I’ll write a more general response to the proposal and subsequent discussion. Because I think most important points have already been made on both sides.
First of all, thanks for bringing this proposal to the DAO @EricM
Well written and well thought out, sparking a lot of good discussion and interesting new insights. It is great to see so many caring and smart DAO contributors joining the discussion.
Dividends
In the short-term I don’t think it makes sense. Underwriting @huoguoshen points here:
1-I have a different experience to what the proposal claims. A dividend only supports valuation if it is stable and predictable (say a REIT, a telecom). In the nascent crypto gaming industry, nobody has any idea what the cash generation of the assets can be, not how sustainable. The dividend has no predictability, can be zero or minimal, and so does not provide any valuation support.
As of now, there is no predictable dividend. The generated cash-flow is very volatile, as is normal with a project in this stage and a sector that is in a very early stage.
2-Complexity: distributing dividend is a hassle for the DAO, they should be spending their time sourcing deals instead. It is also a hassle for many small token holders who may not even know how to collect it.
It would create extra overhead, without a clear benefit IMO. The added DAO overhead is no issue if there would be a clear value add.
“Price support”
Regarding the “Artificial price support” I strongly disagree. Adding to the excellent points @Cryptolawyer made, I would like to clarify:
There is nothing artificial about it. The price is indeed being supported and the effect is that $MC tokens are taken out of circulation - more burns (accretive to all $MC holders) or to sell (with long lock-ups) to strategic partners that will add value to the DAO.
All of these uses would ultimately return value to the DAO.
The advantage of using limit orders instead of indiscriminately and directly buying tokens back is that
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Because the limit orders are placed under the market price, the tokens are generally purchased at lower prices, they are purchased during sell-offs The treasury gets a better price, hence, similar to stock buy-backs, this is more accretive at a lower share price. More $MC tokens are taken out of circulation with the same $ amounts. Regardless of wether you think the shares are undervalued or overvalued at the discounted level, it’s always better to buy them at a lower price.
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A secondary effect is that there an actual price support. These could arguably also enhance a psychological price support, from people knowing there is a price support. This is by no means the primary function of these buybacks through limit orders, but is a slight beneficial secondary effect that indiscriminate and direct buybacks do not have.
Lastly, I think not earmarking all bought back funds directly, gives the DAO more optionality to find the most effective use for the funds. I get your point on discipline, but I don’t think it outweighs the optionality. The current MIP-7 system in itself is a form of DAO discipline, the DAO ultimately still decides how these tokens are used. There is no one, or one organization, that could use these funds in an undisciplined manner, it would still need to pass the DAO’s hive mind through the same formal governance process.
I think there are benefits to native dividends, to non-native dividends, to burns, to re-investments and to treasury sales.
Which is why I think the economic model in its final stage, should drive value through all of these venues. The only consideration is, in what ratios, at what time and in what intervals.
I think the ratios and intervals should be a product of what is feasible and which buckets are most accretive in the current stage of the project and the wider crypto space.
The current stage of this DAO is one where the DAO is trying to grow fast and operates in a hyper-growth industry. Similar to a growth company, it is generally advisable to tilt the split towards re-investments and longterm value distribution. Non-native dividend distributions are a form of very short-term value distribution. Because, aside from the project, the space the project operates in is also changing very fast. There is added value to maintaining short-term flexibility and optionality. There are just so many incentive schemes and financial engineering we can do with the DAOs NI/FCF within the crypto space, that would not be possible in traditional companies. These are powerful tools we should think about carefully and apply to the most effective use.
In addition we need to consider what is feasible and what the operational burden for each implementation will be. Like a company, a DAO will have a limited resources available. It is critical to use these resources in a way where the DAO gets the maximum amount of value for the expended resources. Operational overhead is a very real cost to consider. From that angle, I think this will needlessly complicate our current staking system.
There will be an overhaul to the current staking system at some point.
In a much later stage of this project, I would be open to create more advanced dividend distributions and also an increase of the total split that goes to the dividend bucket. As over time, the subsidy for stakers will be lowered.
For now I think an implementation as proposed currently is too early. I would be open to other proposals that leave out non-native token distribution (for now). As a way to increase treasury discipline and non-native diversification, I think it might be prudent to higher the portion that is used to add $BTC and $ETH to the treasury. As this is also a very indirect form of non-native token dividend. As there will most likly be an indirect claim to the treasury at some point for $MC tokenholders (where the treasury value acts as a hard floor price in very dire market conditions, leading to mcap to treasury value we should hopefully and likely never encounter). Having the assets on the balance sheet, has the advantage of maintaining all the discussed benefits of flexibility and optionality, as well as keep a light operational overhead burden. We could always vote to distribute these as dividends at some point.
Regulatory and tax landscape
The regulatory and tax landscape are other considerations that we should add into the mix of factors to weigh. As much as I enjoy the discussion and insights on these two topics, as it stands currently, I think it is too early to give these hypotheticals an accurate weight in our shotterm tokeneconomics situation. For now, I think the economics should be dictated by what makes most sense for the Merit Circle DAO.
My personal view is that there will be a regulatory framework for DAOs and the different types of tokens. A framework that will have overlap with-, but should be different from the legal frameworks we have for existing assets in most jurisdictions. It will be very important to anticipate these and plan accordingly. As well as actively contribute to shape these frameworks.
Current proposal - vote
Eventhough there is plenty of contention around the details of the current proposal, this is not necessarily a bad thing. I think we can close the discussion and put this proposal up for vote, let the community decide. At the least it should provide us a temperature.
https://vote.meritcircle.io/#/proposal/0x0915881a0135b71466db7b3238bd9dc5bb9e6027a465981e866abd0ce875c527
Let the voting commence!
While the voting process has started, I think we should leave this topic open for a bit longer, as I feel like the discussion is still producing valuable input.