This is a revised version of PTIP-11 based on community feedback.
This proposal would diversify a portion of the POOL treasury into USDC via a direct POOL acquisition by strategic investors.
POOL token holders currently control a significant treasury of 57% of all POOL tokens (valued around $140 million ). However, because this treasury is almost fully denominated in POOL it has a few limitations:
1). It’s value is highly volatile and non-diversified
2). POOL tokens are simply being held in the treasury and are not contributing any value to the perpetual growth machine of the protocol or other productive use cases (yield farming).
3). Any working capital expenditures (i.e. grants committee, audits, prize pool operations costs) have to be funded by either the selling or disbursal of POOL.
Diversifying a small portion of the POOL treasury to USDC via strategic partners has the benefits of:
- Providing a lump sum of USDC that gives us optionality to fund any expenditures via USDC instead of POOL distribution / sale on open market.
- Providing the protocol with a productive asset that can be used to boost prizes and / or yield farm other protocols for further diversification
- Ensuring the protocol has diversification in the event of any macro market downturn
- Doing this diversification via a direct acquisition to strategic investors has the added benefit of bringing in long term value aligned investors.
This proposal incorporates feedback received on PTIP-11 and specifically contains the following changes:
- Increases the price per POOL from $13 to $14.46. $14.46 represents a 30% discount on the 30 day average spot price (using CoinGecko). The previous proposal used a 35% discount on 14 day average spot price.
- Decreases the total size of the diversification by 15% from $7 million USDC to $5.95 million
- Includes an allocation to Maven Capital which was presented by @gabor to include as a European VC. In addition to the purchase Maven Capital has committed to using a portion of POOL to LP on Uniswap for the protocol and also committed to depositing their working capital to prize pool sponsorship.
- Overall these changes mean 24% less tokens would be acquired (411,479 POOL instead of 538,461 POOL tokens in the original proposal) while the value being transferred to the protocol only decreases by 15%.
Therefore, this proposal would transfer 411,479 POOL tokens (4.1% of total supply and 7.2% of treasury) from the treasury to ParaFi , Galaxy Digital , Dragonfly Capital , Nascent and Maven11. In exchange these parties will transfer $5.95 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.
POOL tokens acquired will be locked with a 1 year cliff and an additional 1 year weekly unlocking schedule after the cliff.
This proposal attempts to strike a balance between getting an initial treasury diversification done in an expedient, strategic, and simple manner while not expending too many POOL tokens at an early stage for the protocol. There are a few alternative options we could consider instead for this proposal.
One option is simply delaying a treasury diversification. This option is feasible but there are some working capital expenses that are going to be needed in the near term (next 6 weeks). Specifically, @Brendan is working on a proposal for a protocol funded audit (estimated at $100k) and the protocol needs to take over expenses related to awarding the governance prize pools ($500 per pool per week). So absent this proposal passing, some POOL tokens will have to be sold. The protocol selling its own tokens on the open market isn’t ideal. Additionally since we currently have limited diversification, waiting exposes us to macro risks in the crypto environment. Finally, we have the opportunity cost of not being able to use the USDC for productive purposes like yield farming.
The other major option is using an open mechanism such as a Dutch Auction to facilitate the sale. The advantage of this option is that it would be open for any to participate and potentially lead to a higher average price per POOL. The disadvantage of this option is that we would have no idea who is acquiring the tokens and what their long term plan is (i.e. buying for quick arbitrage or holding for a long time). We also have no guarantee that people who want to acquire large amounts of POOL tokens would know about it or participate in this method if they did.
Doing this proposal now would alleviate any need to further diversify the treasury in the near and medium term (1-3 years). If we do want to do any further diversifications or token swaps we will be in a stronger position because we won’t need that capital. It also gives the protocol downside protection in case of macro drawdown. It gives us capital that can be put to productive use and most importantly, we can move past this discussion and on to the more important discussions about growing the protocol to $1 million weekly prize sizes.
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.
PTIP-11 was already heavily debated and a signaling snapshot vote was conducted that turned out ~70% in favor. This new PTIP has been created to incorporate the changes from the community. Since it has already been heavily debated we will go to an on-chain vote directly.