DAO Funds Utilization and Management

Title
MC DAO Available Funds Utilization and Management

Authors
Somary

Summary
This proposal provides the DAO flexibility and discretion to utilize treasury and realized profits to pursue maximum ROI opportunities in the metaverse and gaming spheres, while providing the tools for prudent available funds management in the interim.
Further, it provides protection to the MC token from potential price manipulator attacks, and enforces an accretive signal to potential partners and gaming developers re MC DAO’s attractiveness as a partner and financing party.

Abstract
This proposals was birthed by the realization that at the current state, MC DAO is vulnerable to a few main threats on different dimensions of its operation.
This proposal wishes to address those, provide the DAO and team additional tools, empower the capability to address all market conditions and adapt as necessary to different business and economic situations as they may occur, and increase the DAO’s attractiveness and ability to execute its stated purpose, thus increasing the probability of ultimate success.

The TLDR is the existing realized profits mandate, while rightfully highlights a need for balanced, value driving funds management in the interim between capital deployment into investment opportunities in the metaverse and P2E, also restricts the team’s ability to fully exercise discretion according to their expertise, contacts, skill and positioning to pursue capital deployment opportunities in the high growth sphere which is the metaverse. Thus, it leaves the DAO vulnerable and exposed to the following threats, which this proposal will address:

  1. Reduced team flexibility and ability to pursue investment opportunities and drive maximum ROIC (Return On Invested Capital) via the restrictive mandated uses of realized profits by the DAO.
  2. Exposure of the MC token to price manipulation attacks.
  3. Sending the wrong signal to P2E and metaverse partners and potential partners projects raising capital re the nature, long term behavior, and capacity of the MC DAO.

Previous MIPs which addressed treasury management policy were beneficial. We Agree having a treasury policy is appropriate, in particular at a time the treasury size exceeds the number of quality opportunities available, due to the Gamefi P2E space being so nascent. However, that will not always be the case. As a matter of fact, we have all gathered here and invested resources into MC because we collectively recognize the magnitude of the long term opportunity in the space, MC’s unique positioning to take advantage of it over long stretches of time, as and when the opportunities to do so will occur (they already are and will continue).

Secondly, we have allocated our resources to MC because we agreed with the vision and realized the team has the tools and the positioning to realize that vision, better than ourselves as individual investors, as its better placed to do so.

In addition, while the team is currently sitting on a significant treasury, and management guidelines for such resources are appropriate, that treasury is small both in comparison to MC’s fully diluted value, and more importantly – in relation to the value MC is expected to drive and accrue in the Gamefi space in the years to come.

The fact that MC is a long term play was communicated to all investors through the protocols’ tokenomics and staking mechanism. That was the team’s way of aligning the protocol with investors, and thus a community, that possess a long time horizon.

With this backdrop, we feel that having a profit management policy in place that forces the team to allocate 100% of profits away from Gamefi and P2E, and to lower return acquisitions (stables (20%), Wbtc+Eth (5%), MC buy backs (75%)), and perhaps very significantly lower return acquisitions, than reinvesting those profits in metaverse games opps is extreme and inappropriate, will significantly hurt the returns the protocol would realize over time, and defeat its original purpose and the reason we all assembled around it in the first place.

This is the place to remind the reader of a few basic facts:

  1. The profits the DAO will generate from its investments will, in all likelihood and as the embedded assumption we all made via taking an interest and position in MC, significantly exceed the current treasury. After all, the treasury was raised from investors expecting to make multiples on that capital raised. So the management of profits realized is significantly more crucial, and entails decisions regarding a pool of capital way larger, and over a longer period of time, than the management of the existing treasury (which is important too).
  2. If investors wanted a predominant exposure to stables, wbtc and eth, they would have bought those, not the MC token. The reason they bought MC is the expectation MC will deploy their capital in Gamefi more efficiently and drive higher returns than those investors could on their own via buying btc, eth, stables.
    Secondly, no one bought MC as a play to buy back MC. While that should always be a tool in the DAO’s toolbox, it should never be the only tool to generate value (as then there is no value), and should be used tactically, at opportune times, according to the team’s discretion from time to time, in an unpredictable way by market participants.
  3. What drives value to any economic vehicle, whether a DAO or LLC, is the returns such vehicle is able to achieve on its own capital. The highest ROIC opportunities are the ones to be pursued, not a pre set basket of mandated buys.
  4. The best performing financial vehicles are those that are able to: 1. Generate high return on capital. 2. Have the ability to reinvest such capital at the same returns, thus compounding those high returns over time.
  5. Buybacks, whether of tokens or shares, are only accretive as long as they represent the highest ROIC. I.e the native token is trading at such discount to value it represents a higher ROIC than any other external investment opportunity the DAO has.
  6. We all bought the MC token because we believe in the team’s abilities. Hence, it makes very little sense to strip the team completely from discretion, removing their ability to use profits generated from their successful previous investments, to reinvest and compound such returns in the space we all mandated them to do so, and instead forcing them to mechanically buy stables, btc, eth, and MC, which may, and probably will, represent lower return opportunities.
  7. The quality and quantity of investment opportunities flowing to MC is not a constant, and will be affected by various changing and fluid parameters, including competition, previous investment track record, reputation, and expectations regarding incentives, time horizon, and “pocket depth” of the financing partner. If the proposition MC would make to prospective developers and partners raising capital is an MC investment is a one off and realized profits would not be reinvested in the game/team but instead extracted by the DAO to buy stables, btc, eth and MC, than MC DAO’s attractiveness to game developers raising capital is significantly reduced. A party raising capital wishes to know that their backers have additional capital to deploy if the team needs it and if progress is made, success is achieved etc. Via limiting MC to a one time investment and communicating that to the market via the DAO realized profit uses mandate, the quality of deals offered to MC will deteriorate, perhaps significantly, over time, and the MC DAO will lose ground to competing financing partners (other guilds etc).

To demonstrate the above, lets use an example:
Say MC DAO makes a seed investment in a game and returns 1000%. It has an opportunity to take that 1000% profits and reinvest in the same or another game and make another 1000%. According to the current profit utilization mandate, what the DAO has to do instead is invest in stables, wbtc, eth, and buy back MC (which could be trading at a premium b/c the DAO just cashed a 1000% ROI investment…reducing the return on such buyback). All of which are opps with a low ROI, way lower than the 1000% ROI opp in a game that is offered in my example. That is how a DAO destroys value for its token holders, community, and team, and no token buy back can compensate for that.

In terms of the second threat, we specifically wish to address (and amend), the part in the existing realized profits mandate guiding the team to buy back the MC token from the market with 75% of realized profits. The reason for that is simple:

While we are in favor of the buyback practice when the conditions support it as the best course of action, forcing the team to execute such buybacks, and with target prices none the less, in a predictable manner, opens the protocol and the MC token to financial attacks, and in fact is an invitation to price manipulators to focus on the MC token as a preferred market for their manipulations.
Announcing beforehand and mandating treasury to buy back MC via governance (and it doesn’t matter if it’s at spot or 25% below spot), is a price manipulators’ dream. Effectively the DAO is publicizing it will be providing manipulators with exit liquidity, and telling them at what levels it would do so.
From a technical perspective, mandating and publishing the DAO will provide a floor price and where it will be is hazardous, as it plays into the hands of price manipulators, making their job easier, potentially subjecting MC to continuous manipulation which will destroy a lot of value.
Experienced Forex traders, for example, would have a field day with this type of communication. As a simple example for those with less background in this area, please see instances when powerful institutions such as central banks announced in advance they will defend a certain price peg (one example: The Day George Soros Broke the Bank of England To Make $1.1B | by Sylvain Saurel | History of Yesterday).
Bottom line: The capital of speculators always overwhelms the central bank, as it is much larger. MC’s resources are limited. The speculators resources, who often use leverage in their attacks, are virtually unlimited.

MC would insert itself into a battle it can’t win, drain its treasury, subject the MC token to shorters and manipulators, potentially creating a negative reflexive feedback loop that could significantly hurt not just the token price, but the DAOs operations generally.

Furthermore, if MC DAO is guided to buyback the MC token with realized profits, chances are it would be doing so when the price of MC is high, as the DAO was just successful and generated profits…So in practice, the DAO would be buying back MC tokens at high prices, reducing returns on such buys, contrary to a prudent guidance to buy back MC tokens when they are trading below DAO value, I.e at low prices.

So much for the technical part. There is however, a substance aspect to this, which is an enormous opportunity cost:

We’ll reiterate our assumption that none of MC’s holders would have become interested in the protocol, let alone deployed capital into it, if the proposition was that the protocol would use the proceeds to buy btc, eth, stables and buybacks of its own tokens. 100% of the token investors have given the capital to the team to invest it in Gamefi opps, to take advantage of a very young, fast developing, high upside industry. The team made sure it has long term investors as token holders via its tokenomics and staking mechanism, which rewards long term staking.

The existing profit utilization mandate is misaligned with the above, as its main focus is an attempt to artificially pump the MC token price via buybacks, reflecting a very short term, limited view of the DAO and its performance, and serves short term speculators, NOT long term holders of the MC token.

Successful enterprises only buy back their own shares/tokens when there is nothing better to use the capital for. An investment DAO like MC should be focused on deploying capital into the Metaverse, NFTs, Gamefi, rather than buying its own token. These are the activities that would drive value to the MC token, not short term artificial demand from the DAO itself.
It is in contrast to the DAOs best interest to execute that anytime soon. So early in its development, MC should be focused on growth, not token price. On finding and securing high ROI deals, not buying back its own token.
Now is the time to bootstrap metaverse incentives to the MC DAO, partially via distribution of the MC token, not via reducing its supply.
The time for buybacks would be when MC DAO is an established portfolio of Metaverse assets and the MC token trades at a larger discount to value than any external opportunities. Currently that portfolio doesn’t even exist yet. What use is there in buying back a token that is supposed to reflect a quality portfolio, instead of reinvesting those profits in enhancing and compounding the returns from such portfolio.

Hence, while we are supportive of the general practice of MC buybacks, we believe the team should exercise discretion re the opportune times to execute it, the quantum of treasury to use, and what is an opportune price level that even mandates consideration of such practice.

With that in mind, our proposal is the following:

Reinstating team’s discretion and flexibility re realized profit management via the following means:

  1. The team has the mandate to use realized profits to reinvest in projects in the NFT, Metaverse and gamefi spaces, as well as for R&D, at its own discretion, including timing, magnitude and terms, as a priority.
  2. In the event that capital remains unutilized, after the team exercised its capacity to deploy realized profits into projects available to it, (no better ROI opportunities exist) for a period that exceeds 30 days, the remaining portion of such realized profits will be allocated 65% to crypto native currencies in WBTC and Eth, and 35% stables (rational for this split – fiat currencies suffer rapid and consistent depreciation, contrary to btc and eth. To tackle short term volatility which is higher in btc and eth, we feel a 65/35 split is conservative enough, and will provide better treasury management results than the 20/80 existing split).
  3. At any given time, the team could utilize up to 70% of treasury to buy back MC, and use it according to the uses currently mandated: as a treasury asset, as dividend to stakers, in return for new external investments, as currency in partnering with external partners, M&A etc. The team will determine when a buy back was opportune according to Comparative ROI’s with its main business line opportunities in the gamefi space, and at prices, quantums and timing according to team discretion, and to the satisfaction of the investment committee.

Motivation
Aligning the DAO’s mechanics with its original vision, community, and crypto space. Eliminating blind spots within the DAO’s existing treasury management and realized profit utilization mandates.

Budget
No budgeting required.

Rationale
This structure reinstates team flexibility to go out and accrue maximum value to the DAO and MC token. We also believe it will result in:

  • Clarity to the team re community expectations.
  • Maximum investment management flexibility.
  • Increase ROIC via removing the team’s need to deploy its profit into specific assets regardless of price, and allow it to pursue the best R/r Opportunities.
  • Eliminate the DAO’S market activity predictability and deter bad actors.
  • Increase probability of realizing the financial opportunity in Gamefi for the DAOs benefit.
  • Signal to prospective partners MC’s resources will be directed and redirected to the Gamefi space over a long period of time, that MC will compound profits and reinvest them in teams that register success, over time increasing its available investable capital. Thus, increasing MC’s attractiveness as a backer/partner/financer for developers, teams and games.

Copyright

Copyright and related rights waived via Creative Commons CCO

  • For - I support this proposal
  • Against - I do not support this proposal in its current form.

0 voters

Note: Adding this poll to gauge community sentiment. I’ve updated the proposal template with a new requirement of including a For/Against poll. This will help make the decision of sending proposals to snapshot less arbitrary.

3 Likes

Honestly so much words I was thinking its some big brain proposal. But its not actually. You could write this proposal in few paragraphs but instead you gone for a poem. No substance here, also you didn’t clearly do your homework on previous MIP-7.

From MIP-7 quote:

Proposal 1:

  • 20% of the proceeds will be sent back in USDC to the treasury - allowing the DAO treasury to keep building up its non-native token treasury, and allowing us to maintain one of the strongest treasuries in the space;
  • 5% of the proceeds will be sent back in crypto assets (mostly ETH and WBTC) to the treasury as the harder part of the cash reserve - allowing the DAO treasury to keep building up its non-native token treasury, and allowing us to maintain one of the strongest treasuries in the space;
  • 60% of the proceeds will be used to put a strong support on 10%-35% below the market value, this will be done on-chain and therefore verifiable by everyone - every 7 days the limit order price will be adjusted according to the market price. Bought back MC will over time be the main source for MC staking dividend. Additionally, it can be sold to strategic investors with long lockups or burned, subject to DAO governance. The general idea of the bought back stack is to enhance value accrual for the token and maximize the benefit to the DAO;
    *** 15% of the proceeds will be used to buy back MC and send them to 0x000000 (or in other words; burn baby burn).**

Do you see the difference?

Also, may I ask you the question who are you referring all the time as “WE”, who are we? Please introduce yourself first.

3 Likes

Thanks for your thoughts and the proposal @Somary

Always helpful to get more perspective and discussion around the tokenecons.

I don’t think a lot of the concerns you’ve listed apply to the current situation. Some will apply to potential future situations.

A Soros attack should never be a problem. $MC is not trying to be artificially pegged to anything that it cannot back, as was the case with the British pound and the Thai Baht.

MIP-7 was very much written based on the current state of affairs
1- Still a lot of USD on the balance sheet
2- Pipeline of quality projects is good - but limited - will take time to deploy USD.
3- MC price at relatively attractive levels (price pullback and relatively large distribution through launch pool)

In time, I think most of the DAO is very much of the mind to increase the average amount paid out as a dividend and the amount added tot the non-native treasury, while reducing the bought back amount.

I also srongly agree that buybacks should be less predictable and based on a comparison of the $MC token price in relation to the estimated fair value (based on treasury assets and generated cash flow) VS whichever investment opportunity is at hand for the same dollars.

At the same time:

  1. Finding the best R/R for any given $ is never as clear-cut as theory would let you believe
  2. It is good to have a robust treasury strategy and not only go by pure R/R estimations since there is also operational and competitive longevity to consider. The systems with the most longevity in business, finance, and nature are robust or anti-fragile. The investment committee thinks on average, they can do better than the market with any given $ investment. However, it’s probably wise to hedge part of the strategy (by buying certain important assets indiscriminate of price) and assume you are not the smartest kid in the room.

I would also be in favor of 2. a split that buys more ETH and WBTC vs USDC, but I would change this split to 50/50. Would also endorse 3. more discretionary abilities around buybacks. 1. Is something that is already largely possible under the broad mandate.

To summarize, I am actually in favor of all 3 points with a small amendment, altho I think the abstract makes a lot of wrong assumptions and doesn’t consider the current state of affairs.

4 Likes

Henlo,

Voting against, and I’m with @SpeedyG on this one.

Reasoning:

  • Community expectations? Did you read the Gitbook, Medium posts and Pitchdeck? Buying back MC was a promise, and part of the mandates. Don’t buy a project if you don’t understand it.
  • MIP-7 gives enough room already and isn’t limiting at all, there already is flexibility here.
  • There is a lack of possible investment opportunities in terms of GameFi, some games are just bad investments, and size per investment is nearly always limited
  • Buying BTC and ETH constantly is just a bad idea. If you want hard assets, there are better alternatives. If you want to hedge “inflation” aka USD/USDC, there are even better alternatives.

Also, I don’t like your Discord messages. Very disrespectful.

Noticing a lot of BSc level finance armchair career citizens lately. Need a filter. Thanks Shashwat for helping us with the poll.

Voting “NO”.

2 Likes

Thank you to all chipping in with feedback. It’s useful so we can flush out the best outcome for MC, as we all want what’s best for the DAO.

To provide some context, I agree this proposal isn’t urgent, as currently the bottleneck is quality projects to deploy the treasury in, considering the natural size limitations of seed rounds and the stage of the space, rather than available capital. And, the fact the team indeed currently has a broad mandate to deploy its existing capital as it deems fit.

However, this may become a future problem, once the time to realize significant profits arrives.

Thus, I was urged by some team members to write and submit this proposal, and hence done so. The natural conclusion is, at least some team members deemed the principles in the proposal as having some merit.

The bottom line is this proposal essentially suggest 3 things:

  1. Mandate max discretion and flexibility to the team to execute investments into gamefi via removing the restriction to rotate 100% of realized profits to other areas.
  2. Remove the obligation to execute buybacks while maintaining the team’s ability to execute those at their discretion.
  3. Avoiding forward communication to the market, in order to avoid bad actors from front running MC. (Tommy- the Soros attack was an example. The principle applies).

I find it hard to believe those 3 are in dispute. Struggling to grasp the benefit of tying up team’s future hands (contrary to providing guidance and hedging).

To address the criticisms which surfaced in the replies:

  • The Problems with buyback and burn mechanism is the following:
    • You’r bleeding the DAO’s capital through fees. Who are the fees on buybacks going to? Not MC token holders.
    • It’s exit liquidity for early investors, typically VCs, that will use any short term spike in price to dump.
    • The price appreciation is short lived. So it’s adopting a policy that at best would cause short term price appreciation, and long term would leave the DAO with less capital.

If on top of the above you publish in advance you’d be doing that, it’s an invitation for manipulation.

I feel there are better uses of the DAOs’ resources that the team should have the freedom to exercise, without taking the buyback option off the table.

As this was mentioned as justification for the aggressive buyback guidance: Buybacks Will do very little to ease the gap between Market cap and fdv. MC DAO needs to grow into its fdv, not try to reduce fdv via buybacks and burns. Burns reduce the capital available to the DAO, while Fdv in general is an elusive beast which shouldn’t concern the team. The team should be concerned with growing the operation and portfolio and add value.

  1. Both stables and Btc&Eth have a place in the treasury. However, Can’t believe we’re really preferring stables over btc and Eth as long term treasury assets (not trades or yield farm liquidity - long term treasury assets), as reflected in the existing proportion of the 3 in the current version of policy (80/20 split stables/Btc+Eth).

If the underlying assumption of this criticism is stables are longer term more accretive to the treasury sitting there, I vehemently disagree.

However, the suggested proportion in the proposal isn’t set in stone and if the team and community believe a 50/50 split is more appropriate there will be no objections from me.

To those concerned, I have gone through every word of accepted previous proposals as well as all the protocol’s published documentation. They read as the DAO currently has a mandate to deploy its treasury into protocols at its discretion, but 100% of realized profits are funneled to Stables, Btc, eth, and buybacks. If that isn’t the case, please point me to the language I have missed.

Finally, if there were any comments I made on Discord which offended anyone, I’m sorry. That was not my intention at all.

However, Discord is there for us to vent. This is the DAO’s official forum. Since this is Merit Circle, I think we would all benefit from judging proposals on merit.

Somary.

Greetings @Somary,

This is Admiral Erik von Pumpson of the MC Enterprise. Our spacehip engineers tried to use high-grade decryption quantum processors to read through your lengthy messages to no avail. We are unable to fully comprehend the intensions of your message. We believe you do not fully grasp the full mandates Merit Circle is already encapsulated by. There’s a large amount of freedom.

That said, there are three problems with your proposal, namely: there are size limitations in terms of new GameFi investments, buybacks of MC are a Core principle from the very start, and the ‘bad actors issue’ has already been debunked multiple times and is not a new opinion.

You’re talking about exit liquidity for VCs, which VCs? We’re not anywhere near VC unlocks. Do not create such quick judgments as to how VCs operate. Besides, many of the weaker minded parties are actually Angels. I would name a few of them, but sadly, our space engineers have been too busy dealing with your ‘proposal’ instead of working on our new fission-based missiles.

The disrespect you are showing to a few people and entities here shows you lost your line of communication and all our respect. Accusing people of supporting ‘short term pump & dumps’ is not adding value, and you essentially disqualified yourself from neutral grounds. Insulting many of the biggest activist supporters here isn’t smart. On top of that, we’d advise you to pick a different financial advisor as clearly you do not grasp how to make proper investment decisions by reading your view on BTC and ETH.

I wish you good luck, but you lost the spirit and respect of our DAO.

Signed - NO - with our entire fleet.

Signed,

Erik von Pumpson
Admiral of the MC Enterprise
Ascending Galactic Federation

2 Likes

Hello @Somary

Thanks for the proposal.

Quite a long proposal but I think my main rebuttal is simply that the DAO treasury has an ample amount of liquid USDC/stables available to it. High quality seed investments or NFT projects which present a reliable opportunity for high ROI don’t appear everyday, and are limited in number, and they don’t often present the chance to invest an infinite amount of money in. I assume Merit Circle is mostly investing 6 figure sums of stables into seed deals and the team already have the mandate to invest in these seed deals without consulting the DAO.

Your proposal might make more sense if the DAO was literally running out of funds to invest in:

To quote yourself. But in reality, we have more than enough liquid stables to invest in many seed deals or NFT/gamefi projects likely for months or even years to come. In all honesty, with the previous MIPs, as we take profit from previous investments into stables/btc/eth/mc buy back, we might never run out of USDC to invest in the above depending on how well the ongoing investments go.

I have no doubt in the months and years to come, the way the DAO treasury deploys its funds and how it treats its investments, will be the topic of many MIPs as it is important we remain flexible depending on the overall market and state of the DAO treasury. If we ever start to even come close to running out of funds to deploy into the high ROI investments, I’m sure this is an area which can be revisited.

In terms of wanting to buy more WBTC and ETH, my personal take is there is a lack of R/R. Many funds are on the defensive with rate hikes on the horizon and I’m just not convinced now is the time to implement a MORE aggressive buying strategy for ETH and WBTC. I think the current percentages seem reasonable. There are better ways (even delta neutral ways) to beat inflation.

Also, I get the impression that you don’t think the MC buy backs present much value. This isn’t done just to cause a short term pump, it is done so the treasury can replenish one of its main weapons. I won’t go into detail here about this topic but I recommend you seek out information regarding the DAO’s options for these tokens which have been stockpiled back into the treasury. Not to mention that with the recent MIP that passed, the use of limit orders will allow some level of price support, which people do actually care about.

Overall, my position is to vote NO to this proposal as I don’t believe your concerns are actually relevant to the current ongoings of the DAO treasury. We (the community) will constantly be analysing how we think the DAO can operate in a more efficient manner, but for the moment I’m quite eager to see the positive impact our recent MIPs which have passed, will have.

Thanks

JohnnyJawnz

4 Likes

Topic closed!
The proposal in its current form won’t be moving forward in the governance process since feedback from the DAO participants is overall negative.