- Author: Kyle Olney (COO), Jonathan Perkins (CPO), Tom Wu (VP Finance), John Crain (CEO) @ SuperRare Labs
- Status: Approved
- Type: Governance
- Implementer: Governance Council
- Sponsor(s): Serena Tabacchi; John Crain
- Link to Temperature Check Poll: Discord
- Created Date: 07/20/22
Provide authorization to diversify balance sheet assets held by the DAO Treasury such that stable forms of payment (USDC/DAI) can be utilized on a regular and ongoing basis as working capital in lieu of relying strictly on retained crypto assets.
The current DAO Treasury is comprised of +6,000 ETH, and 400,000,000 $RARE tokens (as of July 20, 2022 - the value of the Treasury is approximately USD $118M, comprised of $109M in $RARE and $9.5M in ETH). This SIP proposes that up to 20% of the DAO treasury’s assets be earmarked for the purpose of executing any token swaps, direct placements, or sales deemed strategically valuable, prudent or necessary to: i.) diversify assets held by the DAO treasury on a regular basis, and ii.) establish necessary stable reserves that can be utilized to pay for ongoing operational expenses of the DAO.
As we look to scale the breadth and depth of the DAO’s activities, building a reserve of USDC/DAI that can be utilized to pay for real-world operating expenses has become an increasingly large concern as there is no native cashflow in USDC/DAI feeding the treasury today and there is no established authorization for swapping retained assets like ETH or $RARE to cash on an as-needed basis. Establishing this authority is even more important now than ever due to persistent macro-volatility affecting the treasury so far this year.
Over the last year since launching the DAO many network participants have also been approached by private parties interested in acquiring $RARE in blocks too large to be facilitated by the thin order books maintained at most exchanges today.
Upon approval of this SIP, the RareDAO Foundation at the direction of the Governance Council will be authorized to swap up to 20% of accumulated treasury assets to USDC/DAI, at their discretion, as needed to maintain safe reserves of working capital & take advantage of favorable conversion rates as they present themselves in the future. Furthermore, up to 20% of all future revenue earned by the DAO may be swapped into stablecoins as provided by this Proposal.
The Foundation / Governance Council will periodically earmark the necessary funds which will serve as collateral for any swaps, direct placements or public sales it deems necessary and prudent to establish the appropriate stablecoin reserves. The Foundation / Governance Council shall have the discretion to engage reputable agency desks and to otherwise take any action needed to diversify the DAO treasury as provided under this proposal, including the offering of reasonable discounts for bulk purchases of $RARE.
To the extent practical, any swaps or private placements of $RARE or ETH under this proposal - once complete - will include a public notice to the DAO detailing each transaction, which may include the details of any lockup provisions specifying the holding terms for the relevant acquirer (e.g. up to 1yr), subject to the discretion of the Governance Council.
Providing authorization to swap retained treasury assets for cash assets during periods of favorable market conditions reflects the desire for prudent financial management and allows the DAO as a whole to de-risk the cost of holding & receiving the majority of its cashflows in volatile crypto-assets.
In light of prevailing market conditions, converting a reasonable percentage of the treasury’s assets to stablecoins will provide: i.) increased certainty around the financing of ongoing operations, and ii.) further margin of safety given that the financial landscape may remain challenging for a prolonged time period.
Any treasury assets allocated to diversification and converted to stablecoins will no longer be eligible for use in their native unit (e.g. RARE/ETH), and to the extent that such conversions occur at a price different to their cost basis (FIFO) there will be taxable gains/losses that need to be recognized.
If successful, the DAO treasury will diversify away from a 100% holding of RARE/ETH and begin holding a meaningful percentage of its total assets in USDC/DAI on a regular basis.