🪙KILO Whitepaper

The redeemable win-win token [v0.82b]

This whitepaper is still work-in-progress. Final figures and numbers can change.

Intro

Department 77 is a web3 multichain browser game set in a dystopian future where huge mining corporations are running the solar system. You play as a bureau operator, training and sending bounty hunter droids on missions for loot and rewards. Our initial open alpha was launched on March 20th 2022 on Terra.

We sold out three NFT collections in 2022 (all within days of launch) and then lost all of our funds in the UST collapse. To save the project we branched out and became a multichain platform on both Secret Network (where we launched a new NFT collection) and Polygon, which has become our new primary home going forward.

State Of DeFi

Most DeFi projects and tokens have been opportunistic ponzi schemes solely intended to enrich their anonymous creators. Tokens inevitably go to zero, and most retail investors always end up feeling bamboozled. This creates overall market fear and will never take crypto or DeFi into the mainstream.

In standard ponzinomics, someone has to lose for you to win. That is how the system has been designed. WAGMI is an illusion peddled by those who want your money. It incentivises people to shill projects to enrich themselves. Every seemingly organic engagement or promotion is suspicious by default.

Department 77 is a game, not a financial tool. We use web3 tech for privacy reasons and NFTs to make sure players fully own their game assets. We’re not trying to revolutionise banking or solve institutional problems. We’re not aiming to become fully decentralised, and we’re not here to enrich a few people.

But we think crypto mass adoption is absolutely essential to give people financial autonomy and freedom. We think every crypto project should add a net positive to accelerate that evolution, and our contribution is what we refer to as a redeemable win-win token.

Why a token?

We have designed KILO to do a few different things:

  1. Crowdfund game development to avoid relying on external investors and VCs (whose mission is not to create a fun game, but to profit on an investment)

  2. Reward early backers for keeping the project running

  3. Inspire other projects to create more ethical and transparent tokens that don’t rely on ponzinomics

  4. Act as an in-game currency of Department 77

The Basics

So how can we design a token that embodies our values and does all the things we need it to do without relying on ponzi mechanics? Here’s the basic idea:

  1. KILO can be minted with USDC

  2. When you mint KILO, your USDC goes into a collateral vault

  3. 1 KILO can always be redeemed for collateral vault USDC balance / circulating KILO supply

  4. When KILO is used it is burned, reducing circulating supply

Example: if KILO’s mint price is 10 USDC, and 10 people mint 10 KILO each, the collateral vault would hold 1,000 USDC and the circulating supply would be 100 KILO. Each person could then redeem 1 KILO for 10 USDC, which (in this simplified example) is the same as they paid to mint it.

This creates a guaranteed redeemable floor price for KILO. The token can only be bought (minted) or sold (burned) at Department 77. KILO can only be minted or burned, so there are no liquidity pools or farming opportunities. There is no race to the bottom.

KILO is not a stablecoin (it’s not trying to stay at a fixed balance), but it always has 1:1 collateral for its guaranteed redeem price no matter what happens.

GRP, QBASE & MMP

Before we get into the details of how KILO works, there are three abbreviated terms that will be used throughout this document, and it’s important you understand what they mean and how they are used to set the price of KILO.

GRP

Guaranteed Redeem Price, determined by collateral vault USDC balance / circulating KILO supply. Think of this as the minimum sell price for KILO. You can always redeem 1 KILO for whatever the current GRP is. GRP is always set in USDC.

QBASE

Quarterly Base Price, starting at 10 USDC and then increased by 5 USDC every quarter until it reaches 25 USDC.

MMP

Minimum Mint Price, e.g. the cost of minting 1 KILO. It’s set by either QBASE or GRP - whichever is higher. Example: if the current GRP is 15.55 USDC and the QBASE is 15 USDC, the MMP (cost of minting 1 KILO) is 15.55 USDC. You can always mint KILO for whatever the MMP is, as long as there are KILO available to mint.

Mint Or Burn

Every time KILO is used in any way it’s burned. Redeeming it back for USDC burns the token. Using KILO to buy game asset NFTs (droids, ships, equipment, etc) also burns the token. You can only mint KILO by adding USDC to the D77 collateral vault, and every time you spend or use KILO it gets burned.

That way, circulating supply is always either moving sideways or it’s going down (in relation to collateral vault balance). Which, in turn, increases the GRP since GRP is determined by collateral vault USDC balance / circulating KILO supply.

Max Supply

At launch there will be 250,000 KILO available to mint. There is no pre-mint, no team allocations, no vesting, no free KILO given out to anyone, no whitelist, no whales getting reduced prices, no founders sitting on reserve tokens.

250,000 KILO will be unlocked for minting every quarter for 12 months, bringing the max all-time supply of KILO to just 1 million tokens. Every quarter the QBASE of KILO is increased by 5 USDC per token.

D77 Operational Costs

Department 77 has been community-funded since day one and we have intentionally avoided VCs and outside investors for numerous reasons. We want to stay community-funded, but to do that we need actual funds to keep going.

We could run D77 on a skeleton crew, but in order to take the game to a new level we’d want to make a few key hires, which would obviously increase our burn rate.

To achieve this we are going to take a 5% mint tax on USDC entering the collateral vault and use it for game development. If all 1M KILO are minted we would raise a minimum of 875,000 USDC - enough for a 24-month runway that would level up the game considerably.

However, at a minimum skeleton crew burn rate we would realistically need 10,000 USDC per month to stay afloat, which means that for every 200,000 USDC entering the D77 collateral vault, our runway is extended by at least one month.

Deflationary-By-Design

Taxing 5% at mint for project funding means the GRP of KILO will not be the same as MMP at mint. Every Q1 investor knows that their 10 USDC investment is instantly redeemable at 9.50 USDC…so how do we convince people to buy KILO if they’ll be down 5% on their position as soon as they invest?

As previously mentioned, every time KILO is used it is burned. Circulating supply can only go up if more USDC is added to the collateral vault. Over time as people use the game, circulating supply goes down so the GRP keeps going up, surpassing 10 USDC once 5% of circulating KILO has been used/burned in Q1.

Every KILO burned after 5% of circulating supply will yield a profit for every single Q1 KILO holder. No one loses. People who want to play the game have to mint and then spend KILO. Every action taken reduces the circulating supply.

FAQ

What prevents D77 from taking all the USDC in the collateral vault?

The biggest red flag in DeFi is when midwit founders have access to parked user funds, often using those funds to speculate on other projects or tokens in order to enrich themselves or their projects even further.

D77 will not have access to the USDC in the collateral vault. At mint, a 5% tax is applied that goes into our company wallet (to use for team salaries and service costs), and the remaining 95% are sent to a smart contract that handles the mint/redeem function. We will have no control over the USDC in that contract. It remains locked there until redeemed.

What happens if there is a bank run?

Since the USDC in the collateral vault is locked and KILO’s GRP is not decided by supply/demand mechanics, bank runs aren’t possible. Every investor can always redeem at current GRP, even if they all decide to do it at the exact same time. Redeeming KILO for USDC is a symmetrical action that doesn’t impact the guaranteed redeem price. There is no race to the bottom.

Example: if there is 5,000,000 USDC in the collateral vault and 100,000 KILO in circulation, the GRP is 50 USDC (because 5,000,000 / 100,000 = 50). Every user can redeem 1 KILO for 50 USDC. If 50,000 KILO is redeemed, that means there is now 2,500,000 KILO in the collateral vault and 50,000 KILO in circulation, which means GRP is still 50 USDC. Redeeming KILO for USDC is always a symmetrical action that doesn’t impact the GRP..

If the supply cap is increased by 250,000 every quarter, won’t this devalue the token?

Circulating supply can only be increased by minting KILO, which means adding more USDC to the collateral vault. And every quarter the MMP of KILO goes up, which offsets the increased supply and results in a lower starting position for later investors.

Here’s a hypothetical example over time to illustrate how the token works (the numbers in this example are NOT projected, they are just examples):

  1. Q1 - 200,000 KILO is minted at 10 USDC MMP for a total of 2,000,000 USDC.100,000 USDC (5%) is reserved for project funding, and 1,900,000 USDC (95%) is sent to the collateral vault. GRP is 9.50 USDC on day one.

  2. 35,000 KILO is then used in the game (burned) over the course of Q1, bringing the GRP (and MMP) up to 11.51 USDC.

  3. Q2 - Another 180,000 KILO is minted, but this time at 15 USDC MMP, for a total of 2,700,000 USDC. 135,000 USDC (5%) is reserved for project funding, and 2,565,000 USDC (95%) is sent to the collateral vault. There is now 345,000 KILO in circulation with 4,465,000 USDC in the collateral vault, so the GRP goes up to 12.94 USDC.

In the above example, Q1 investors who paid 10 USDC to mint 1 KILO can redeem that 1 KILO for 12.94 USDC in Q2, making a 29.4% profit. Even if no one mints any KILO from the Q2 tranche, Q1 investors can still redeem their KILO for 11.51 USDC since 35,000 KILO was burned in Q1 and the circulating supply went down.

Do note however that in the above example, Q2 investors who paid 15 USDC per KILO can only redeem their KILO at 12.94 USDC on day one of Q2. This is an instant 13.74% drop on their position, which means a further 13.74% of circulating KILO needs to be used/burned for them to break even.

But if a further 50,000 KILO is used in-game during Q2, the circulating supply goes down to 295,000, which would set the GRP at 15.13 USDC and every Q2 investor is now up on their initial investment.

If we continue the example above:

  1. Q2 - 50,000 KILO is used in-game during Q2, bringing circulating supply down to 295,000 KILO and the GRP is set to 15.13 USDC.

  2. Q3 - Another 100,000 KILO is minted at 20 USDC MMP for a total of 2,000,000 USDC. 100,000 USDC (5%) is reserved for project funding, and 1,900,000 USDC (95%) is sent to the collateral vault. There is now 395,000 KILO in circulation with 6,365,000 USDC in the collateral vault, so the GRP is 16.11 USDC.

  3. Q3 - At this point, a few Q1 investors decide to realise some profits. 100,000 KILO is redeemed at 16.11 USDC GRP, lowering the collateral vault balance by 1,611,000 USDC and the circulating supply of KILO to 295,000. GRP stays at 16.11 USDC since both the collateral vault balance and KILO’s circulating supply went down symmetrically. The Q1 investors who redeemed KILO made a 61.1% profit and the GRP stayed the same for everyone else.

  4. Q4 - Another 200,000 KILO is minted at 25 USDC MMP for a total of 5,000,000 USDC. 250,000 USDC (5%) is reserved for project funding, and 4,750,000 USDC is sent to the collateral vault. There is now 595,000 KILO in circulation with 9,504,000 USDC in the collateral vault, so the GRP is 15.97 USDC.

  5. Over the next 6-12 months, around 250,000 KILO is spent in-game. This takes the GRP to 27.54 USDC. Every single KILO investor has made a profit on their investment. Earlier investors will make more of a profit, but they have all profited nonetheless. In total, 585,000 USDC was raised for game development.

How is this not a ponzi?

Because new investors are not propping up old investors, and no one loses in our system as long as enough KILO is used in-game. Keep in mind that KILO holders will be heavily incentivised to spend their KILO in-game. There will be new NFT drops, new gear, base building, ship mechanics and other fun things. And for every KILO spent, the GRP goes up.

Our system rewards early investors with a better starting position and a longer runway for a larger profit potential. But we are not taking USDC from new investors and giving it to old investors. Q1 investors do not rely on Q4 investors to make a profit, they only rely on people spending KILO in-game to make a profit. Even if you mint KILO on the very last day of Q4 2023, you can eventually make a profit once enough KILO has been spent in-game.

Again: early investors do not rely on later investors to make a profit. The only thing increasing the GRP of KILO is KILO being burned. Adding more money to the collateral vault does not mean earlier investors make more profit.

What’s the catch?

Your risk assessment should focus on our abilities as game developers to incentivise people to spend their KILO, and how long you think it will take for enough KILO to be burned in order for you to profit on your initial investment.

Worst case scenario is that not a single holder spends their KILO, which would stay the circulating supply and not move the GRP upwards. In that case you would (for example) only be able to redeem 95% of your investment if you bought tokens in the Q1 tranche.

For Q1 you would have to weigh the likelihood of at least 5% of all minted KILO eventually being used/burned. That would allow you to redeem 100% of your initial investment. Any KILO used/burned above 5% in Q1 means profit on your investment.

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