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| "Gold is Old" but Digix Global's platforms and approach to tokenize physical gold into fungible tokens represent early innovation on the Ethereum blockchain. DigixDAO can start a virtuous cycle to accelerate a digital gold ecosystem on Ethereum. |
Introduction
In our preceding article, we covered Digix Global, creators of the gold backed smart asset platform DigixCore which was launched on Ethereum in January 2016. Following the alpha release, Digix Global has now launched the DigixDAO on Ethereum. DigixDAO is a crowd sourced funding channel and rewards program for further developments of DigixCore and its ecosystem.
In this post, we will cover the salient features of DigixDAO and participation crowdsale. Originally scheduled to run for two weeks from March 30 with to raise a maximum of $5.5 million USD in exchange for DigixDAO tokens, the crowdsale reached its target within 12 hours. The required sum was raised between 675 unique purchasers, with many others still waiting to get in.
Ironically, in early interviews in February, Digix Global CEO and co-founder, KC Chng had modest expectations of this first DAO crowdsale on Ethereum, with a refund plan if the sale raised fewer than $500,000.
What is the Digix DAO
The DigixDAO is a smart contracts application that implements a Decentralized Autonomous Organization (DAO) on the Ethereum blockchain.
The objective of the DAO is to get public participation to spur development of DigixCore roadmap and a collective ecosystem.
The DigixDAO membership/ownership is designated through digital tokens denoted as DGD. The DigixDAO has released an initial supply 2000,000 tokens, each token divisible upto 9 decimal places.
The initial release of 2,000,0000 DGD tokens will be distributed between members of public (85%) and Digix Developers (15%). Token ownership give holders voting rights, in some cases in proportion to their holding. All raised funds are maintained in Ether at a public Ethereum address.
Token holders receive rewards/return on investment in the form of a share of transaction fees in DGX (0.13% capped at 1 gm) collected from asset transactions on the Digix platform. Rewards are also promised for user referrals on the DigixCore platform and ecosystem.
All token holders receive rights to pledge for projects in proportion to their holdings. Token holders can pledge their preferences around different development projects. Funds will be allocated by project to prioritize and accelerate development of Digix Core a platform ecosystem around Digix such as wallets, exchange APIs, addition of blockchain partners and so on. Additional privileges are tokenized through badges such as founder and proposer. The former can submit proposals directly or for vetting, vet and pledge proposals. The latter is not allowed to submit proposals directly.
Like the Proof of Asset certificate for gold assets on the DGX platform, a project proposal with budget and timelines is maintained on Inter Planetary File System, IPFS. Members pledge for or reject proposals and accepted proposals (with 51% majority) get approved. Approved projects are allocated funds from a multi-sig DAO wallets which holds the raised ether.
Participant Rewards
DGD tokens represent ownership in the DigixDAO. Tokens can be traded using an Ethereum wallet.
Token golders receive quarterly rewards in the form of DGX tokens, the gold backed token representing 1 gm of physical gold, generated on the smart asset core platform. Fees are divided by the total number of DAO tokens (2000,000) and distributed to individual holders as pro-rated reward benefits in DGX.
To recap, a DGD token holder whose funds are denominated in ETH, will receive DGX tokens on a daily basis in their wallet. The DGX token value is tagged to the value of 1 gm of physical gold and divisible upto 4 places.
Return on Investment and Risks
DigixDAO’s rewards model once understood is quite an attractive proposition. A one time investment in ether will provide perpetual return in the form of gold backed DGX tokens in proportion to the growth of the platform. The actual return on investment is subject to many market variables such as ether price, gold prices and transaction volume.
Digix has cited eGold, the first digital gold backed currency in the early Internet ecommerce era, which rose to a $2 billion annual transaction volume at its peak.
In a scenario described in DigixDAO’s whitepaper, a USD 2 million DGX transaction daily volume, which nets a 10,000 DGD token holder 125.3772 DGX (or 125 gms physical gold) in the course of a year. Other scenarios and related risks have been discussed in various forums. For example, this calculation/explanation below on reddit by Digix Global’s CEO.
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| How DigixDAO nets returns in DGX: A discusssion thread on reddit. |
If DigixCore ecosystem takes off likewise and DGX tokens become the gold backed currency for other decentralized apps on Ethereum, token holders stand to have a potential "gold mine" on their hands.
The greatest risk where the crowdsale investment borders on speculation, is that it is a yet to be proved model on an as the emerging Ethereum platform. Other risks include any future regulation around DAO as investment/ownership vehicles and tax treatment of rewards. These risks are not limited to DigixDAO alone and are applicable to the emerging world of cryptocurrency and blockchain applications as in the case of Bitcoin.
Digix DAO Crowdsale
After the go live of the alpha version of Digix Core in January, Digix made a formal announcement in March on the first Digix DAO Crowdsale.
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| The DigixDAO crowdsale public contract address and purchase transactions on the Etherium blockchain |
This was the first crowdsale built and executed entirely on chain. Investors sent in Ether using their Ethereum wallets to a public contract address on Ethereum blockchain. Payments were also accepted in BTC, altcoins and fiat currency through integration using ShapeShift API. The target $5.5 million was raised within twelve hours.
The Digix crowdsale stats are available on the DAO sale website and crowdsale transactions can be viewed on the Ethereum blockchain.
What’s Next for DigixDAO
Post the crowdsale Digix Global have started several public communications such as this latest update and have opened a public Slack channel as well. DGX tokens will be distributed and open for trading on April 28, 2016 on decentralized cryptocurrency exchange OpenLedger. Post distribution, token holders will be able to pledge approval for priority projects and new proposals.
Summary
The DigixDAO’s purpose and incentive mechanism can start a virtuous cycle for creating a strong payments ecosystem on DigixCore with the same disruptive potential of Bitcoin. Even though the DAO is a yet to be tested model on an emerging platform, the business idea behind Digix Core is sound and as old as gold.
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