SIP | Variety is the Spice of Life

  • 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

Summary

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.

Abstract

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.

Motivation

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.

Specification

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.

Benefits

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.

Drawbacks

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.

Outcomes

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.

9 Likes

This post has been up for a while and I wanted to follow up and say I think this is an important proposal. Being able to rebalance the treasury is an important part of stewardship, and having a decent amount of stablecoins to help weather market turbulence seems prudent.

3 Likes

This is a conversation that needs to be had.

While it’s great that the Treasury is now receiving ETH from sales on SuperRare, one of the downsides is Treasury Management becomes a lot harder.

I am personally in favor of diversifying both ETH and RARE from the treasury in exchange for USDC.

I’d like to voice that we should not be in the business of trying to trade the market (OGs remember what happened when Substratrum did this) but taking a small % off the table now feels very good to me.

I feel like we can be more aggressive with selling ETH to USDC ahead of the Merge as there’s a lot more variable to get right on that front. I also think we should set up a precedent for how ETH is being converted to USDC in the future, and any guidance from SuperRare Labs on how this was done before the migration to the DAO would be helpful.

On the RARE front, I am in favor of selling some to USDC, though I expect this to start a big uprising from the community. With that in mind, the best way to do this would be through a Treasury Diversification, offering a select group of investors RARE at a discount to spot in exchange for a 1 year vest. It’s worth noting that this process will take much longer, so I would be very much in favor of swapping ETH to USDC first, followed by a more structured plan around RARE.

Also worth highlighting that this proposal allows for up to 20% of assets to be sold, but I would not recommend this be done all at once.

Most importantly - the DAO should keep a detailed report of when swaps are made and share these transactions retrospectively for full transparency.

I am in favor of this proposal and am open to working closely with the team to help draft a plan/template for how ETH and RARE are diversified in the future.

3 Likes

+1, am in favor of diversifying treasury holdings. 20% is a good starting target too :slight_smile:

1 Like

Treasury diversification is indeed a topic worth exploring for the longevity of the treasury.

I’d like to suggest using Outcome Success tokens as the mechanism for the swaps. Outcome is a protocol that is powered by the UMA team.

Here are a few reasons why this route is beneficial for SR:

  • Selling tokens to investors for USDC often comes with the ask of a discount, which has seen community pushback in other DAO’s.
  • Success tokens align the chosen partners with the project over time. This means that your investors or partners are vested in your growth.
  • Token swaps with Success tokens are also possible and mutually beneficial.
  • Using the Success token, you do not have to sell any of your tokens at current prices, reducing sell pressure.

A quick overview of how Success tokens work.

  • A Success token is minted using your token plus an embedded call option. The success token has a pre-determined lock-up based on the expiry date.
  • If the project does well and the token price rallies, the holder of the success token earns their token plus the value of the call option at the expiry of the success token.
  • If the price is below the call option strike, the holder still earns their token.

[Optionally, you can choose a metric that is not price-based- rather a protocol KPI]

This allows you as a project to trade your tokens in the form of a success token without the need to negotiate a discount. You are offering a bonus to your partners in the event of success. This means your partners have an interest in your success. Plus, you are not directly selling your tokens.

This process also works for token swaps, where your project swaps success tokens with another project. At expiry, their success becomes your benefit and visa verse.

I’m passionate about furthering projects’ long-term plans in ways that create positive outcomes. I’d be happy to help further this process if there is interest.

Thanks

1 Like

I’m in favour of this proposal in general, diversifying the treasury can guarantee a healthier and more stable balance for the platform. That said, I agree with @coopahtroopa on starting with a small % to ensure $RARE keep strong and valuable, specially now that they can be used to purchase NFTs from the platform or list works in $RARE. Happy to contribute on the development of this topic. Overall in favour.

I am happy to sponsor this proposal.

2 Likes

Hey guys Callen from Wintermute here,

Completely agree with @SuperRareJohn and @coopahtroopa. Treasury diversification is often overlooked when it comes to ensuring a DAO’s longevity largely for two reasons: 1) Missing infrastructure to efficiently execute a sale of their native token and maximize their purchasing power, and 2) Selling large amounts of a DAO’s native token is a touchy subject. However, ensuring a stable runway before it’s not too late is extremely important for the long-term success of a protocol

We don’t have an opinion on the quantity and selection of which token the DAO should sell (community’s choice). However, Wintermute would like to offer our help to the SuperRare community and DAO by working closely with the Foundation/ Governance Council to facilitate the execution of the initial and ongoing treasury diversification. This will help reduce the burden of ongoing treasury management and offer an easy, fast and efficient treasury diversification channel for the DAO

Happy to answer any further questions and I look forward to the possibility of working with the community!

1 Like

Thanks Callen, it will be great to have your advice as we build out the diversification infrastructure and strategy.

This proposal has now been live for over a month and has had a decent amount of community feedback. As a council member I would like to sponsor this proposal.

2 Likes