Proposal to use Range Tokens to raise capital against $POOL

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The proposal is to use the Range token as a mechanism to raise capital without risk of using markets where liquidation is a risk.

The process of using the Range Token is straightforward - POOL is used as collateral to mint a range token which is convertible debt. At maturity, the debt is paid using the POOL token. If the token price is expected to grow, the overall number of tokens needed to repay the debt is less than the start. Delaying the selling of tokens directly provides two benefits i) potentially reducing the number of tokens that need to be sold and ii) allows the purchaser of the Range Token a yield profile.

The Range Token is a product that comes from the UMA protocol. To learn more about the concept, you can read the two-part article series, along with UMA’s example of how they employed the Range Bond concept to raise $2.6 Million. Part 1, Part 2, and fundraising article.

In order to illustrate an example of how a range bond can be employed to raise capital, let’s run through an example. Please keep in mind the chosen numbers are speculative, and we can come up with numbers that are comfortable to the community.

3.5MM POOL is used as collateral to raise $5.8MM. Please keep in mind that this position cannot be liquidated, meaning there is no risk to the POOL. At the current price of ~$9.00, we can run through how the terms of the Range Token will play out:

Worst case scenario:

In a worst-case scenario with POOL price at $2.00, we would have to pay out the entire 3.5MM POOL to Range Token investors, but the POOL market cap would only be 3.6MM, and we have 6MM sitting in our treasury. Note that part of the payout structure of the range token is to give the Range token holder exposure to a put option. Meaning this limits the downside.

Best case scenario

In a best-case scenario with POOL price at $25.00 at the expiry time, we would pay out 280,000 POOL to Range Token holders. We should have been able to buy back much higher than this amount of POOL with the completed buyback that began at $9.00 per POOL. Also, this effectively means POOL is sold at $20.75, which is much higher than the current price; in this scenario, both the team and the investor win. The group naturally has to use fewer tokens to convert to pay back their debt, and the range token holder earns the yield from the increase in price plus the upside of a call option.

To illustrate this, you can view the payout structure for this specific scenario by the UMA team.

It should also be noted that the parameters of the Range token payout can be customized to fit the needs of PoolTogether.

Summary

We should explore this opportunity and come up with a number that works for the PoolTogether mission.

Should we explore the opportunity to use Range tokens to borrow against $POOL and put our treasury to work?
  • Yes
  • No
  • Undecided

0 voters

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Yes, I think it is one of the most interesting things to explore. However, I don’t think we should do it separately from the Llama DAO proposal if the community feels positive about trying their treasury managment proposal. I also don’t feel like we should rush this. Hence my answer is that I’m undecided for the moment.

I will also put my remarks / questions in this governance thread to (hopefully) have all info in one place.
I read and confirmed with one of the UMA developers that the Range tokens use the spot price of the token at vesting time to decide on the size of the allocation. This price is served through an optimistic oracle technique (which is fine, I guess).

Since POOL tokens are heavily farmed, I am worried that at the predefined vesting time it would be possible for someone who bought into the Range tokens to dump a lot of farmed tokens onto the market thereby suppressing the price for a (short) amount of time and receiving (significantly) more tokens than he would have received if the normal market price was used. Is this an imaginary worry or not? Would it be possible / make sense to replace the spot price by a Uniswap TWAP or something along those lines?

Editing my post after a Discord conversation with the UMA team to confirm that it is possible to use a TWAP price for vesting. Whether my worry is imaginary or not is still up for grabs. :slightly_smiling_face:

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Agree we shouldnt rush into this when a comprehensive work on treasury will be conducted. The concept as such is very interesting though.

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This is still very interesting, but with Llama Dao coming into the mix I’d be very interested to see what their research finds over all. We could even ask them to consider the Range Token and see what value they find in them.

Additionally, is there a way for the community to be part of the investor pool here? We tried to come together when the community was pushing back on the VC initiative, would be interesting to see if as a community some of us could get in on the RT as well.

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Range Token are part of the toolkit and they got them on the radar screen!

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As an UMA community member, I think it’s so awesome that PoolTogether and Llama are considering using UMA’s Range Tokens to strengthen their partnership.

I’d like to clear up that UMA’s expertise is offering all kinds of financial contracts in meaningful and versatile ways. Range Tokens (as @TheRealTuna explained) and Success Tokens (as explained here ) are just two examples. And the variables within these Key Performance Indicators are just that: variables. There’s a lot of freedom into deciding how the payout structure will be decided. Using UMA’s very powerful optimistic oracle, it’s even possible to add literally all kinds of external ancillary data into your chosen payout structure. And PoolTogether can decide these variables as they fit.

The point of these KPIs is to have tokens locked up in a way that incentives everyone invested to achieve your goal (which is usually to increase the value of the locked tokens at a certain expiry date). And I think this is a very powerful tool. PoolTogether and Llama can work together more efficiently using the KPI options that UMA offers. There’s nothing really that would thwart the relationship by using Range Tokens. @TheRealTuna already did a great job explaining what the best and worst case scenarios could be using the given examples.

Feel free to join our UMA’s Discord server if you’d like to learn more about UMA or financial contracts and game theory within the DeFi world. We all love what we do, and love to help you achieve your goals.

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This would be such an amazing chance to collaborate together and really show how cool the Range Token are. It protects you on both the upper side and lower side of this crazy market! The fact that you can use POOL as collateral to pay off the debt at expiry is genius. I cant wait for range tokens to catch on to how truly powerful they can be. Hopefully Llama also sees this potential :slight_smile:

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Hello @Taliskye. SuperUMAn inalittlewhile at your service. The answer is yes, the PT community could be appropriated a portion of the Range Tokens to put up for public sale.

This would be up to the terms decided upon by the PT DAO. You could sell them all publicly if you so desired. Most DAOs we’re working with are interested in finding both VC investors and giving their community a chance to participate as well.

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@Taliskye Heck yeah most treasuries want to sell them to the public as well as private. It gives the community the option to re-invest. Definitely, a more useful tool to use than selling at a discount and trusting VCs to not sell their tokens and then purchase at a discount or having them dump after they reach profit. Zero chance of liquidations, diversifying your treasury, added insurance for Pool Together if the market drops to protect from loss and raising some $ at the same time. What more could you ask for?
Win, win, win!

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Great points @TheRealTuna and I think the Range Token would be a great DeFi native approach. Another major benefit of taking this native approach is the marketing value, a move like this backs the core crypto ethos and I think will that will make waves in the space. (The good kind of waves where you get barrel :call_me_hand:)

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“Putting our treasury to work” only makes sense if that “work” brings in more interest than what we’re paying to range token holders.

Also, I’m very skeptical on the oracle side of things. We’d need to use a Uniswap TWAP oracle which is relatively easy to manipulate, especially since the POOL market doesn’t have large trading volumes and there are no liquid reference markets. Maybe a really long TWAP (5 days+) could work, but it’s still a risk.

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Actually UMA is and oracle solution - The only one Vitalik himself is properly comfortable with. He originally theorized it here: SchellingCoin: A Minimal-Trust Universal Data Feed | Ethereum Foundation Blog It’s held over $200m+ without exploit. It is in fact much more robust than Uniswap’s. https://www.theblockcrypto.com/post/104597/uniswap-uni-oracle-token-vitalik-buterin

Now with regard to your concern about manipulation. Oracle manipulation is only OM if you can trick an oracle into thinking the price is other than it is. What you’re rightfully concerned about is price manipulation – Meaning, actually manipulating the price to affect favorable outcomes for particular parties.

This is a potential concern although I’m not sure the game theory adds up, to me. You’d need someone to accumulate a lot of the range tokens themselves, then dump on the market. They’d be damaging the faith of the market they’re about to receive a lot of tokens for. So they’d really have to be long POOL and confident it would both recover and have sufficient liquidity to absorb their new tokens. I’ll admit, my forsight on this matter ends here - open to exploration.

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Hi Torgin, there actually would not be an on-chain price feed implementation. Upon expiry there would be a price request sent to the Optimistic Oracle. UMA tokenholders would follow instructions provided in the PoolTogether Range token proposal. These instructions would provide voters with a method of querying the necessary $POOL price. These instructions could have a longer time window for TWAP if price manipulation is a large concern.

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Yes, the part I’m concerned about is not the oracle misreporting the price, but the price itself being manipulated. I’m currently writing a paper on this subject.

A median is in my opinion a lot harder to manipulate than an average. It requires prices to stay low for a longer time, giving more time for arbitrage to happen. Since the UMA token holders do their calculations off-chain anyway, would it be possible to specify reporting a median instead of an average to the OO?

The game theory part about needing to be long to manipulate a price downwards makes sense, but only in the specific case of POOL, because there are currently no lending markets for it. If POOL gets listed on Compound or similar in the future, you can just borrow the POOL you need.

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@Torgin
The Range token expiration date would be at least one year away and I expect we will achieve a lot of growth in that time frame. We are in a unique position having 6MM+ in our treasury already as a safeguard in the event of a worst case outcome.

UMA has other options we can explore as well like KPI options and Success tokens. I do think Range tokens make the most sense but am open to hearing other ideas to utilize treasury and/or boost growth. We have a strong team eager to work with us and help fast track our growth.