Kin has been around since the middle of 2017 and was one of the earlier projects to migrate from an Ethereum consortium/Stellar fork to Solana due its scalability and low fees. It has been testing a Kin Rewards Engine (KRE) business model that was designed to help ecosystem apps earn a weekly revenue based off metrics such as in app earns, spends and transfers. However, over the past few weeks parts of this vision have failed and the community have been active trying to rebuild. Let’s outline what has happened since the fallout.
Disclaimer: The writer of this post has attempted to build an app to be a part of the KIN ecosystem earning KRE income. It just missed out & has since pivoted business model. Welcome to the Startup Grind.
Pet Legends
So What Happened to the Kin Foundation?
At the heart of it, there was 70% of $KIN token supply controlled by very few actors, hence making governance less than ideal. There were disagreements between the two entities over inflation, sustainability of the foundation, the calling in of loans, and who should be on the board. Code Wallet announced they have forked $KIN token and airdropped $BITS to most $KIN holders. Therefore the Kin Foundation decided to stop operating with many people being let go.
So what are the learnings from all of this? Do not trust centralised intermediaries where toxic leadership by a small few can undermine the values of whole communities. Web3 projects need to align to a different value set, as highlighted by Anatoly in this post, “The Values That Got Us Here“. This post was more talking about the year of 2022 and the FTX drama but is completely relevant to the recent developments at Kin.
“Web3 is the promise of an internet where users are in control, true owners of the platforms and services they use… Decentralization is the heart of web3 — and to truly embrace web3’s promise, it needs to be the uncompromising core of everything a project does. Fully open-sourced code. All activity on-chain. Self-custody. Community-owned… Trustless and permissionless systems that are specifically designed to prevent fraud and counterparty risk and ensure the highest levels of transparency and accountability for all parties involved… Virtually none of the players that melted down in 2022 valued those principles. The ecosystems that do are still alive and building a better future for us all.”
The Values That Got Us Here
What does Moving Forward Look Like?
With the Kin Foundation effectively ceasing operations and Ted Livingston (original founder) taking over again, he has posted his thoughts on what “Moving Forward” would look like. The BITS fork has been abandoned with the team moving forward with $KIN. In summary:
- We Need to Acknowledge That the KRE Has Been Paused, and Will Remain So For Now
- We Should Decentralize the KRE by Launching Many Different Smart Contract Experiments
- Transfers Out of the Kin Reserves Should Be Approved by Kin Holder Votes
With Ted Livingston’s posts, the community has put forth several proposals. The two prominent proposals are:
- Proposal 1 – Move to an Investment DAO and a new SPL Token
- Proposal 2 – Build a Decentralised KIN Protocol and Potential DAO Keeping the $KIN Token
Proposal 1 – Move to an Investment DAO and a new SPL Token
Extract below. Read the full proposal over on Reddit!
Phase 1 – Stabilize: Convert Kin to an investment DAO
The investment DAO model has already been proven by several projects, the biggest one being BitDAO and requires no extra code or moving parts.
There are many upcoming projects that have not launched yet offering pre-sales to establishments that can afford the minimum buy in. Minnows cannot but investment DAOs take part in these regularly. Holders of DAO tokens co-own and co-profit from the diversified treasury
The KRE has already been used to distribute Kin naturally to a large number of users, making Kin perfect for a token that can be used for voting and making DAO decisions. This infrastructure exists on Solana.
The KRE now becomes the Kin Investment Engine and starts to own tokens in upcoming projects. Some caveats can be applied to the investment, such as: “Add Kin to this project as a use-case” (Adding use-cases even as you add to the diversity of Kin’s treasury)
This model can run pretty comfortably with zero hires, zero code and zero need for marketing.
This model still expands on Kin usecases while also growing the treasury
Code can still be used as a voting/ tracking app to monitor the treasury
Phase 2 – Grow: Do what Ted said With a stable DAO and a stronger treasury
Kin can explore smart contracts that also reward other apps in a deflationary way. Investment DAOs constantly seek more usecases for their tokens. (For example, BitDAO recently announced their own blockchain with one of their investment partners).
Proposal 2 – Build a Decentralised KIN Protocol and Potential DAO Keeping the $KIN Token
Read the official proposal here: Introducing the Kin Protocol: A New Era for Decentralized Governance of Kin
Enter Kin Protocol
The Kin Protocol is not the panacea to all kin’s problems, but it is a step in the right direction towards decentralized governance. By utilizing skin-in-the-game and stake-weighted voting, it empowers the Kin community to make decisions that will shape the future of in-app digital economies. The protocol also creates incentives for participation by offering staking rewards from the Kin reserves, motivating users to vote on proposals and engage in the governance process. Likewise it also has disincentives as those who vote on malicious or destructive proposals that are executed will see their voting amount of Kin burned as a consequence. To get an idea of what a system like this could look like take a look at AAVE Safety Module
Staking
The staking will play a crucial role in bringing a decentralized model to reality. Initially, it will function as a stake-weighted voting system, allowing token holders to cast their votes based on the amount of Kin they hold. However, the staking module will soon evolve to incorporate governance, staking incentives, a slashing system, and a burn mechanism. These components will empower participants in the process by allowing them to make decisions such as what percentage of the stake can be forfeited, and how the burning mechanism and slashing will work. The staking module will be a key component in ensuring the decentralization and fairness of the Kin ecosystem, allowing the community to govern and make decisions that drive the future growth of the project.
Voting
Voting is an essential component of the proposed decentralized governance system using smart contracts. The system intends to time lock a portion of the tokens staked for a vote to ensure that they cannot be used for another vote until the time lock period has expired. This mechanism ensures that the voting process is fair and transparent and prevents vote manipulation or double voting. This time-lock feature would help to maintain the integrity of the voting process, allowing all participants to have a say in the decision-making process. It also helps control for whales repeatedly exerting their power over everyone because the tokens will become locked in their vote. With this approach, the Kin community can be confident that their voices are being heard and their decisions are being implemented in a democratic and effective manner.
Slashing
The slashing mechanism is a key component of the proposed staking and governance system. The way this typically works in decentralized finance (DeFi) protocols is that it is used to cover a shortfall event regarding liquidity causing a deficit. This could work the same way but pertaining to the Kin reserves. If a user is staking, then whatever they have staked could be subject to losing a percentage in a shortfall event. The governance process becomes responsible for maintaining solvency. How to solve the problem of the method to determining these events is not one I think is prudent to solve immediately, but I imagine it could a novel oracle design that could align incentives in a way that achieves the desired result. For a similar concept check out Chainlink Proof of Reserves
Burning
The burning is the process by which a part of the staked tokens are destroyed and removed from circulation based on whether they voted for the destructive consequence. The aim of the burning is to discourage and penalize harmful actions by any participant in the system. By taking away a part or all of their voting stake, it serves as a punishment for negative behavior and helps maintain the stability of the overall system. Stakers could assign any amount up to the total amount they have staked, minus whatever is currently frozen in the voting process. This ensures that everyone plays by the rules and acts in the best interest of the community as a whole. The conditions for burning, as well as the extent to which tokens will burn, will be a community led decision through the governance process. Similar to the slashing, this could use an oracle system to determine success metrics or it could be a role delegation to certain community members via the vote as trusted arbiters of success criteria.
Governance process
Additionally, the process for submitting and evaluating proposals for the Kin ecosystem is crucial for ensuring the long-term success and decentralization of the platform. Having a structured and transparent proposal process helps to ensure that the community is able to make informed decisions and hear all voices. By having clear steps and a defined process, we can cut the potential for bias, manipulation, and prevent any one individual or group from having too much control over the direction of the project. This not only protects the integrity of the Kin ecosystem, but also builds trust and confidence in the platform among its users and stakeholders. In short, a well-defined proposal process is essential for the continued growth and decentralization of Kin.
Read the official proposal here: Introducing the Kin Protocol: A New Era for Decentralized Governance of Kin
This Experiment is What Decentralisation is All About
What has happened at KIN is similar to what has happened in the past. This is all an experiment of Web3 projects finding product/market fit and sustainable business models. Read a similar story of how the OpenBook DEX was born out of Serum’s ashes.
One of the cool things to come out of this whole FTX drama is seeing the Solana community come together and fork the Serum repo to build their own DEX. No longer is the smart contract running one of the big DEX’s potentially compromised (as Serum was made my FTX team) it is now community led with a multi-sig wallet with a variety of Solana Defi Projects holding the keys. Ultimately, this means a stronger, more resilient and decentralised Solana Defi ecosystem. To rebuild will be tough and will take time to grow trust and Defi TVL over coming months & years.
Serum Forked – Replaced by Community-led OpenBook DEX
No doubt there will be more decentralised participants helping push the KIN Project forward and will endeavour to list their proposals here and keep this post updated.
Will KIN Survive this Bear Market?
Time will tell. All projects need to find P/M Fit before their runway is depleted. Perhaps they should enter the Solana Hackathon Grizzlython that is running now with their own entry.
