The problems facing JUP DAO under the current ASR system
As many of you are aware, JUP DAO recently crossed half a billion in staked JUP, further solidifying Jupiter as one of the biggest success stories regarding DeFi governance. This feat is not without a cost though, as Jupiter’s ASR system employs a 50M JUP quarterly fixed rewards mechanism. What this means is that with every additional DAO participant, individual yields decrease. The only way for individual yields to stay steady or increase is to have people unstake or leave the DAO, which would be in contradiction with the DAO’s stated aims of expanding the Jupiverse community or “growing the pie”.
Furthermore, there’s a lack of professional recognition for DAO members preventing access to traditional financing despite being taxed on their ASR gains.
There’s also demand for an immediate unstake option for a fee which raises some complex issues: what if everyone decided to unstake and take the penalty at the same time? Theoretically, there could be no JUP left to maintain Jupiter’s protocol governance system.
Finally, there have been concerns raised among DAO members that some voters aren’t properly engaging with the proposals. Several ideas have been bandied about to try to increase the quality of voter engagement, for instance, not allowing voters to select an option without reading through proposals, watching explanatory videos, etc.
All of these challenges and more can be overcome with the implementation of my proposed solution: Jupiter Bonds — where crypto bonds meets DAO governance.
So how does this proposed idea work?
Jupiter Bonds explained
- Team commits a % of JUP supply for the sole purpose of governance and auctions off those positions as “Jupiter Bonds” which grants holders exclusive access to guaranteed fixed yield opportunities as well as other highly sought-after features
First, it starts off by having the Jupiter core team allocate a percentage of JUP’s token supply for the exclusive purpose of DAO governance. To further illustrate this, imagine the team decides to allocate 100M JUP as permanent stake for governance purposes. They then auction off one hundred 1M JUP bonds or a thousand 100K JUP bonds where investors effectively take over those permanent governance positions on behalf of Jupiter for a set period of time. The permanent stake provides the underlying security for the purchase of the Jupiter Bonds. In return for taking over these positions and ensuring the stability of the JUP DAO governance system, Jupiter Bondholders are granted access to the best yields in the form of a guaranteed fixed yield as well as a reliable payout schedule which offers investors more certainty.
- Team invites DAO representatives to manage Jupiter Bond accounts to ensure compliance and active governance participation on behalf of Jupiter Bondholders in return of a share of governance earnings/yield/ASR
In addition to the aforementioned, Jupiter bondholders will have access to JUP DAO representatives who tasked with ensuring active governance participation in exchange for a share of bondholders’ ASR yield. This feature sets up a win-win situation for investors and Good Cats alike since sometimes investors are only interested in the yield while Good Cats are often concerned about the future of the protocol but may not have the capital to invest. By enabling the two parties to work together, Jupiter can continue to attract large investments while further empowering keen DAO members. It also sets up DAO governance to become a recognised profession since earnings could be significant enough to be a high value full-time salary.
- Team creates a secondary bond market specifically for Jupiter Bonds to enable access to immediate liquidity for bondholders.
Lastly, by creating a secondary bond market for Jupiter Bonds, Jupiter can offer a comprehensive trading ecosystem that enables price discovery and provides flexible exit options without compromising governance stability. This market creates various opportunities including arbitrage strategies and the ability for bondholders to realise gains before maturity. The system increases overall market liquidity while enabling institutional investors to manage their portfolios more flexibly. The market operates similarly to traditional bond markets, with prices influenced by factors such as yield, market conditions, and governance participation quality, ultimately benefiting both long-term holders and active traders.
Implementation Steps
Phase 1: Initial Jupiter Bond Offering
- Limited release to test market demand
- Focus on establishing baseline yield rates
- Implementation of governance representation system
Phase 2: Scaling and Optimisation
- Expanded bond availability based on Phase 1 results
- Refinement of yield mechanisms
- Enhancement of governance participation frameworks
Phase 3: Full Implementation
- Complete transition to bond-based yield system
- Integration with existing DAO structures (fixed rewards + fixed yield ASR)
- Establishment of secondary market support
Risk Assessment and Mitigation
While Jupiter Bonds present a promising solution, it’s important to address potential risks:
- Market concentration risk - possibility of large bondholders gaining too much governance influence
- Price volatility impact on bond values and yields
- Technical implementation risks during the transition
Mitigation strategies include:
- Implementation of bond ownership caps
- Smart contract audits and thorough testing
- Gradual rollout with emergency pause mechanisms
Financial Projections
While a detailed analysis of expected returns and costs is beyond the scope of this proposal, looking forward one should be provided to include:
- Projected bond yields under different market conditions
- Operational costs of maintaining the bond system
- Expected revenue from secondary market trading fees
Regulatory Considerations
The implementation of Jupiter Bonds must consider:
- Compliance with relevant securities regulations
- KYC/AML requirements for institutional investors
- Tax implications for bondholders and governance representatives
Conclusion
In summary, Jupiter Bonds represent a revolutionary approach to DAO governance that addresses multiple challenges facing JUP DAO today. By introducing a structured bond system with guaranteed yields, professional governance representatives, and a liquid secondary market, we can create a more sustainable and efficient governance mechanism.
This solution not only maintains the stability of JUP DAO’s governance but also provides attractive opportunities for institutional investors while empowering active community members. The phased implementation approach ensures a careful and measured rollout, allowing for necessary adjustments and optimisations along the way.
With Jupiter Bonds, we can evolve JUP DAO’s governance model to better serve its growing community while setting new standards for DeFi governance systems.
Thank you for taking the time to read this proposal. Please feel free to provide any feedback you may have or ask any burning questions. I’m also open to hosting a X Spaces to discuss this further if necessary.
– Matto
