or burn BREAD as long as you have access to Polygon. The Breadchain Cooperative can protect the BREAD token from speculators through our managed Arrakis liquidity pool for Uniswap V3 on Polygon which anyone can provide DAI and BREAD in equal amounts as liquidity, but only at a price range at a fraction of penny below and above $1. The liquidity pool allows anyone to trade any asset for BREAD if needed without risking a large price swing different from the crowdstaking application price while netting additional revenue for the coop in the form of trading fees.
One downside to fundraising through crowdstaking is that it can be a slower process compared to traditional fundraising models that would compromise our values. Crowdstaking depends on the APR (Annual Percentage Return) of DAI in the Aave lending pool which can vary from 1% to as much as over 5% during heightened trading frenzies. This means that in order to maximize returns to Breadchain, it’s in our best interest to make it worthwhile for Crowdstakers to either hold or circulate their BREAD.
What is important to note is that the BREAD token does not represent any hard governance power over the network and should not be considered an investment opportunity. BREAD is a stablecoin that represents your solidarity with the mission of Breadchain: to fund decentralized projects that are building open-source tools for an alternative vision for blockchain and distributed ledgers.
As mentioned, the BREAD token is an ERC-20 token deployed on Polygon which can only be created by providing DAI to the crowdstaking contract which is more easily accessible through the UI of the application. All development of the smart contract and UI of the application is open source and can be found on our Github page. You can also see the amount of BREAD minted through Polygonscan here.
When we first introduced the crowdstaking application, we had the intention of deploying it on the Ethereum mainnet, but we realized that fees were too costly to be practical for our purposes, whereas using the app on Polygon consistently costs below $0.02 or even below $0.01 to interact with. The risks of deploying to a smaller, less established, and likely more centralized network do not elude us, but the benefits outweigh the risks in these early stages of our project. While a Layer2 solution may prove more desirable than a sidechain in the future, we are nevertheless well situated for future migration due to Polygon’s adherence to EVM standards For the time being, however, Polygon yields sufficient returns for our purposes and demonstrates a thriving DeFi ecosystem.
There are a few major functions in the contract crucial to understanding its operation: mint, burn, claim, and update.
The mint function is how crowdstakers bake BREAD, and requires DAI as an input. The DAI is subsequently sent to the Aave lending pool and BREAD is minted. There is no function for borrowing any of the DAI, so no leverage is possible to be taken on with funds you would provide.
The burn function requires BREAD as an input in which the equivalent amount of DAI may be retrieved. In other words, so as long as you have BREAD, you have a claim on the DAI that is being lent out at the time. When BREAD is burned, it is sent to the 0x00...000 burn address so it cannot be recovered. This maintains the equivalency between the supply of BREAD and the amount of DAI pooled through the crowdstaking contract.
The claim function is how the interest generated from the DAI goes to Breadchain. In this first design we are experimenting with keeping the function public so that anyone can claim the interest for the cooperative since the interest can only be sent to the Breadchain multi-signature wallet. This way there is no need to coordinate a multisig transaction for a function with such strict parameters and no plausible mechanism for abuse.
We are also using an update function which is currently owned by the Breadchain multi-signature wallet, but this will change in the coming weeks, as these functions are notorious attack surfaces for smart contracts. The reason we require this function is to be able to update the contract in the future in case needed and as well in order to change to a more decentralized layer 2 solution if decided in the future. To mitigate the risk of attack, we are creating a new 5 out of 9 person multi-signature wallet which will have control over the function. The wallet will initially include 4 Breadchain Cooperative members and 5 neutral parties who otherwise align with our mission and principles. The exact details of this move are forthcoming but will soon be announced.
With the recent de-pegging and crash of the Terra ecosystem, we also want to assure that BREAD does not share UST’s risk profile. The difference with UST is that DAI, which backs BREAD, is an over-collateralized stablecoin that runs on MakerDAO whereas UST was an algorithmic stablecoin with very little collateralization. Of course there is always a risk in anything financial, but the basics of BREAD token solvency relies ultimately on 2 things:
Solvency of DAI – the best performing stablecoin during market volatility
Solvency of the Aave protocol – one of the most trusted lending protocols in DeFi with no history of attacks
Given those two assumptions, BREAD is solvent.
This is just the beginning. Now that we have the first solidarity primitive operable, we need to put it to good use toward its designated purpose. Here is a taste of some of the next steps we are working on.
Publish an instructional article and video to help beginners interact with the application
Create a new multi-signature wallet to hold custody of the contract’s update function
Design a new homepage consistent with the style introduced in the application’s own UI
Make improvements to the application page (e.g., expand wallet compatibility, add a dashboard with relevant information about current use of BREAD, etc.)
Build a Gnosis Safe App to more easily allow organizations to interact with the crowdstaking application
Encourage BREAD as a reserve or remunerative currency for other projects, and much more
Once you have baked some BREAD, you can join the token-gated channel of the discord server (#bread-holders) by joining the Breadchain Guild. You can also provide feedback about your impressions of the app in the “#bread-feedback” channel. In the meantime, feel free to take part by adding some liquidity to our managed Arrakis liquidity pool.
Our network includes projects like PactDAO, which is organizing with mutual aid networks in NYC, LaborDAO, a project for exploring the use of web3 tools to assist the labor movement, and Basis, which is exploring mechanisms that can match supply with demand without using profit. These are just some of the projects in our growing network, and we are extending an invite to those who share our goals to apply here and join us.
If you’re looking for another way to support, you can do so by giving to our Open Collective, purchasing the NFT associated with the piece, or via Panvala. If you really want a closer look at the protocol or to contribute to its development, you can check out our Github page for the application. If you’re working on something that you think fits with the ethos of Breadchain, apply to have your project a part of the network or just to drop us a line, email us at email@example.com.