SIP | Improving $RARE Stability

Author Emilio Cazares
Status Final Proposal
Type Treasury Management
Implementor DAO Council
Sponsor(s) Nick Tomaino
Temperature Check Poll LINK
Created Date 03/23/2022

Summary

Allocate $RARE from the treasury to engage market makers and liquidity providers to improve liquidity and price stability

Motivation

Currently, the only $RARE tokens in circulation are the ~150,000,000 tokens originally made available to the Artists and Collectors who made SuperRare what it is today. Market making buttresses efficient markets, reduces vulnerability to price swings, and in the case of $RARE – increases opportunities for potential buyers seeking to leverage the utility of of the worlds finest curation token. Some market making measures involving increased $RARE circulation are important for ensuring stable and healthy markets, but not without responsible process and transparent decision making situating the community at the helm.

Abstract

This SIP contemplates several methods to improve $RARE liquidity and acts as an ongoing request for comment from the $RARE community to suggest market making measures to improve $RARE liquidity. In the interest of efficiency, this Proposal seeks to establish the Council’s independent authority to enter into transactions with third party market makers and/or liquidity providers subject to procedural and transparency obligations. In the spirit of decentralization, this proposal also acts as a call to the community to suggest more user oriented, trustless forms of liquidity provision.

Specification

Up to 30,000,000 $RARE (or equivalent value in ETH or USDC) may be made available over the one (1) year period following the approval of this Proposal for certain liquidity and market making activities designed to improve liquidity for $RARE as identified below.

Approved Methods of Providing Liquidity

  1. Loan Agreements (including purchase options) with Council-Approved Market Makers
  2. Discounted Purchase of $RARE to Council-Approved Market Makers
  3. Incentivized Liquidity Mining Program
  4. Direct Provision of Liquidity from DAO Treasury

Procedure for Council Approving Transactions Related to this Proposal

The Council may only enter into, execute, and deploy a subsequent transaction or program fulfilling this Proposal’s purpose and relating to an approved method of providing liquidity if the following conditions are met:

  1. the transaction is approved by an informed consent from a majority of Council;
  2. the transaction is approved by independent legal counsel; and
  3. the Council provides at least fourteen (14) days public notice before each DAO Treasury transaction performed within the scope of this Proposal

Any unused $RARE upon the expiry of this Proposal shall be immediately relinquished back to the DAO Treasury. Nothing in this Proposal should serve as an ongoing basis of authority for the Council to use DAO Treasury funds for market making activities after this Proposal’s expiration.

Requests for Proposals

Up to 5,000,000 additional $RARE shall be set aside for the Council to dedicate to community-originated liquidity improvement proposals passed through the SuperRare Improvement Proposal (”SIP”) procedures. The passage of this Proposal would serve as a request for any community member to propose any program or transaction fulfilling this Proposal’s goals. Such community-originated Proposals must survive the ordinary SIP requirements to qualify for $RARE designated by this Proposal for market making activities. The Council may use any portion of the dedicated funds to incentivize related proposal development.

Benefits

Improved liquidity, the potential to further decentralize $RARE holdings, and greater access to the $RARE ecosystem. Establishing a regulatory and community friendly precedent for coordinating market making decisions at the community level.

Drawbacks

Regulatory risks associated with market making activities and unpredictable governance/market outcomes associated with increasing the circulating $RARE supply. Empowering the Council to make decisions approved by the DAO pursuant to this Proposal enables flexibility and quick decision making but potentially increases information asymmetries between the Council and Community, which creates certain insider trading or securities risks. Such informational asymmetries should be mitigated as provided in this Proposal, or as otherwise deemed appropriate by the Community or Council.

Outcomes

This Proposal will be deemed a success if the Council is able to successfully enter into market making transactions (or implement community-generated and approved proposals) while observing the transparency and notice obligations defined herein. Accordingly, the Council should attempt to disclose material aspects of transactions entered into pursuant to this Proposal to the extent such disclosure doesn’t violate any duties of confidentiality. In order to reduce information asymmetries, the Council should make its best efforts to provide early notice and details about the anticipated aggregate sum of $RARE to be released into the market. The Council should consider nominating or otherwise deferring to community members who can provide technical insights on $RARE markets routinely after market making transactions made pursuant to this Proposal.

2 Likes

@elo any updates on whether this proposal will be put up for a formal vote? Off the bat, there are a number of desks that could be very helpful here (Wintermute, Amber, Galaxy or Fractal to name a few). At the same time, we as a community could also consider decentralized market making options like being onboarded to Tokemak. If there is some interest on the Tokemak side, I’d be happy to explore that with their community (I’m active on their discord).

1 Like

@BrianA I believe this was discussed in the last townhall vote and is ready to go up to vote once we get council sponsorship.

I’m not familiar with Tokemak but that sounds like a great idea. Please follow up if there’s interest from them!

Thanks for the comment @BrianA! @SuperRareJohn said it best - still awaiting Council sponsorship. Once it receives a sponsorship from at least one Council member, then it will be up to the council to put it up for a vote assuming they have no reason to prevent the SIP from going up for a vote (i.e., unresolved community questions, formatting issue, lack of specification, procedural defect, legal concerns). I still think some more discussion at town halls is necessary to make sure the community has no more thoughts or reservations about the proposal.

The goal behind this proposal is to kickstart all ideas on market making in the $RARE ecosystem so that the Council is as informed as possible to responsibly enter into market making contracts with third parties. If the community itself wants to put together a plan on liquidity provision embracing DeFi, this proposal also sets aside funds for community proposal development.

Any interested market makers willing to serve the $RARE ecosystem should contact individual council members once this proposal passes. I believe that the final version of this proposal should establish a point of contact for the council so that it can begin fielding offers. From there, it will be up to the Council to decide in its discretion which market makers it wants to enter into agreements with on behalf of the DAO.

@elo what do you think about changing the title to “Improving $RARE Stability”. I think liquidity has the incorrect connotation and really the goal is to make it easier for people to join the DAO without dramatically effecting the price.

I think that is a fair point, thanks for raising it. The change will be made.

I am in favor of this SIP and would like to sponsor it. Planning to post to Snapshot Monday

3 Likes

Makes a lot of sense.

I would also encourage us to consider using ETH in the treasury to add liquidity to decentralized exchanges.

Feels like if we’re engaging a market market, it’s worth considering putting up some RARE and ETH as protocol-owned liquidity on Uniswap.

This feels like it might be a different proposal - but wanted to co-sign the intent to engage a market maker and encourage us to think about strategies for DEXs as well.

Thanks for the comment @coopahtroopa! The proposal reads “Up to 30,000,000 $RARE (or equivalent value in ETH or USDC)” and also contemplates “Direct Provision of Liquidity from DAO Treasury”

I agree 100%.

but as some who has seen MM’s very closely and now setting up a MM/ investment firm myself, I would be very wary of market-making contracts, especially the loan ones. They are designed in a way that most MM firms have no incentive to do properly. They can easily sit back and get the ROI on their investment from the optionality in contract.

At this stage of the project its critical to build distribution along with liquidity.

Happy to help here to discuss this more deeply with team.

@saushank The main goal of this proposal is not necessarily to layout the exact market making strategy but rather to earmark assets for this purpose. As the proposal indicates, any community insight on a strategy is valued. In fact, the proposal openly invites subsequent community proposals.

Can you go into more detail as how you would achieve the desired distribution? Maybe a topic for discussion or another proposal :nerd_face:

my bad. i completely support the decision to earmark the assets. I guess once this is passed then in a separate proposal we can chat about the MM strategy

1 Like