Octant v2: Degens, Dragons, and Ethereum Alignment

Sustainability is a Big Issue Everywhere.

In the world, in Ethereum, and even in crypto at large.

We need resilient and sustainable mechanisms for allocating resources.

Financial sustainability is a challenge for some of the most important projects in our industry. We’re seeing deserving projects struggle with resources, and constantly in a rush to compete from limited pools of grants funding that are quickly drying up.

This affects all builders, but especially the ones building projects that socially benefit everybody: building non-commercial, open-source, and impactful projects that don’t prioritize revenue maximization.

Ethereum is a solution to this because it enables better funding models for the world.

However, while Ethereum has shaped modern finance and impacts a global, decentralized community, we’re seeing a stagnation of growth. We’re at a juncture where we need to move fast to ensure Ethereum’s growth and sustainability.

How do we align resource distribution with community values over narrowly-defined private interests that don't value positive externalities?

We need to start with embedding sustainability into the systems and protocols we’re building and using every day. We need to design appropriate incentives and feedback loops, and integrate these mechanisms into processes and actions.

The component we’re currently missing here is effective capital formation. This is critical for creating sustainable pools of funding, both for experimentation and growth of effective capital allocation systems.

DeFi’s existing primitives mainly serve profit-oriented individuals and private entities. Being profit-driven is not the problem. Missing out on a big opportunity to improve capital access, for public-interest projects that often struggle with sustainable business models, is.

DeFi protocols with revenue streams can integrate directly with funding mechanisms, enabling more optimized, cost-efficient, and automated resource allocation.

Ethereum Alignment signals our shared values with the Ethereum community and its technology. As we embed these values into protocols, token design and markets, we’re offering a way for every “ETH-aligned” ecosystem to demonstrate that alignment.

Octant connects DeFi revenue streams and under-utilized treasuries with on-chain funding to create a full-stack system for supporting Ethereum’s common goods. It also helps direct capital to core infrastructure and ecosystem projects like Layer 2s, using programmable incentives to align funding with the network’s values.

What're We Really Trying to Do?

Our Goals:

• Create a system that continuously attracts capital from the Ethereum ecosystem players and aligns their actions with the community values.
• Build an appealing, incentive-compatible funding protocol that enables capital flows to be efficiently allocated to impactful projects.
• Create a mechanism that consistently rewards communities for their participation in funding and distribution of capital.
• Launch a protocol that incentivizes the collective governance of & sustainable funding of Ethereum.

Octant v1 App

If you're unfamiliar with Octant, please refer to the https://docs.octant.app/. This documentation describes the first iteration of Octant, including its mechanism design and a user guide. For a hands-on experience, feel free to explore the https://octant.app/.

Domain Language

We've identified a few distinct user groups within our system design. Our terminology is based around the narrative we're crafting—Degens & Dragons.

• Dragons (Capital Providers) are crypto projects or decentralized communities with substantial treasuries and/or native ERC-20 tokens. They need to deploy capital, create sustainability and fund growth of their ecosystems
• Regens (Contributors to Allocation Mechanisms) are tech-savvy, values-driven individuals who are deeply engaged in the blockchain ecosystem. They are committed to supporting decentralized projects that benefit the broader community, often through financial contributions, governance participation, and community involvement.
• Degens are financially driven individuals who are highly engaged in the blockchain ecosystem. While they participate in the decentralized space, their primary motivation is profit, often through financial contributions, governance participation, and community involvement.
• Grantees are non-commercial/OSS/common goods projects focused on creating decentralized solutions that benefit the broader community. They typically lack the financial resources needed to develop or scale their projects and seek support for funding, visibility, and validation.
• Dragon Vault is a DeFi vault where Dragons (Capital Providers) can deposit their capital and direct the generated yield to the splitting/routing contract (Dragon Router).
• Dragon Router is a splitting/routing mechanism that continuously receives funds generated by the Dragon Vault and puts them into a defined set of recipients.
• Dragon Funding Pool is a pool that receives a stream of funding via the Dragon Router and can be used to fund the community ecosystem goods or other initiatives related to the Dragon community.
• Dragon Token is an ERC20 token of the Dragon community.
• Regen Vault (Community Member Rewards/Allocation Vault) is a DeFi Vault that allows Regens/Community Members stake the community token, receive rewards from the Dragons and use them to fund public and community goods
• Ethereum Sustainability Fund is a pool aimed at funding the Ethereum ecosystem. Every Dragon contributes to it with minimum % of assets flowing through their Dragon Router set at the protocol level The purpose of the pool is to provide sustainable funding for Ethereum's growth and future development.
• OCT Basket Token is the default asset for all streams leaving the Ethereum Sustaibablity Fund and optionally Dragon Funding Pools. It is backed by the basket of assets committed by Dragons to the ESF.

System Design

This section offers an overview of the regenerative finance (ReFi) Octant protocol, designed to efficiently capture and allocate capital for supporting impactful projects. It outlines the core components, their interactions, and the system's value flows, focusing on one design aspect at a time. Development of this protocol with crypto-economic incentives allows to:

• Create a system design that has embedded rules and incentives to align the participants' behavior with impactful outcomes
• Attract attention and capital to create network effects that ensure long-term sustainability for both the Ethereum network and funding networks
• Ensure the system is self-sustaining and resilient at its core to prevent capture or abuse by malicious or private actors

Sustainability as a Core Design Guiding Principle

Sustainability has been one of Octant's core goals from the start. By deploying Golem Foundation's capital into Ethereum staking, Octant pioneered a method to fund Ethereum-aligned projects while preserving its treasury. This approach demonstrates that capital-based funding of public initiatives can build sustainable funding models, while purely donation-based mechanisms are hard to maintain over longer periods and puts projects that rely on them at risk.

Ethereum Sustainability Fund

One of the core building blocks of Octant Protocol is the Ethereum Sustainability Fund (ESF). Its mandate and purpose is to focus on sustainable long-term development of Ethereum. Therefore, all the funds contributed to the ESF are going to be used to fund Ethereum and its core dependencies. Th ESF will essentially act as an unrestricted endowment fund.

Contributions to the ESF can be denominated in any asset approved by Octant Governance and can come from either external account donations or yield contributions from Dragon Vaults.

Signal Commitment via Dragon Vaults

To participate in the system, each party must signal its commitment to Ethereum’s sustainability. Octant enables this by integrating existing DeFi primitives, allowing anyone to create a Dragon Vault. Any party can deposit capital—typically large amounts, hence the name “Dragon”—and select a yield strategy. These strategies may include ETH staking protocols, DeFi protocols, and, at a later stage, more innovative mechanisms that generate value streams (for example, RWA-assets).

The generated yield is routed through the Dragon Router contract, which splits and swaps the revenue. The only requirement: at least 5% of the inflow must go to the Ethereum Sustainability Fund, though contributors can allocate more.

In a nutshell, the Dragon Vault serves as an investment vehicle for funding both the Dragon's own ecosystem as well as Ethereum’s long-term sustainability. It functions like a restricted endowment fund, where the principal is locked to generate perpetual yield—except users retain the ability to "rage quit" and close the vault. The yield produced is split into multiple streams, defined by the vault's owner. The typical splits are:

• Ethereum sustainability (5+%)
• Dragon ecosystem grants and growth
• Incentivization of community participation and rewards
• Operational costs/expenses claimed by the Dragon to cover costs and potentially create more regenerative streams
• Other vaults and pools as defined by the Dragon Router

For instance, if Golem Foundation (GF) joins the protocol as a dragon, it deposits its capital into the Dragon Vault. GF's main sustainable funding stream is solo-staking of 100K ETH on its own infrastructure. The staking rewards or other forms of yield are funneled into the Dragon Router.

Here’s an example of how funds may be distributed:

• 15% is used as Matched Funding, which is deposited into the Dragon Funding Pool (e.g Growth Fund) to fund creators and communities growing Golem Foundation’s visibility.
• 25% goes into the Regen Vault, where it's used to reward the community and enable their participation in funding mechanisms.
• 25% is claimed by GF to support operational costs and the continued development of Octant, including running solo-staking infrastructure.
• The remaining 35% is allocated to ESF, which supports Ethereum projects that benefit everyone.

There are two types of the vault a user can set up.

Regenerative Contribution

Regenerative Contribution is a model where users deploy new ERC-4626 DeFi vaults and select yield-generating strategies that create sustainable revenue streams for Octant.

Users can customize how the yield is distributed, while ensuring the required minimum contribution to Ethereum sustainability.

These vaults can also accept yield-bearing assets like aDAI, stETH, etc. By depositing such assets, users delegate the rights to claim the generated yield to the vault—making the system composable with other protocols across the ecosystem.

Direct Contribution

In the Direct Contribution model, the committed funds remain in the user’s wallet. The user sets a weekly or monthly allowance, authorizing Octant to withdraw a fixed amount.

In this setup, the wallet manages yield generation externally, while Octant simply receives the defined contribution. This approach is similar to a classic donation model.

Ethereum Alignment Mechanism

To signal support for Ethereum and align the interests of capital providers, a mechanism is needed to guide them toward a shared goal. The objective is to create a financial primitive that embodies this alignment.

OCT Basket Token

Most flows described in this document are denominated in the OCT Basket Token. This token serves as the default asset for all value outflows from Octant, though dragons may opt out of using it for streams other than the Ethereum Sustainability Fund, such as funding rounds operated through dragon funding pools.

The introduction of OCT aims to align all participating parties through a single token, where each dragon's power (weight) is proportional to the value of their assets committed to Octant. Recipients of funds from the ESF receive payments in a token that reflects the economic value of the ESF's underlying assets.

OCT minting is based on the value of revenue streams in ETH at current prices, using either a constant scaling factor (n OCT per 1 ETH worth of streams deposited) or a market-based scaling factor (based on the market OCT to ETH exchange rate). Dragons can deposit value streams in any assets approved by Octant governance, but at least 50% of assets entering the basket must be in ETH to strengthen Octant's alignment with Ethereum.

Technically, the OCT basket token will be implemented as a Balancer-style AMM index. All newly deposited dragon assets will be added as liquidity to the weighted AMM pool, with minted OCT representing shares in that pool. The constant product invariant with asset weights will keep the basket dynamically rebalanced through arbitrage.

Value proposition for Ethereum aligned projects:

• Introduce new utility for the project's token (e.g., an L2 token) by giving holders a voice in funding decisions.
• Automatically convert yield into that token, thus creating continuous buy pressure and contributing to the OCT basket for Ethereum’s long-term growth.
• Enable automated, sustainable funding for your ecosystem (e.g., L2 networks).
• Fund grant recipients in the OCT basket token, distributing sell pressure across all tokens in the basket.
• Gain governance rights proportional to contributions to the Ethereum Sustainability Fund (ESF).

The diagram above illustrates how the system looks when Ethereum-aligned projects (Dragons) join the protocol and contribute to the Ethereum Sustainability Fund (ESF). The protocol allows multiple dragons to join and deposit capital into their own Dragon Vaults, while all of them contribute a percentage of their yield to the ESF.

Community Staking and Capital Allocation

Community members—known as Regens—can stake ecosystem tokens (e.g., an L2 token) into a Regen Vault. This DeFi vault allows users to participate in the capital allocation process while simultaneously earning yield.

Revenue Sharing via the Dragon Vault

A Dragon can choose to stream a portion of the revenue generated in their Dragon Vault into the Regen Vault. This mechanism rewards active community members, who can then either withdraw their rewards or allocate them to fund projects within their own ecosystem or the broader Ethereum ecosystem (with Dragon Funding Pools providing matching funding that amplifies individual donations).

Dragon Funding Pool

The Dragon Funding Pool serves as a continuous funding source for a Dragon’s ecosystem—similar to how the Ethereum Sustainability Fund (ESF) supports common goods on Ethereum. A grants round operator can launch recurring funding rounds, during which Regens contribute using their Dragon Tokens. The chosen allocation mechanism then determines how funds are distributed based on community inputs. The allocation models may include Quadratic Funding, Deep Funding, and others.

Token Dynamics and Yield Swaps

Notably, the model includes a mechanism that swaps yield into Dragon Tokens. This introduces buy pressure on the token while distributing rewards to both Regens and funded projects. Dragons can choose to fund their own ecosystem in OCT token or their own token. OCT is set by default as it keeps the Dragon Tokens in the basket and reduces the sell pressure.

Allocation Bonds

When users contribute their rewards to projects, they receive allocation bonds for each project they support. The system automatically mints these bonds and distributes them to the contributors. The projects themselves don't receive any bonds. The purpose of this mechanism is to rewards users who participate in voting and make well-informed decisions about which projects deserve funding.

After a set period, the ESF buys back the allocation bonds of certain projects, effectively signaling which projects were most impactful based on pre-defined criteria and metrics. The Pool allocates a certain percentage of OCT tokens (for example, 10%) to buy back the bonds in a given period.

The Dragons make a decision of which projects should have their bonds purchased, informed by impact evaluations, Deep Funding, or other mechanisms. This approach guarantees future purchase of the bonds. In short, this functions as an impact prediction market, assuming the buybacks are based on proper impact evaluations.

This mechanism could also be applied at the level of each Dragon Funding Pool.

Octant Governance

Internal governance of the Octant protocol will consist of the following components:

• The Octant Council will be the key element of Octant governance. It will consist of delegates elected by Dragon House and Regen DAO (see below). The council will be responsible for: Approving upgrades to Octant protocol (acting as a security council); Appointing and firing the ESF Operator; Defining parameters of the ESF and setting objectives of the ESF operator (such as eligibility criteria for potential beneficiaries).
• The ESF Operator will run, prepare, and execute ESF-funded rounds within parameters defined by the Octant Council. The council will monitor their performance. The operator's key role will be building soft consensus among stakeholders, especially the Dragons.
• The Dragon House will serve as a platform for Dragons to coordinate key decisions, particularly nominating delegates to the Octant Council and approving changes to the basket token structure. Each Dragon's voting power will be proportional to their cumulative ESP contributions.
• The Regen DAO will be a platform for members of all Dragon communities to express their preferences related to the ESF, such as appointing delegates to the Octant Council.

As the protocol matures and more dragons deploy their capital through Octant, the goal is to replace certain powers and trust assumptions with more decentralized and trustless modules, i.e. ESF eligibility criteria.

Summary of the Proposed Design

The image above illustrates Octant's flywheel, which brings together diverse ecosystem participants and creates incentives for collaboration.

Our goal is to align ecosystem players with varying motivations, fostering cooperation to achieve a balance between individual rewards and funding for impactful projects.

Implementation Plan

Golem Foundation as the First Dragon and transition from v1

Golem Foundation currently stakes 100,000 ETH and directs most of the generated yield to Octant V1. This forms the foundation for quarterly funding rounds, where GLM token holders can donate their ETH rewards (based on their locked GLM amount) to public-good projects and receive generous matching funds. For the transition from Octant V1 to Octant V2, we envision:

• Initially, Golem Foundation will not run dragon-specific Octant rounds. Instead, the current Octant V1 matching funds will flow directly to the ESF. Future rounds through a GLM/Golem dragon router remain a possibility.
• The ESF stream will differ from Octant V1 by consisting of 50% ETH and 50% GLM, with GLM being acquired by swapping a part of the ETH staking yield.
• GLM lockers are going to receive their individual rewards in OCT and will be able to participate in ESF funding rounds.
• Golem Foundation has coordinated and funded the development of Octant V1 and the bootstrapping of Octant V2. In 2025, operations of the Octant protocol will transfer to a newly created entity, Octant Labs, which will initially receive funding from Golem Foundation. In the mid to long term, however, both the Octant protocol and Octant Labs are expected to achieve financial independence and self-sustainability, such as through securing funding from ESF.

Indicative Roadmap

• Audit of Octant V2 Smart Contracts - Q3 2025
• Launch of Octant V2 - Q3 2025
• First rounds funded from the ESF - Q4 2025