PTIP-11: Treasury Diversification

[Leighton]

PTIP-11

Simple Summary

POOL token holders currently control a significant treasury of over 50% of all POOL tokens (valued around $100 million). However, because this treasury is almost fully denominated in POOL it is highly volatile. Additionally because the POOL tokens are simply being held in the treasury it is not contributing any value to the perpetual growth machine of the protocol. Diversifying our treasury will provide some stability and improve the effective APR and expected value for the USDC prize pool.

Overview

This proposal will transfer 538,461 POOL tokens (5.38% of total supply) from the treasury to ParaFi, Galaxy Digital, Dragonfly Capital, and Nascent. In exchange these parties will transfer $7 million of $ScUSDC to the protocol treasury (this is USDC deposited into the prize pool sponsorship). This method will ensure the USDC instantly is creating value for the protocol. The protocol will completely control this USDC and can use it for other purposes as needed in the future.

If passed, this arrangement provides POOL tokens to the investors at an effective price of $13.00 per POOL. A 35% discount from POOL’s 14 day average spot price (calculated as of April 30th using CoinGecko’s data).

POOL tokens acquired will be locked with a 1 year cliff and an additional 1 year weekly unlocking schedule after the cliff.

Rationale

PoolTogether is highly reflexive. Larger prizes drive more deposits, more deposits create larger prizes. Keeping a positive feedback loop is crucial in the early stages of protocol growth. Diversifying the protocol treasury to include stable coins used to sponsor the prize pools helps jumpstart this growth. As outlined in the perpetual growth mechanisms.

Outside of helping jump start growth, diversification of the treasury makes sense to ensure long term protocol sustainability in the event of any major 2018-style bear markets. 538,461 POOL tokens represents 5.38% of total supply and 9.4% of the current POOL held by the protocol. Diversifying ~10% of the current treasury into stablecoins is a reasonable target.

It would be possible to diversify the treasury through either direct sales on the open market or other mechanisms. However, this has a few downsides. Doing a direct sale would likely take much longer to distribute this amount on POOL into the market effectively. This would delay the start of the reflexive growth loop. Additionally distributing on the open market would mean we have no idea who is acquiring the POOL and what their long term intentions are, this method enables us to work with trusted names in the DeFi investment space who are proven to be long term aligned. ParaFi and Nascent are both existing POOL token holders while Galaxy and Dragonfly Capital are new.

Technical Specification

The governance proposal will be as simple as possible. The proposal will transfer the amount of POOL tokens to addresses the parties verify ownership over. After the 5 day voting period, if the proposal passes, the counter-parties will transfer the $ScUSDC to the protocol controlled “Time Lock” contract. They will do this during the 2 day delay before execution. After the 2 day delay, the proposal will be executed and POOL will be transferred.

This does present a minor risk that the counter-parties could fail to meet their agreement and we could not stop the proposal from being executed. Given the highly visible nature of this proposal and the damage this would do to their reputation. This risk is not viewed as material.

Status

Please vote in the poll below. If the overall sentiment is positive an on-chain vote will commence in 3-7 days

References

This effort is modeled on and inspired by the work of BadgerDAO and LIDO in their treasury diversification efforts.

• Support this proposal
• Oppose this proposal

[MarkOSullivan94]

All for this!

Has there been any estimations on how high the APR could rise following this change?

[TheRealTuna]

Great work putting this together! This is a great way to kickstart our growth.

[Leighton]

Great question! At current interest rates this would add $420,000 to the prizes per year or $8,000+ per week! That’s assuming Compound is the yield source. It would also be possible for us to earn yield with these stable coins from other sources.

[gabor]

USD 7m is not a lot of money and it will at current AuM not move the needle on weekly prizes. This may change when the POOL drip rate drops and farmers withdraw large shares of their deposits, but that is to be seen. Judging as an investor I view 35% a quite steep discount to the 14 day average spot price. POOL has never traded really so low. The relatively low liquidity on market (<1mm in UNI ETH/POOL LP) would not allow them to accumulate such a large amount of POOL without significantly moving the price up. There are actually only 45k POOL in the LP to grab. Therefore it should actually be fair to trade at par if not even at a premium for the lack of liquidity. I would have liked to see a better deal tbh. In general the names are reputable and certainly good to have on board. The initiative to diversify treasury is intelligent and its the right time to do it. Just think that this is not optimised in terms of capital efficiency and we could do even better.

Who’s joining the swimmeet DAO to match this deal?

[Torgin]

I agree with @gabor. We’re selling at all time lows AND we’re giving a 35% discount. That’s too much.
It’s great to see that there is interest from these high profile investors, but I think they’re getting too good of a deal.
Anyone else wanting to buy millions of dollars worth of POOL tokens would need to pay significantly above current market price, not below it.

In less than 4 weeks, the yield farming distributions will be reduced significantly.
This will likely lead to a TVL decrease, but I think it will also lead to an appreciation of POOL price, as sell pressure from farmers is reduced.

Overall I think diversifying the treasury is a good idea, but the timing and specifics of this deal would have us selling POOL too cheap.

If there is room to negotiate, I think a counteroffer of selling for $20/POOL (14 day average spot price with no discount) could be a good option.

[pretzel]

I agree with @Torgin and @gabor. This is too much of a discount. Good idea to include other parties, but the price should be reconsidered.

[mkkoll]

I know VCs love to get an absolute steal of a deal on unproven risky projects, but PT is already a live product and demonstrating strong growth already. I personally value POOL at way more than what this proposal would be willing to give it up for.

I’d be prepared to join a DAO and counter the offer with my ETH.

[AndyKaufman]

I am a fan of the this idea but NOT the implementation. As stated by several others above the price is just far too low and the recent 7 day spot price is not an accurate snapshot of POOL value. This is too good of a deal for this VC/investor.

[Vpool]

I like the idea of diversifying the treasury and selling POOL to Big VC funds. They may hold longer than average retail investor but may not be guaranteed. But handing over the tokens 35% less than all time low prices is not feasible and not a better deal for our existing POOL holders. Can we ask for a better price or try a different kind of Sale to larger audience .

[mikewilhoit]

I think this makes a lot of sense. Having diversification and a stable base in the treasury is a very good thing. I do have some concerns/ questions.

The concern is similar to what others have pointed out in that this is a very low price for the POOL token. I recently purchased POOL token and my purchases over the course of 3 days noticeably increased the market cap each time a made a modest (around 10k usd at a time) purchase on UNI. When I started I was able to buy in the low 20s and finished mid 20s in price. I say this to say that it doesn’t take a lot of capital to move the market. We are in the middle of a bull market that is likely to continue for a while longer, especially with EIP1559 and the merge to PoS for ETH. The reason I bring that up is bc there is a strong narrative with this and would be unlikely to have a similar bear market now when ETH is performing so well and will likely for the next 12 months, at least. POOL also seems to be picking up momentum with the addition and promotion by Dharma and the recent addition to Polygon with lower fees. I just think the wind is at our backs and with a hard push the token could increase in value significantly. I feel very strongly about the POOL team and the product that’s been created. Now for some questions:

• Is the goal with this PTIP to diversify the treasury by 10% and then stop, or to diversify by 10% and then continue to diversify in the future?

• Is this deal contingent on this exact moment in time and price or is it a deal that can be executed in the future with similar parameters but higher base price?

• Would it be worth a combination of multiple avenues, over a little longer period of time, instead of firing all the shots at once? Ex: 1 deal with 1 of these investors now. A DAO of investors with similar terms that are already invested in POOL (I would be interested), potential to pull off a similar deal with one of these investors at a later date with the hope that the value of the token has increased, sell some tokens at spot price at favorable times.

Lastly, does it make sense to diversify some into ETH and/ or other coins that have strong fundamentals and will likely increase in value compared to the dollar, over time?

[frown]

I want to echo the sentiment shared by others and add my perspective. This terms of deal feels deeply unfair at this particular stage of the project (post-infancy, pre-liquidity). There isn’t a good way to assess the buy-side demand of the market given DEX liquidity. My recent buy orders pushed the price from $22 to $30+ and I’m less than 10% of the aggregate USD amount targeted here.

I believe we should mark the price of this deal at a percent discounted on the spot price only once we achieve some minimum amount of liquidity in the DEX (e.g. 250k+ POOL). PTIP-10 should accomplish this, we just have to wait to finalize the terms until there is enough liquidity to constitute a FMV.

[winner]

This man is speaking the truth again.

[RegisIsland]

My math may be off but at 7 million in sponsorship and the current 3.4% rate on usdc in compound that 7 million would only contribute 250k to the protocol in a year for reserves if we got to keep all of it. We only get to keep 50% of it. That doesn’t seem like it helps the PoolTogether protocol much compared to the amount of POOL tokens that the investors would receive at such a deep discount. I think there are better ways to diversify the treasury. These are totally rough calculations and I may be completely wrong. If so someone please tell me. I’d rather bet on ourselves and not sell our tokens at a discount like that while the token is at a low. It feels like we are selling low.

[Andre]

The support for the proposal is leading somehow, but all of the comments have been very opposed to this. Odd. I agree with the opposition strongly.

Giving VCs our treasury’s POOL so cheap is a pretty bad idea. We are not a new, untested product. We’re one of the leading DeFi protocols. We should value ourselves more highly.

They should be buying at a minimum of $20.
A 35% discount from ATL price is a resounding no from me.

Sort of tired of VCs getting these deals frankly when it took me (and many others) weeks to build my position with the liquidity as it is.

[ageless]

I’ve been accumulating POOL from day one and I would be sick if I knew these funds got it at $13. Making this sale when the POOL emission to the market is as high as it’ll ever be, when access to POOL for market participants is as low as it’ll ever be, it’s just such bad business imo. imo we should hold off on this for a while unless the funds want to come to us with a serious above current market price bid, and $20 doesn’t cut it for me either. We have time on our side here. We’ll be able to get a lot more than 7 million for 10% of our treasury.

[sardis]

why do they need a 35% discount ? If they are interested they have to buy with normal price.

[Gurabo]

Details on the DAO to counter this offer? I am interested.

[RegisIsland]

I’d like to be a part of that

[wouimbly]

Interesting opportunity BUT
at less than 20$ i would prefer put those POOL in other pool as a rewards to get new people unboard