The Liquidity Causality Dilemma

Launching rUMJA & ensuring maximal token utility & liquidity

The rUMJA Token

TLDR: It is essential that Umoja prove the protocol’s real-world utility with and without its native token, $UMJA, in an increasingly regulated, DeFi world. Umoja will use a pre-liquidity strategy using a 1:1 redemption token, called “$rUMJA,” or “Redemption UMJA” to increase community engagement, facilitate pre-launch governance, and pre-allocate $UMJA’s community airdrop token allocation.

All DeFi protocols, at their beginning, face the following, chicken-or-the-egg liquidity problem:

How can we bootstrap liquidity before the launch of the protocol so that we ca attract more liquidity for the protocol to grow?

The problem, which is traditionally referred to as the causality dilemma, has been grappled with by the world’s most prominent, and ancient philosophers. The question about the first chicken or egg also ignited the question(s) of how life and the universe began in general. In the context of DeFi, we may refer to it as the “Liquidity Causality Dilemma,” or LCD for short.

Now, the LCD is bad enough as it is, but, with oncoming pressure from global regulators to put the crypto markets in check, DeFi protocols both need to bootstrap liquidity AND prove the utility of their native governance tokens (and, increasingly, governance alone will likely not convince regulators, as some already think all cryptocurrencies are securities anyway). With the additional consideration of regulatory concerns about token liquidity, we may refer to this amended problem as “LCD+.”

The LCD+ introduces two major problems:

1. Incentivizing Security Behaviors. Teams cannot crowdsource liquidity via traditional means without making the token seem like a security.
2. Ethical Conflict. Teams are ethically tested to avoid rug-pulling or profiting off the community by advertising their protocol’s token as an investment opportunity.

How to Solve LCD+

The Liquidity Causality Dilemma Visualized

DeFi protocols should strive for their native tokens to

• become digital commodities (e.g., like how ETH and BTC have been widely perceived by regulators);l
• exemplify utility outside of it being used as an investment instrument, and;
• be leveraged as an economic engine to grow, govern, and protect their protocol’s community.

If a protocol’s token first breath in the world is taken amidst a competitive, speculation driven ICO, or IDO, it leaves the project open to regulatory speculation and criticism (i.e., that the project’s token is a security).

To avoid this outcome (and practice), Umoja has innovated the “Initial Freelance Offering” and the concept of “Sheria Liquidity.”

Initial Freelance Offering

An IFO is a liquidity-bootstrapping model that maintains creditability of the launching token’s utility, by using the token as a medium of exchange for completing the DAO bounties. IFOs solve for the LCD+’s issue of incentivizing protocol core developer teams to market / sell their tokens as potential, unregistered securities (as seen by regulators).

Simply put, IFO’s launch tokens by paying DAO-bounty freelancers in the protocol’s native token. More specifically, IFO’s use future-of-work platforms, such as DeWork, as a token distribution mechanism that ties earning high liquidity tokens (such as ETH & USDC) with earning illiquid tokens (such as the protocol’s launching token) in exchange for completing protocol (DAO) bounties.

The secret ingredient? DAO-bounty freelancers that have more of the illiquid, launching token earn a X% premium on all bounties they complete, and are provided priority application status over those who don’t hold tokens (or hold less).

By facilitating IFOs, projects can naturally bootstrap token liquidity without sullying their utility token’s argument of NOT being a security, as the token’s demand originates from its use/functional benefit, rather than its price.

Read more about IFOs here.

Sheria Liquidity

The Liquidity Causality Dilemma creates panic amongst protocol development team, and is the first ethical hurdle they must overcome. Why? Because the LCD+ creates pressure to artificially sell and advertise the project’s token as an investment, rather than a tool.

We believe we can solve the LCD+ ethic problem by incorporating the following, mandatory tenants within our tokeneconomics:

1. Governance. The native protocol token must be used for active governance of the protocol’s economic & ecosystem growth parameters.
2. Security. The native protocol token must be used as a method of financially protecting the protocol and its participants from systemic deficit (i.e., serve as a backstop to guarantee the protocol’s intrinsic value to its users & broader economy). Examples of tokens that follow this rule is Ether (ETH), as it is leveraged by the Ethereum network to (1) incentivize stakeholder participation that makes the network more broadly valuable to those that transact upon it (i.e., rewards for building and organizing blocks), and (2) disincentivize actions that could hurt the network, such as injecting false transaction data into blocks by financially harming those that attempt such actions (via slashed stake).
3. Transparency. The native protocol token’s distribution must be publicly transparent, including how and why the token was distributed to particular entities (e.g., venture capital firms, the protocol’s core development team, etc.), and what the terms of such exchange were. Without token distribution transparency, the token can be doubted as a security, even if it does bring the protocol true economic value.
4. Minimal Vested Interest Exposure. The native protocol token cannot be over-distributed to neither the protocol’s core developer team nor venture capital firms. “Over-distributed” can be interpreted as less than half of the initial token distribution, but, in our opinion, “Over-distributed” is interpreted as less than 25% of the initial token distribution with a mandatory token vesting period, community disclosure, and, ideally, purchase of protocol tokens rather than paired with an equity investment into the core developer team’s private company.
5. Proven, Pre-Liquidity Utility. The protocol must be proven to function without its native token at a disadvantage. Proving that the protocol may function to serve a real-world purpose, but at a deficit without its governing token (which also providers protocol users with more financial security) is essential for the token to have a strong argument against skeptical regulators.
6. Liquidity Through Niche, Economic Utility. The native protocol token must show that it is (1) exchanged to support community-driven commerce, (2) actively leveraged as a tool for protocol governance, and, (3) staked to support the financial security and safety of protocol stakeholders.

Umoja refers to these tenants as “Sheria Liquidity.” “Sheria” is Swahili for “Law,” and Sheria Liquidity (SL) helps guide our protocol roadmap and liquidity strategy decisions. We’ve even created a little template so that other teams can clearly define how their native protocol meets each tenant’s expectations here, modeled off of the famous “Business Model Canvas.”

Following the Sheria Liquidity tenants helps solve the LCD+’s Ethical Conflict issue.

Umoja’s Sheria Liquidity & rUMJA Tokens

You may publicly view Umoja’s Sheria Model Canvas here. Provided that the $UMJA token (the protocol’s official governance token and economic unit) will not launch until after the protocol’s v1 launch (satisfying Tenant #5 of SL). To ensure that we may still actively engage our community and enable them to vote on pre-protocol launch decisions, we have introduced a pre-liquidity strategy where DAO community members may earn “redemption tokens” that will be exchangeable on a 1:1 basis with UMJA tokens when they are available. Said redemption tokens are referred to as “rUMJA,” or “Redemption UMJA.”

You may be asking, well doesn’t rUMJA violate SL? No, and here’s why (using the SL model):

1. Governance. rUMJA will be used for pre-protocol launch governance decisions on Snapshot.
2. Security. rUMJA will only be used prior to protocol launch and the introduction of the UMJA token. Thus, there are no aspects of protocol security that can be attended to pre-launch.
3. Transparency. rUMJA is distributed from the 5 million $UMJA “Community Airdrop” token allocation, and is redeemable for UMJA tokens on a 1:1 basis. After the “Redemption Period” closes for rUMJA token-holders to redeem their UMJA token equivalent, the token’s usage will be deprecated.
4. Minimal Vested Interest Exposure. No venture firms will receive rUMJA, nor will it be paired with equity deals associated with Umoja Labs Corp.
5. Proven, Pre-Liquidity Utility. rUMJA is a community bounty and commerce token directly tied toward incentivizing Umoja DAO members (referred to as Shujaa) to take collective action.
6. Liquidity Through Niche, Economic Utility. rUMJA is a community bounty and commerce token, will be used for pre-protocol launch governance decisions, and will not be staked to support the financial security of protocol stakeholders because it will only be used pre-protocol (and pre-UMJA token) launch.

How Will rUMJA be Used?

rUMJA will be used for several purposes:

1. Umoja DAO Bounties. To compensate Umoja DAO members who complete DAO bounties via Dework.
2. Inter-DAO Liquidity Partnerships. To facilitate inter-DAO partnerships to strategically acquire protocol liquidity (i.e., post-launch protocol participation) from other community’s aligned with Umoja DAO’s goals. Such partnerships will be voted on via Snapshot by rUMJA token holders. Unless core development team members (i.e., those employed by Umoja Labs Corp.) either (1) actively attend DAO Community Calls, (2) complete DAO bounties, and/or (3) purchase rUMJA tokens from an existing token-holder, they will not have access to rUMJA tokens.

Join the Financing Revolution & Become Shujaa

Umoja can only reach its vision of providing over $100 billion in MSME financing through partnership and community participation. To join the Umoja DAO and become a shujaa (i.e., “warrior” in Swahili), learn more here.