In the initial Range token proposal(Proposal to use Range Tokens to raise capital against $POOL) we focused on what borrowing against treasury using Range tokens would look like. In the second part of the proposal I’d like to focus on what we can do with the borrowed funds.
Instead of doing a buyback with the borrowed funds we can replace a portion of the drip
Based on today’s POOL price of $10.43, we are currently dripping $8,946,332 USD per year (857,750 POOL). Doing a buyback with that amount of money would be difficult to pull off as any big buys would drive up the price significantly meaning we could overpay and the end result could be a big dump by users right after a big buyback. Replacing a portion of the drip can give us the same result as a buyback but avoids these issues. If we use Range tokens to raise $5,810,000 USDC and change the POOL distribution to be 50% POOL and 50% USDC we have just bought time with a substantially reduced distribution and likely huge savings at the end of the term. If we get a best case scenario result with POOL being $25.00+ at the end of the year then instead of paying out 857,750 POOL we would have paid out 706,375 POOL(426,375 + 280,000). We would have saved more than 150,000 POOL and will have spent the year POOL having been dripped at 50% of what it would have otherwise been. This document from Part one of the proposal illustrates the use of Range tokens POOL Range Token Proposal - Google Docs
The numbers above were based on this document and can/will be tweaked to align with today’s numbers(Document was produced in July).
This plan should drive the price up and help guarantee a minimum payout to the Range token investors due to the following:
Reduced POOL distribution should help make demand higher than supply.
Users who love POOL are likely to convert their USDC portion to POOL, thus creating further buyback.
We can continue regular buybacks using a portion of the 50% reserve coming in from the pools.
I think it’s very important that a portion of the distribution will always remain as POOL since we are distributing governance and also distributing POOL means our APR can continue to grow as our community grows.
I was very happy to read through the Llama DAO report and see their detailed breakdowns on Range tokens and KPI options. I believe UMA to be one of the best teams and communities around and want to see Pooltogether use these products to our advantage. I would love to see Llama DAO be involved in these next steps if we are to go ahead with a Range Token integration. Maybe we could even pay them in KPI options in order to keep them around and help us see this through.
Thank you! @BraveNewDeFi@yuan-han-li@AcceleratedCapital@jackiepoo
Do you support borrowing against treasury and conducting a Range token sale?
Yes
No
Still unsure.
0voters
Do you support replacing a portion of the drip with USDC earned in the Range Token sale?
I know you’ve been explaining this for a long time but I’m still feeling wrapping my head around range tokens. It would be great if it was possible for you to brief us on the Friday call.
One clarifying question would be – what is the downside here? i.e. if POOL is not at $25 at the end of one year what risk are we taking on?
I think overall for me I’m not against using range tokens at all but I’m not 100% convinced that just dripping that money out as APR would be the most effective us of the proceeds. My hope with V4 and having way more and larger prizes is that people will be MORE interested in depositing even if the APR is lower. So I might be more inclined to use money for actually growing larger prizes. And if we are doing that, we then need to think if it makes more sense just to use the USDC we already have?
Those are some of my thoughts / questions. I’d love to keep this going!
Thanks for the reply @Leighton !
Here is a breakdown that better lays out the downside referencing the chart from the UMA proposal. The worst case scenario is a scary thought but it is a very unlikely scenario as it would bring our market cap very close to what our treasury holdings are. I also believe we can do things throughout the year to ensure a good outcome like continuing buybacks and other measures to protect the price.
Risk breakdown
$2.00 at expiry means we lose 3.5MM POOL valued at $7,000,000 to payback our $5.8MM loan.
$4.00 at expiry means we lose 1.75MM POOL valued at $7,000,000 to payback our $5.8MM loan.
$6.00 at expiry means we lose 1.17MM POOL valued at $7,000,000
$8.00 at expiry means we lose 875K POOL valued at $7,000,000
$10.00 at expiry means we lose 700K POOL valued at $7,000,000
$15.00 at expiry means we lose 466K POOL
$20.00 at expiry means we lose 350K POOL
$25.00 at expiry means we lose 280K POOL
Reaching our best case scenario assuming we used the funds to cover 50% of the drip actually saves us 150,000 POOL while also deferring 280K in POOL drip for 1 year. I see replacing of the drip as an effective and efficient form of buying back.
Chart for reference below
Price on 7/31/2022
Tokens to Investor
USDC Value to Investor
Collateral Returned
Eff. Token Sale Price
$0.00
50.00
0.00
0.00
$1.66
$2.00
50.00
100.00
0.00
$1.66
$4.00
25.00
100.00
25.00
$3.32
$6.00
16.67
100.00
33.33
$4.98
$8.00
12.50
100.00
37.50
$6.64
$10.00
10.00
100.00
40.00
$8.30
$15.00
6.67
100.00
43.33
$12.45
$20.00
5.00
100.00
45.00
$16.60
$25.00
4.00
100.00
46.00
$20.75
$30.00
4.00
120.00
46.00
$20.75
$35.00
4.00
140.00
46.00
$20.75
I wish I could speak on Friday as I do want to be a more active participant on the calls but unfortunately will be listening from work again. I also don’t think I’m the best to speak on this so I will try and see if I can pull someone from UMA to speak about Range tokens on the Friday call.
The numbers above are kind of abstract and I do think it would be a good idea to lower the collateral a bit and maybe even supplement from the USDC we have if we are going to do the 50/50 drip version. We could cut the collateral 35-50% and supplement from treasury to raise 50% of the annual drip if that is preferred.
I hope this helped break things down and look forward to more feedback!
I think the most important thing for the community to consider on this front is what the primary purpose of having POOL drip is. If the primary purpose of drip is to distribute/decentralize ownership/control of the protocol, then replacing a portion of POOL drip with USDC instead would not be conducive towards this overarching goal of distributing ownership of the protocol. However, if the primary purpose of drip is instead to acquire users, then this proposal would make a lot of sense if the community expects POOL price to be higher at Range Token expiry when compared to the price of POOL when the Range Tokens were issued.
Along similar lines, while this proposal could mean the community gets a “better deal” in terms of the nominal “cost” of its drip program, if the Range Tokens are to be sold to market makers/hedge funds rather than the community, the community would instead in effect be “selling” POOL to institutions rather than users of the protocol. Thus, the overall effects of this proposal will also depend on who the Range Tokens are sold to.
Very good points and I think both distributing ownership/control and acquiring users are both important parts of the drip. I see this as a way to reduce POOL drip without reducing the return to depositors. There definitely could be a bit of a drawback distributing to market makers/hedge funds as I do think we want to see smaller holders maintain a strong voice in the community. I very much want to see our treasury managed in a way that stimulates growth and try to eliminate as much sell pressure as possible. Paying a portion of grants in USDC was a good step and using KPI options for grants will be a great experiment. If we can maintain a steady growth in POOL token price we can make sure our growth is not restricted by stagnant rates. I see Range tokens as a chance to hit a home run in a crucial time for our growth. I see replacing 50% of the drip as a way to help ensure an optimal result from the Range tokens.
How cool would it be if USDC depositors received USDC and POOL and could either use the USDC to buy POOL or feed it back into the USDC pool for more chances to win. DAI pool receiving POOL and DAI. etc.
I am hoping to be a part of the treasury committee and would be excited to work with the Llama DAO team on the committee. Thanks for your feedback.
We will have a couple friends from the UMA team attend the community call to discuss Range Tokens tomorrow if anybody has questions for them.
I support this proposal. I believe the potential upside is worth the risk. The reduced sell pressure on the POOL token throughout the year should help us realize the potential upside. I believe the odds are in our favor.
As outlined in the Llama report, creating Range tokens would require an OTC deal or to be sold through a Gnosis Auction. I think far more due diligence needs to be done in terms of checking the market temperature before engaging with a complex product such as this.
I don’t think the reasons for doing the sale are strong, especially in light of the V4 launch. Drips will likely end and new incentives created for the transition to V4. We need to let the dust settle first before we make any big moves like this. Our treasury also has a large amount of both USDC and POOL already.
TheRealTuna is enthusiastic, but defers to the UMA team for the details. This makes me nervous, because if we’re going to engage with a complex structured product such as this, we need a champion who fully understands it. I don’t think we should enter into an arrangement such as this without having an expert to help us navigate the product and unwind our assets from it.
In light of the uncertainty with V4, our already robust treasury, and the complexity of this product I voted no.
I actually do have a very good understanding of this product, just was unable to speak as well as I thought it would be nice to have someone from UMA pay a visit. The attached chart was provided by UMA but the risk breakdown numbers I put together myself.
I actually figured we would find buyers before minting the Range tokens and was also considering we wait for POOL to hit a target price of something like $15.00 so we could get more USD with less collateral. In terms of finding buyers I was thinking Llama Dao may be able to assist and/or @Leighton may have some connections he could call on as he was able to negotiate our VC deal which worked out great for us.
Definitely not looking to rush this one and figured it would require a lot of discussion by the community first. Was not expecting it to be completed before V4.
Agree with @Brendan here. The focus should be on ensuring a successful launch of v4 and enabling large scale experimentation and deposits as we get to the same. Debt-based/structured product raises could serve as a healthy option to tap into once we have:
i) a better understanding of the inflows to v4
ii) a clear strategy predicated on these to see what we need to subsidise/incentivize and for what term
It’s definitely nice to see some modelling numbers here - but I believe the modelling should also include the variation in the underlying outcome as opposed to a purely price-driven analysis.
I figured a big decision like this would require lots of discussion and planning. Happy to wait until after the V4 dust settles. For now I will work on fine tuning the numbers a bit.
