Aerodrome on Warpcast

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What do people in DeFi get wrong about issuance (e.g. token emissions and unlocks)? Maybe everything. 🧵👇

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The third installment of Dromos' exploration of the MetaDEX just dropped, this time breaking down the nuanced topic of issuance. Some key points from the piece:

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DeFi Has a Problem Understanding Issuance From emissions to block rewards to liquid team allocations, there are many mechanisms for token issuance in DeFi, but the result is always the same: an increase in circulating supply. Why, then, are some forms divisive and others not?

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Dilution by Any Other Name DeFi needs a framework to evaluate issuance and its effects. In other words, a way to honestly and consistently think about *dilution* (i.e. any event that triggers a change in proportional ownership), a near-ubiquitous concept in centralized systems.

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Not All Dilution is Created Equal As a general rule, dilution is positive when it catalyzes growth and maximizes utility by strategically redistributing ownership shares to active, vested stakeholders. Because when the pie grows, everyone benefits.

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Traditional Dilution Strategy Rewards Insiders That's why, in centralized systems, dilution tends to flow ownership toward insiders (who are often, but not always, active contributors) over outsiders (e.g. passive shareholders).

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Decentralization Unlocks an Upgraded Form of Capitalism In DeFi systems, dilution strategy can be freed from the limitations and bad habits of centralized counterparts and, in theory, be more effective at growing value over time. Here's why:

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1. Dilution can reward contribution without bias or insider preference In DeFi, the line between insider and outsider isn't meaningful, so dilution need not show preference for tenured, nonparticipating insiders over newer entrants who deliver genuine value.

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2. Dilution strategy can flexibly adjust to real-time needs Decentralized systems are not beholden to set dilution events like funding rounds or M&A, so they can dynamically adjust the flow of rewards (and the rate of issuance) to incentivize timely or strategic needs.

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Issuance Often Goes Wrong Onchain The unfortunate reality, though, is that most issuance strategies in onchain economies have fallen short of their potential, often flowing ownership toward early passive investors, short-term opportunists or insiders looking for an exit.

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