What's the deal about DOUGH?
An overview of PieDAO, the Decentralized Autonomous Organization I'm invested in, with a light tutorial on DeFi embedded.
Here’s where I do that thing- this is not financial advice- this is for informational purposes only. Just cause it fits my situation and risk profile doesn’t mean it fits yours.
Ok, now that the disclaimer is done.
PieDAO is a decentralized autonomous organization. You can think of a DAO as a company made up of customers. I’ll write more on DAOs separately, all you need to know to understand this article is that cryptographic assets exist and some of them are similar to stocks (often called governance tokens). That makes PieDAO similar to Vanguard one of the big 3 mutual fund & electronically traded fund (ETF) companies in the world.
PieDAO has 3 primary products: Pies, Ovens, DOUGH connected to its mission:
”A decentralized asset manager for tokenized portfolios, with a mission to bring automated wealth creation to everyone with an internet connection."
Pies = Index Funds for Crypto
Pies are index funds that follow a broad sector of crypto, i.e. not just Bitcoin, but other crypto assets. Generally those available on the Ethereum network.
The flagship pie: Balanced Crypto Pie (BCP) contains 33% wrapped* Bitcoin (BTC), 33% (wrapped) Ether (ETH), and 34% a custom PieDAO index called DeFi++ that is itself made up of 2 other pies!
BCP provides single coin access to 16 underlying assets.
*Wrapped Bitcoin because Bitcoin is a different blockchain than Ethereum and must be tokenized onto the Ethereum network. Wrapped Ether because Ether predates the ERC-20 protocol that defines how to have Ethereum compatible coins.
Where DeFi++ is itself a pie comprised of 70% DeFi+L (a custom PieDAO index fund comprised of large market capitalization coins) and DeFi+S (a custom PieDAO index fund comprised of small market capitalization coins).
Included is a (technically outdated) image breaking down BCP into its components.
Outdated for 2 reasons.
Rebalances are done by community votes, so differences in growth rates will affect allocation %.
The coins have different underlying yield strategies. Some are held, some are actually lent and generate interest payments growing in addition to their price growth.
Quick pause for those already overwhelmed. There are a lot of crypto assets out there.
Some try to be currencies (like Bitcoin tried to be until it became more of a store of value). Others are an input into a specific product- like a decentralized lending protocol. Others are governance tokens that allow holders to vote on changes to the protocol.
Facebook and Microsoft are both tech companies, but Facebook’s business is advertising (eyes on ads) and Microsoft’s is business software. They do different things even though they’re in the same sector. Crypto has similar parallels. It’s all digital assets but they don’t all do the same thing.
Unlike a traditional ETF: Pies are fully backed and redeemable for their underlying components. You can submit your Pie to a smart contract and it will return [X] units of your [N] components. BCP -> Bitcoin, Ether, and DeFi++ is one pie I’ve broken apart to sell the Bitcoin but keep the other pieces.
This is a key arbitrage mechanism for when Pies trade value (i.e. on the direct purchase price on an exchange like Sushiswap) differs from the net asset value (NAV): the total value of the components.
That is, people might be buying BCP on exchanges such that it’s price is larger (or smaller!) than the sum of its parts.
The last point to make about pies is that they Pies generate yield by holding yield generating assets (e.g. xSushi instead of Sushi) or by themselves being Balancer liquidity pools such that there is auto balancing to the desired % allocation but also inherent yield from swap fees on Balancer (because Balancer allows up to 8 tokens at arbitrary %s they can be used as index funds!).
It’s okay if this is a lot, let’s focus on the traditional finance analogies. Pies are index funds that people buy to have an automatically yield-generating, diverse, set of crypto assets all within a single coin.
Ovens = Make More of an Index Fund
In traditional finance the index fund provider (e.g. Vanguard) takes your money and buys the necessary components to form your piece of the index fund. So, they mint your ETF for you. In decentralized finance, there isn’t a group that does that for you. Instead a smart contract (self executing code that lives on the blockchain) was created that does the buying for you.
A bank with no bankers kind of thing.
Ovens - pies are literally wrappers of their components, and this can be very expensive. Imagine buying 8 or 10+ tokens at once. That's a lot of gas. To "mint" pies, people aggregate their ETH together in Ovens which "bake" the pies and return the pies back to the contributors (proportional to their contribution). Because gas costs are non-linear, this has very large reductions in gas paid relative to buying 8+ tokens by yourself!
DOUGH = Votes you can buy & sell
DOUGH is the functional governance token. It has 3 primary use cases:
DOUGH is used to cast votes of pie improvement plans.
DOUGH partially serves as continuous liquidity between pies- such that a single DOUGH/ETH pool services all of pie/dough liquidity pools.
This (should) reduce IL risk from directly serving pie/eth pools (although there are some pie/eth pools currently as this transitions to full pie/DOUGH setup).
The tech roadmap is to make DOUGH serve as a share of the PieDAO treasury. The DAO takes a small fee from the creation of pies into the treasury and accepts pie LPs to stake in exchange for DOUGH in their DOUGHpamine farm program (in which case the rewards for the LPs go to the treasury while the LP stakers gets DOUGH).
This has been a quick overview of PieDAO - check out their discord to join the community and learn more!
Liked this article? You can subscribe here: