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 DAOâs 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 DAOâs 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 teamâs 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:
- 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.
- Exposure of the MC token to price manipulation attacks.
- 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, MCâs 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 MCâs fully diluted value, and more importantly â 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 protocolsâ tokenomics and staking mechanism. That was the teamâs 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:
- 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).
- 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 DAOâs 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 teamâs discretion from time to time, in an unpredictable way by market participants. - 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.
- 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.
- 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.
- We all bought the MC token because we believe in the teamâs 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.
- 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 âpocket depthâ 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 DAOâs 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 investmentâŚreducing 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 doesnât matter if itâs at spot or 25% below spot), is a price manipulatorsâ 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. MCâs resources are limited. The speculators resources, who often use leverage in their attacks, are virtually unlimited.
MC would insert itself into a battle it canât 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 profitsâŚSo 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:
Weâll reiterate our assumption that none of MCâs 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 doesnât 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 teamâs discretion and flexibility re realized profit management via the following means:
- 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.
- 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 â 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).
- 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 ROIâs 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 DAOâs mechanics with its original vision, community, and crypto space. Eliminating blind spots within the DAOâs 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 teamâs need to deploy its profit into specific assets regardless of price, and allow it to pursue the best R/r Opportunities.
- Eliminate the DAOâS market activity predictability and deter bad actors.
- Increase probability of realizing the financial opportunity in Gamefi for the DAOs benefit.
- Signal to prospective partners MCâs 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 MCâs attractiveness as a backer/partner/financer for developers, teams and games.
Copyright
Copyright and related rights waived via Creative Commons CCO