#32: Treasury Council Decision: Lend $BADGER

BadgerDAO has the opportunity to strengthen token distribution, liquidity depth, and volume by providing a $BADGER loan to a global market making partner, with an expected profit when repayment is exercised.

To work with this service provider, Badger required a legal entity with supporting characterization and documentation. The Badger Association can now enable the due diligence required to enable this type of partnership.

The following proposal outlines the potential deal, pending KYC approval from GSR.

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Valuing an Investment

TLDR;

  • BadgerDAO has the opportunity to strengthen token distribution, liquidity depth, and volume by providing a $BADGER loan to a global market making partner, with an expected profit when repayment is exercised

Background

  • $BADGER has been listed organically on some exchanges since its inception. However, to enable working with a market making service provider, Badger required a legal entity with supporting characterization and documentation. The Badger Association can now enable the due diligence and KYC required to enable this type of partnership.

Recommendation

  • Badger and GSR have developed an approach to loan $BADGER tokens to GSR to enable the following markets, excluding the USA. Further, as emerging markets become compliant, there is potential to expand coverage.

Integrated Exchanges

  • Binance
  • Bitfinex
  • Bittrex
  • Bybit
  • Gate.io
  • Gemini
  • KuCoin
  • MEXC
  • OKX

Loan terms

Number of Tokens: a minimum of 300,000 $BADGER and a maximum of 500,000 $BADGER

● 200,000 $BADGER delivered prior to the Commencement Date; and

● Either:

○ An additional 100,000 $BADGER at or around the day falling 6 months after the Commencement Date, in the event that GSR does not elect to exercise its repayment right under Loan Repayment Schedule or:

○ An additional 300,000 $BADGER delivered at or around the day falling 6 months after the Commencement Date, in the event that GSR elects to exercise its repayment right under Loan Repayment Schedule; provided however that if GSR elects to exercise such repayment right only partially and neither Party has exercised a termination right under this Agreement, Lender shall deliver an additional amount of $BADGER equal to 300,000 minus the Partial Repayment Notional Amount 1, such that the applicable Loan Amount which GSR holds and uses to provide liquidity at that time shall be 300,000 $BADGER.

  • Within five (5) days of the Termination Date, GSR will return the entire outstanding Loan Amount; provided that GSR may elect to repay all or parts of the Loan in USDT (the “Repayment Currency”). If, on the Termination Date and/or the date of repayment of the applicable Partial Repayment Amount in accordance with the Loan Repayment Schedule, delivery of the Repayment Currency has been made impossible or impractical due to applicable regulations, GSR shall deliver such other amount of stablecoin with a value equivalent to the amount of Repayment Currency GSR would otherwise have been obliged to deliver (determined by GSR acting reasonably).

  • Lender shall have no right to terminate this Agreement prior to the Scheduled Termination Date provided, however that where GSR breaches the terms of this Agreement including any representation and warranty by GSR, Lender may terminate this Agreement by sending a notice of termination (a “Lender Termination Notice”) to GSR specifying such breach

  • GSR shall be entitled to terminate this Agreement without penalty if, it is not, in its sole and absolute discretion, otherwise satisfied as to the legal characterisation of $BADGER in applicable jurisdictions, namely Switzerland

Loan Repayment Schedule:

  • (1) On the date that is 6 months from the Commencement Date (the “Partial Repayment Date 1”) (or within three (3) Business Days thereafter), at GSR’s election , GSR may repay a principal amount of up to 200,000 $BADGER (the “Partial Repayment Notional Amount 1”) of the Loan Amount by paying Lender an amount of USDT equal to the product of (x) Partial Repayment Notional Amount 1, multiplied by (y) ATM1+25% (the product of (x) and (y), the “Partial Repayment Amount 1”).
  • (2) On the date that is 12 months from the Commencement Date (the “Partial Repayment Date 2”) (or within three (3) Business Days thereafter), at GSR’s election , GSR may repay a principal amount of up to 300,000 $BADGER (the “Partial Repayment Notional Amount 2”) of the Loan Amount by paying Lender an amount of USDT equal to the product of (x) Partial Repayment Notional Amount 2, multiplied by (y) ATM2+25%(the product of (x) and (y), the “Partial Repayment Amount 2”).

For the purposes of the forgoing:

“ATM1” shall be the average of the USDT price of the $BADGER at the Fixing Time on each of the 3 trading days immediately preceding the Commencement Date on a mutually agreed venue, provided that where the parties cannot agree to a choice of venue, GSR shall, acting in good faith and reasonably, determine the venue(s) on which the price reference will be ascertained.

“ATM2” shall be the average of the USDT price of the $BADGER at the Fixing Time on each of the 3 trading days immediately preceding the day falling 6 months after the Commencement Date on a mutually agreed venue, provided that where the parties cannot agree to a choice of venue, GSR shall, acting reasonably, determine the venue on which the price reference will be ascertained.

Market Operations and Trading

  • GSR, or any Exchange Affiliate of GSR, will use commercially reasonable efforts to increase the liquidity of $BADGER on the exchanges (each an “Integrated Exchange”) on which the $BADGER is listed, provided however that the determination of the Integrated Exchanges on which GSR, or any Exchange Affiliate of GSR, provides liquidity shall be at its sole discretion. The Integrated Exchanges are listed hereto and are subject to change from time to time upon prior written notification of 5 days by GSR to Lender. Such efforts will include the use of GSR’s proprietary trading bot (the “Engine(s)”) in accordance with a strategy developed by GSR to add liquidity with respect to $BADGER in the applicable markets. GSR will have sole discretion with respect to the application of any strategy or strategies relating to the operation of the Engine(s) to effectively and efficiently increase liquidity, and to maintain a balanced order book

  • From time to time, the Parties may mutually agree to increase (or decrease) the Loan Amount. Any such change will be mutually agreed by Lender and GSR in writing, which shall be deemed to form part of this Agreement.

Reporting:

GSR will provide Lender with daily reports, providing summaries and statistics of market activity, related to Lender’s crypto-token(s) (“TOKN”).

● Total Trading Volume (“TTV”) per trading pair per Integrated Exchange (in USD equivalent)

● Bot Traded Volume over Time (Daily, Weekly, Monthly)

● Bot Traded Volume per trading pair per Integrated Exchange (as a % of TTV)

● TOKN Total Trading Volume (in USD equivalent)

● Bot total TOKN Volume (in USD equivalent)

● Average Bid/Offer Spreads (per trading pair)

Metrics of Success

How long will the investment thesis take to play out?

  • This investment would provide a return if exercised under the loan repayment schedule, at the 6 month and 12 month milestone(s)

Will the treasury recoup funds or does the investment represent an outlay?

  • The treasury is expecting a positive return on this loan as per above criteria

What are the risks associated with each investment?

  • Protocol risk (0 - 10)

Likelihood of a smart contract or system of smart contracts is exploited or funds are lost

2 - established exchanges would be engaged as outlined

  • Liquidity risk (0 - 10)

Liquidity risk refers to how easily an asset can be bought or sold in the market.

2 - the potential partner is a global expert in providing liquidity

  • Market risk (0 - 10)

Market risk is the risk that arises from movements in stock prices, interest rates, exchange rates, and commodity prices. Metrics to consider : VaR, skew, sharpe.

3 - global crypto markets are volatile, however this proposal helps to mitigate such risk

  • Credit risk (0 - 10)

The risk of loss from the failure of a counterparty to make a promised payment

4 - GSR has a positive track record of delivering on its obligations and Badger is protected under the terms of the legal agreement

  • Execution risk (0-10)

How long will it take to execute, how many signers on a Multisig or queue of things that must be signed first.

2 - This decision enables execution by the Treasury Council, supported by Badger technical support as required. Execution is expected within one week pending approval of this proposal and pending the agreement being fully executed between both parties