PTIP-11: Treasury Diversification

@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.