PoolTogether

PTIP-11: Treasury Diversification

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

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

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I’d like to be a part of that

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

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This is .32% and 4% of total supply respectively to ensure no partner can receive a controlling interest. 840,000 BADGER is 4% of supply and 11.72% of treasury.

BadgerDAO

BIP 37: Treasury Diversification through Strategic Partnerships

so imagine if these same investors tried to instead purchase badger near all time low levels instead, I doubt the community would have been okay with that

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@gabor I totally understand where you and others are coming from with concerns about the discount being proposed, but I’d like to add some context.

First off, I’m a co-founder of Nascent which is one of the firms participating in this proposed deal, so I’m obviously biased. However, I’ve literally been part of this community since before there was a formal company behind the protocol. I led the pre-seed round for PoolTogether when I was at IDEO CoLab Ventures, which included helping convince Leighton, Brendan, and Chuck that this project was worthy of their full attention and commitment. This was also the first venture investment I and IDEO CoLab Ventures ever led. That is to say: I have deep personal and professional investment in the success of this project, and getting a slightly better deal on buying tokens from the treasury to the detriment of the project/community would not be a positive EV play for me.

The main thing I’ve seen ignored in all the analysis of this proposal so far is the lockup requirement, which is a 1 year cliff and then 1 year weekly linear vesting. A 35% discount is not crazy. 1.5 years to be 50% liquid and 2 years to be fully liquid is no joke. I’ve participated in OTC deals with well-known projects where there were 15-20% discounts with 3-12 month lockups. Especially in the current market, there is significant opportunity cost to illiquidity.

I honestly don’t think a meaningfully lower discount would be palatable to most or all of the participating funds, except possibly if the lockup was removed, which I do not recommend. Without commenting on the specific firms participating in this proposal, I will say that many venture firms have a fiduciary duty to sell assets if they go up above a certain multiple and are liquid. That would not be ideal in this case, as part of the goal of this sale is to get the support of the participating firms over a multi-year horizon and it wouldn’t reflect well on the project to see prominent backers dumping tokens anytime soon. And again, as noted by others, there is currently not a ton of liquidity in public pools, so even without lockups, these investors who are looking to take significant stakes are going to have to apply a large liquidity discount when they consider the purchase, so they may all pass.

There was an interesting point made by @Torgin, which is worth examining further: the initial yield farming distributions will end in less than 4 weeks, so we may see reduced selling pressure at that time. While I haven’t looked at specific addresses to confirm, I’d be surprised if there’s a large amount of farming and dumping going on, as the yields on the major pools are significantly below the rates Nascent and similar firms currently target on stablecoin farms. Another possibility that I consider even more likely is that the POOL price may drop when the current yield farming program ends. If the program is not immediately replaced by one of similar scope, there could very well be a steep decline in TVL and prizes, which would likely result in a significant drop in POOL price.

It’s impossible to predict exactly what will happen with POOL price over the coming weeks and months, but my assessment is that this is a fair deal, brings in and strengthens relationships with high-quality investors, and helps get a meaningful amount of capital into the DAO treasury without selling too large a portion of available POOL. We could roll the dice and push this off a few weeks in the hope that the price pumps and a better deal can be negotiated, but a) there is no guarantee these or other firms are going to be interested in coming in at a higher price after a pump, and b) if the price drops further, the DAO will either find itself without non-POOL assets in the treasury or will have to sell a larger amount of POOL to raise equivalent funds.

Again, as one of the potential buyers here, I’m obviously biased, but as a long-standing member of the PoolTogether community, I do honestly believe supporting this proposal is the right thing to do.

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Respectfully disagree with most of what you’ve said. Around 75%+ of the farming tokens are been sold on the market so I’m not sure why people are choosing to put their funds here over higher yielding products, maybe it’s something to do with risk perception.

Pooltogether has the network effects to succeed in capturing the market area it’s in, which you know is massive. I think if you want to pass that’s fine with me anyway. As a token holder that has been buying sub $20 because I see really good value there we will just have to disagree on it. It’s been possible to build a 100k POOL position sub $20 but if that is too expensive you can take the risk and see if it’ll go down to where you want it, like everyone else.

I also used to work on these VC deals and I also worked out those discounts you mentioned. Unfortunately you have to deal with a decentralised treasury now so the games changed. I know your firm wants the token and it’s one of the low hanging fruits left to invest in. If you are really going to pass so be it. You’re just not going to get it for $13 if my votes have anything to say about it.

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Respect for being in it since the beginning.

Ideally the agreement would involve some market making duties. Just sitting on all the POOL is not commensurate to the privilege of buying that much in one OTC transaction with that discount, with or without the lockup, regardless of who the buyer is.

Here’s a counter-proposal for how the $7m consideration could be more effectively allocated:

  1. Commit $1m to buying POOL across public venues within a short span of time.
  2. Commit $3m to the treasury in exchange for 250k POOL.
  3. Commit $3m in ETH as an LP for no less than 6 months.

Step 1 is a bit tongue-in-cheek. The point is that even ~$1m of buying activity over the span of say 1 week would push the price up considerably. Participating in the same trading venue as everyone else is also signal of good faith and shows that this isn’t just “inside baseball” among VCs and founders. Step 2 funds the treasury in exchange for POOL at a truly exceptional price. What better way to solidify that exceptional discount than step 3, engaging in market making. Locking up POOL and ETH will facilitate broader market participation and you’ll be able to get almost half the consideration back as liquid ETH in six months, with which you can do whatever you want.

That’s just a rough sketch. It would be a win-win-win for the treasury, prospective investors, and non-core stakeholders. Not a win-win-lose.

edit: Since reputation matters much more in VC land, I would support @Leighton’s simple proposal for a POOL-USD swap, with the lockup removed at the contract level. Steps 1 and 3 could be enforced with wet code, underwritten by the reputation of the funds participating.

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Okay so I do feel this is something needed, but I’m in current opposition as I feel the action is being taken at the wrong time when performing token valuation. I’m a strong proponent for token so I’m clearly biased in terms of where I think price is headed, but the current price action has two issues which I feel is driving it lower than it should be in a normal, liquid market.

As @Torgin posed POOL farming ends in 4 weeks, I feel that POOL farming may be driving price down slowly. Once farming ends, it may alleviate some of the sell pressure on the token price, allowing it to normalize.

As @frown stated, the current POOL market is illiquid, the DEX market doesn’t have adequate liquidity to allow whale investors to purchase into the POOL token. We’ve seen this identified in a number of locations through the forum, but a couple big players - some of which have contributed significantly to enhance liquidity but are unable to make a big enough splash. I believe that if POOL had a more liquid market on different DEXes, the POOL valuation would be more accurate.

With both these occurring, I fear making an accurate valuation of the POOL token to take a haircut from is near impossible. I would be far more comfortable with the swap at the current 7-day average price (which I feel is still artificially low). Or revaluing this offer once the one month of LP incentives are complete from PTIP-10.

TLDR: Great idea, wrong time - there’s current heavy farming occurring and there’s no liquidity, so the market is not providing an actual valuation to base this 35% discount on. This should either be considered at the current 7-day average price, or more realistically after the month of LP incentives from PTIP-10 attempting to create a liquid market.

EDIT: I’m amending my vote. I am FOR this. The two main reasons I am against it is no fault of the VCs or their pricing but ours, the protocol, to not act quicker and create a liquid market for accurate price discovery.

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@Leighton I support this proposal. 30-35% standard OTC for these type of deals (similar to SAFE notes). Great win for Pooltogether in the long-run and from other POOL gov token holders I’ve spoken with the silent majority are with you on this one.

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I’m on board with what @gabor and @Torgin have said. A large number of farmed tokens are currently being dumped. Purchasing $7M worth of tokens would actually require paying a price significantly above the current token value, not below. I understand that there’s a lockup, but I still think the discount is too extreme, especially given that the $7m of USDC would not significantly increase prize amounts.

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Thanks for all the feedback on this! I’m super happy to see so many strong views on this proposal. I wanted to provide some high level responses to topics I’ve seen and also propose a concrete next step.

Treasury Diversification
To start, I’m just noting that it seems everyone is generally aligned with the idea of diversifying the treasure. The comments mostly were suggesting alternative ways to do so. It’s a major win the community is fully aligned on benefits of diversification.

Who are these investors?
For those of you who were not on the community call Friday I wanted to give a bit more background on who these investors are. I saw a few comments that questioned whether these investors truly had the long term interest of the protocol in mind.

The majority of this sale ($4 of the $7 million) would go to ParaFi and Nacent. Dan at Nascent has been very active in this forums for awhile. When Dan was at IDEO he led the seed round for PoolTogether Inc and at Variant he participated in the Seed Extension round. ParaFi led the seed extension round. In short, these investors are already large POOL holders who are active in the community and clearly have incentive alignment.

Galaxy Digital and Dragonfly would be new investors. Galaxy Digital has been investing in the space for a long time and brings deep institutional ties. Dragonfly Capital has a strong Asia focus and will help the protocol grow there (currently China is #2 for web traffic to PoolTogether.com)

Discount
I actually didn’t see too much pushback on the discount. I think people were mostly concerned with the price the discount was anchored against. My only note on the discount of 35% is that this is very standard for “over the counter” direct purchase transactions.

Some people noted that if they attempted to buy this amount of tokens on the open market it would dramatically impact the price. This is true and the converse is also true. If the protocol tried to sell this amount of tokens on the open market it would dramatically impact the price. The purpose of direct treasury purchase is to be able to make the transaction without significantly impacting market price either direction. I’m not aware of an OTC transaction that has occurred at or above spot prices, it’s always at a discount to spot.

Price & Timing
I believe most of the critiques centered on this point. The price of POOL is far too low and that is primarily because 1) it comes at the end of the initial liquidity mining period and airdrop and 2) liquidity on AMM’s has been too low to facilitate true price discovery. I think both these points are accurate but I would also add a couple other points to price and timing.

The timing also comes right before we plan to reduce POOL emissions there is a good chance this could lead to a short term decrease in AUM, having the money in the treasury before this happens will help ensure we can maintain larger prizes and higher expected APRs. We are also clearly in a bullish macro environment and we have no idea when that might end. Right now our treasury is 100% concentrated so this first diversification is extra important. Having this initial diversification done puts us in a stronger position to negotiate any future treasury swaps, diversifications, and also protects us if the macro environment does change.

When evaluating the price, we also HAVE to consider the lock-up. The price of POOL has been hovering around $18 for the last 12 days. Liquidity is limited but it means smaller players have had the chance to buy POOL at this rate for a while without any lockup. $13 is a ~28% discount from $18 I believe this is quite a reasonable discount giving the lock up requirements. (for more numbers $13 is 35% discount from 14 day average spot price and 40% discount from 30 day average spot price).

Closed Nature / Unfair
I resonate with this critique. Ethereum exists to redefine financial institutions, not recreate them. There are other mechanisms we could attempt to use that are more openly and widely accessible. That might be where we end up landing. However, I wanted to bring this to the governance because this proposal enables us to diversify to 1) know parties, 2) with lockups, in 3) an expedient way. Additional to this, these parties bring unique and proven expertise that I believe will accelerate protocol growth. More open methods (like a dutch auction) don’t offer us these advantages.

Summary
Personally, I’m still supportive of this proposal. I understand it is not maximally price optimized but I think taking into account all variables it is net positive for POOL holders. Crypto moves fast and opportunity costs are extremely high. I would rather get this done quickly and immediately start leveraging a diversified treasury than delay in hopes of negotiating a better deal down the road.

With that said, it’s not worth fragmenting the community to make this happen. The community is more important to me than this deal. I understand 100% consensus is not realistic but I would like to see a solid majority aligned to move forward. If we can’t get there, I’m happy to walk away from this as I’d rather bet on building a strong community than building a large stablecoin treasury.

Next Steps
I’ve created a signaling snapshot vote. You can vote whether you hold POOL in your wallet or deposited into the POOL pool. I think this should give us a more accurate picture of where the community is at.

Please vote here in the non-binding poll here

And let’s continue the discussion!

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This feels like the right approach as it aligns incentives much better than the original proposal. I’m especially a fan of killing two (very important) birds with one stone: PoolTogether gets some treasury diversification while also injecting some liquidity into the POOL market.

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I love that you put so much work in this and I’d echo that treasury diversifaction is quite important. I think the proposed sale is completely in line with what I would expect from an OTC type of deal. In my opinion, the lock-up parameter does indeed justify a discount on the spot price because they’re essentially gambling on the price of POOL in the far future (and, dare I say, a potential bear market by that time).

However, I also follow the reasoning of the others that offering a discount right now, when POOL’s spot price is almost at its all-time low (disregarding the launch day), feels a bit sour. I think the main gripe of most people here is that we’d be selling a very significant part of the treasury. I especially liked @frown 's proposal, but I don’t see that happening anytime soon, as that seems completely opposite from how VC’s normally work (in my experience).

Even if the temperature check is accepted, the above poll suggests we’d have a very split community decision. As a middle ground proposal, would it be possible to renegotiate the deal with the VC’s where we’d be selling e.g. only 5% of the treasury? Or is the juice not worth the squeeze?

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Thank you for taking the time to elaborate on this topic @Leighton I am excited to see mention of further exploring the Chinese market. I also appreciate the main investors have been involved since the beginning. I hope they understand that using 10% of our treasury is no small decision and requires it due dilligence by the community.

I want to ask if we could hear from you or the investors on what they plan to do to accelerate protocol growth as you said? It would be nice to hear a general plan or vision on some of the strategies that the investors have in mind.

thanks,

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I agree. It would be great to get an idea of the benefits we can expect from having these parties as investors.
To add to this, it might also be convincing to see examples of ways that the existing investors have helped the protocol in the past.

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@RegisIsland good questions!

First off, one thing to note. Institutional ownership of POOL tokens is already extremely low. Currently institutional investors own 7.52% of total POOL supply. Compare that to Compound Protocol that has 24% ownership by institutional investors or Uniswap Protocol that has 18% to investors. If PTIP-11 passes, institutional ownership of POOL would move from 7.52% to 12.9%. Still well below comparable DeFi protocols.

The general advantages of institutional ownership is that 1) institutions have long term time horizons and 2) institutions act as signaling for the broader community. Many people see institutional investment as validation for a project.

These institutions specifically have a proven track record of investing in and helping the best DeFi protocols. Simply take a look at their portfolios on their website. Specific to PoolTogether they’ve helped out immensely with everything from partnerships, to mechanisms design, to legal work. I anticipate more of the same going forward.

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~35% discount is that this is very standard for “over the counter” direct purchase transactions. It’s true that if they attempted to buy this amount of tokens on the open market it would dramatically impact the price and the converse is also true. If the protocol tried to sell this amount of tokens on the open market it would dramatically impact the price. The purpose of direct treasury purchase is to be able to make the transaction without significantly impacting market price either direction. I’m not aware of an OTC transaction that has occurred at or above spot prices, it’s always at a discount to spot.

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Hi @Leighton , I think you are a bit in the middle of this and it’s not the easiest of situations for you. I am strongly against this as has already been established, but I want to address the lockup point you’ve made with some more of my perspective.

Discount due to Lockup

Regarding the lockup I want to put this out there for the community to consider.

1). If there was no lockup, do you think these funds would risk their reputation by selling their POOL in a months time because the price doubled? How do you think that would be seen amongst their peers being associated with them, the projects that they are looking to make new investments in and even the ones they have ongoing investments in?

2). Lockups are seen as a constraint and a negative thing associated with investments. However, how many people here wish they had not had the option to sell their crypto assets in the last year? When POOL is at a few $100 how many of you will wish you had locked up your POOL? This point is a bit of an abstract point, but it is a false dilemma that “because these funds will have lockup periods” they should get “a discount” since VCs, by definition of being VCs, are generally long term aligned, 3 - 5 years usually, or why should you class them as such? And if they are not, then why should they be in such a deal as proposed?

3). With no lockup, the only scenario where the funds will sell POOL within a year is if POOL does go through a big parabolic move, but frankly, who cares if they do if that happens. I don’t. But I do care about all the other scenarios where they get a discount because of a lockup where they end up doing the same thing any way.

The conclusion is there is no logical reason to give a discount because of a lockup since the consequences of no lockup shouldn’t impact these investor’s behaviour any way.

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We’re selling at all time lows AND we’re giving a 35% discount.

To be clear, this is not a 35% discount on all time lows. This is a 35% discount on 14 day average spot price of $20.