Pathway: a protocol for algorithmic pricing of a DAO governance token
This addresses the challenge of stable token pricing for decentralized autonomous organizations, though it appears incremental by building on existing AMM and PMM concepts.
The paper tackles the problem of algorithmically pricing a DAO governance token to maintain a price peg by conducting liquidity interventions on AMM DEXs using protocol-owned liquidity, and it reviews invariants and practical substitutions with PMM protocols to achieve this.
In this paper, we will consider a governance token pricing algorithm that conducts liquidity operations on AMM (CPMM) DEXs (automated market maker decentralized exchanges) with liquidity that belongs to a decentralized autonomous organization (DAO), also called protocol-owned liquidity (POL). The primary aim of the protocol is maintaining a price peg by determining algorithmically when and how to carry out interventions that consist of two steps: extracting liquidity from an AMM liquidity pool and conducting "token swap" operations. We will cover setting up an optimal peg function as a weighted sum of certain normalized factors, which are to be determined collectively by the DAO. In particular, we will review various arithmetic invariants of liquidity intervention, which brings the price to a peg while leaving total liquidity intact, and show how such interventions can be substituted in practice by so-called PMM (proactive market maker) protocols.