I’ve added information surrounding the first poll per comments from below, thanks for all feedback as we explore managing DAOs together!
Category: Revenue Management
Scope: Diversification Model Updates, USDC as stable, and Goal based Revenues
TL;DR: A less intrusive diversification model. Numbers you can play with. Some calls to action surrounding new revenue stream ideas. Diversification. Goal Directed Revenue.
In BIP 23: Badger Revenue Management Overview we covered:
- “One-Time Diversification Event”; weighted voting resulted in a 19.5% Diversification
- The ratio of ETH to DAI of diversification events; 49.7/50.3 ETH/STABLE
- A one time addition to the Sushiswap Liquidity Position: 35%
- A recurring diversification of monthly revenue; 5.6% of MRR
BIP23 Comments, Discussion, and Greater Inclusivity
In the process of discussing BIP23 a number of different comments and questions came up which we’ve attempted to address herein.
The first topic that came up was buybacks, we’re not in favor of buybacks in the near term as BADGER is a valueless governance token, it is of course at the discretion of the DAO but decisions around value flowing to token holders should not be taken lightly.
While tokens are being distributed buybacks will also have nearly no effect on liquidity. Even if we were to imagine near term revenue shares they wouldn’t be impressive enough to create any real value.
Instead of buybacks we’ll soon be putting up for comments a proposal that covers the topic of Protocol Controlled Value we first became familiar with thanks to upcoming stablecoin platform Fei Protocol.
Also discussed but not directly addressed in this BIP were: staking of ETH diversification, veCRV boosting, variable revenue forecasting, audit of expenses vs direct revenue and profitability, the use of gas tokens and other non correlates.
Breaking the BIP23 Diversification Down
If we look at the diversification voted on prior from the perspective of the market remaining flat over the next year our Revenue Account would look roughly as follows.
If you have a reasonable expectation that Bitcoin will grow over the next year what you’ll notice about this is that BTC would be likely to be more than the ~70% as shown above. In the case that you are bearish on BTC over the next year then you can look at it from the perspective of the stable positions, a 3.84% or $364,016 year end value floor.
Given the desire of the DAO to become a major contributor to the ecosystem we’re changing our recommendation from the last time slightly.
While it would be desirable to get things right the first time every time, being directionally right and moving methodically can also prove effective.
We still recommend diversification, still recommend stabes, still recommend ETH.
What’s changing is allocation % and removing the one time diversification in lieu of a greater recurring diversification. Now with the model attached now anyone can understand the implications of proposed variations.
The new model would be as such:
- one time diversifications go away
- recurring diversification changes to 25%
- ETH/STABLE ratio changes to 15/85.
Even with this aggressive diversification you can see the DAO portfolio would still likely be greater than 50% BTC.
The big change is that instead of having massive price exposure, we only have large price exposure. A decrease in exposure such that at the end of the year we’ll have been able to put away around $1.7MM, funds that can be used at the discretion of the DAO, funds that in the nearer term can be used for governance token farming and other productive pursuits.
Why!? Why would a growing organization need cash? Well to anyone asking that here is a rough breakdown of the DAO’s spend last grant period: Total ~$180K at time of proposal
- Dev 7850 47.69% ~ $86K
- Admin 750 4.56% ~ $8.25K
- Ops 5300 32.20% ~ $58K
- Mkting 2560 15.55% ~ $28K
While we currently benefit from the desire of contributors to earn governance rights, we should prepare for a day in which our treasury doesn’t go as far as we want it. Whether this is for outside contributors, partnerships, r&d, pr, or any other number of things is at the discretion of the DAO.
The first topic of discussion is stablecoins. Namely how do we choose stables and create value with them. This will also be the topic of a further BIP but the first decisions surrounding stables will be made in this BIP.
In the immediate term it is recommended to allocate the stable portion of our revenue to USDC. The risk of systemic issues is lower with USDC than any other asset, and while there are regulatory risks the DAO will not be operating in any manner that poses massive near term threat.
Given the global macro situation it’s also desirable to explore further diversification of stable positions. Outside of stables the Swiss Franc comes to mind as a particularly strong fiat that still has connection to real value production through Switzerland Gold supply lines and exposure could be gained through synthetic positions.
Another option may be to diversify in part or in whole to another asset besides the United States Dollar. One of particular interest is the FRAX algorithmic fractional reserve system. FRAX<>USDC pool positions would be a good example of a yield earning position for the DAO and given FRAX current position with 86% collateral requirements is essentially a 93% collateralized USDC pool.
If it’s not FRAX it might be something else (like participating Curve pools, Fei Genesis group, or other). What the DAO needs to decide is whether this is a valid line of pursuit. Included in that discussion might be conversations surrounding CLAWS and DAO collaborations with UMA.
It is proposed that when transacting with the revenue account the DAO route orders through DEX aggregators to reduce extracted value from DAO activities.
In the near term the diversification will happen at the discretion of DAO contributors, with the express intent to systemize as many parts of this process as possible, all of which is possible in future BIPs. At the beginning it’s a balance of transparency and efficiency.
Given that the average diversification in the case of $1MM monthly revenue would average around $250K, we propose that the recurring diversification events happen no less than once a month but no more than to ensure a minimum transaction size of $67K.
A quick glance or some experience with bitcoin over the last few months tells you that Thursday to Monday tends to be the highest volume times. Selling into big liquidity isn’t absolutely necessary but will be more efficient.
The plan is to shift to more programmatic diversification as soon as possible. Shake Shack has mentioned the possibility of vaults that manage our diversification strategies, these would be restricted to the use of the DAO at first but could become a product in and of themselves in the future.
Goal Directed Revenue
While buybacks are not a desirable thing in the near term, we are intrigued by the aforementioned Protocol Controlled Value or PCV.
While most orgs are focused on the TVL of their platforms, many should be focused on the PCV, the amount of assets that the DAO actually owns.
The DAO owning real, cashflow producing assets will give BADGER holders the ability to decide on the incentives needed to take the deposits of the platform up an order of magnitude.
To start the PCV would be a percentage of Monthly Revenues that is split off from the main revenue wallet and would be directed based on an upcoming BIP. (please discuss below)
The key here is that the DAO itself would own these assets either for a given time period, or in perpetuity.
If this is desired the DAO could begin by splitting off a 21% of the MRR over the next roughly six months, this would provide the DAO with ~$800K to use for things like Ren Darknodes, BTC hashrate tokens and other cashflow producing assets.
It isn’t our intent in this BIP to hash out all details around PCV but what we can do is start the conversation. This particular topic will be a weighted vote with veto at 30% no, pushing the decision to a subsequent BIP.
(Please note that all models shown above included the BADGER SHARE PCV)
Recommended: One time event as outlined in BIP23, recurring diversification changes to 25%, Stable is USDC, ETH/STABLE ratio changes to 15/85, introduction of PCV
The intended framing of the first question is: Should we move from one time diversification to recurring diversification as outlined above?
- Stay the Same (5.6%)
- Stay the Same
- Yes (USDC)
- No/need more info (20% will veto)
- Yes 2.1%
- Yes 7%
- Yes 21%
- Yes 30%