Merit Circle Improvement Proposal

MC Proposal to Cut Emission Rate and Target a Long-term Value Creation Approach Without Excessive Inflationary Emissions

Author:

Jordan Feintech

Summary:

The current model for emissions is extremely aggressive relative to the value it generates. The model is currently rewarding LP holders, well in excess of any level of risk that a real long-term investor would assess for an entity with $105M in yielding bearing intrinsic value. The Liquidity Bootstrapping Event raised enough cash to put a $105M valuation floor, and real investors will support that price by buying MC if it is undervalued relative to that number or their expectation of what we will do with the money which will yield significant interest even before it is deployed to in-game assets and NFTs. We need to cut emissions and allow any of the “farm and dump” holders to exit the market so the team can be using the capital to deliver value instead of diluting owners out in favor of Liquidity Providers(less committed owners willing to sell). By reducing emissions to a reasonable 20% for MC Stakers and adjusting Liquidity Provider to a risk adjusted rate based on volatility with a floor of $105M or our growing Net Asset Value, we can use remaining tokens to finance future rounds of funds for growth once we have shown the ability to deliver profitably.

Abstract:

Proposal 1: Cut emissions to Liquidity Providers to levels that are calculated by using the volatility of well established DAOs and the LP yields that Uniswap provides to entities like Maker DAO and MKR/ETH pairs. The proposal will require a periodic update to volatility, which I propose to be every 2 weeks.

Proposal 2: Cut emissions to MC Stakers to 20%, which while still higher than most dividends is in line with inflation and interest costs for borrowing, which are all that true “Investors” should need until the cashflow from operations begins.

Proposal 3: Once cash flow from operations is sufficient to compensate MC holders with that in part instead of emissions, a vote should be had to reassess this proposal and the use of capital and token issuance/emissions.

Motivation:

Improve the efficiency of capital, preserve the value we have raised instead of diluting investors, maintain a reserve of tokens to finance future expansion with further iterations of seed round investments from funds or from LBEs. The purpose of this proposal, as a holder that will lose significant rewards, is to ensure the DAO is not another farm and dump and not another copy of all inflationary DAOs and protocols that inevitably dump or are so overvalued realtvie to assets thatwhen the market corrects they are wiped out.

Budget: FREE or even Cash Flow Positive if we use the tokens for more funding, costs us literally nothing and ensures our stakes are not being diluted and regards are not being overspent to overcompensate the wrong motivations for holding MC.

Rational:

I support the LPs, I totally respect that they/we support the price while the market gains appreciation and footing for the future valuation of the firm as a well managed DAO fund. However, the holders of a true DAO fund which has a Net Asset Value and business model, should not need 5-15x the incentivization to the other investors. Something rarely understood stood in a world of AMMs(automated market makers) and HFT(high frequency trading), is that DEEP liquidity, the kind that supports you in a black swan event, comes from your holders not selling and in fact buying as they see the asset as intrinsically undervalued despite price action. No matter how you justify it, LPs aren’t the real source of valuations, those that are NOT willing to sell anywhere near current prices are…those are your stakers, and your MC holders that the LPs are selling their inflationary rewards to, depressing the price of the asset that the true long term investors seek to support and be patient with. Cutting emissions and saving the money overall for a secondary investment round once we have deployed capital and have a higher valuation seems better for all and of course some of that money could even support the price action if needed, though as always, capital should be used where is it most efficient on a risk-adjusted basis, and I see no need to be devaluing the asset by holding emissions high just to “reward” people for holding a fund that will already make money if they actually are investors not yield farmers and traders. I propose we reduce emissions until capital is deployed and then reassess rewards, If without LP 10x rewards our price falls to $3, then the real buyers that know the investment thesis and the math will be there to support the price with genuine buying action that will help the profile and commitment of our investors and ensure they are aligned with the goals more than the business of yield farming against the actual long term investors.

I also would consider that while everyone is loving MIM, and SPELL was right in moving off of just ETH(major strategic error by Maker DAO, that several of us including myself posted in their forum), and for all the issues with them…For just a moment they were a real DAO/company almost, they didnt pay people to use their service, they actually charged for borrowing like economics requires to sustainably manage the value of money. For a while, DAI was simply useful and that was and is enough to make it organically grow to be the largest decentralized stable coin, created by collateralized debt positions and ultimately backed algorithmically by the value of the protocol to potential owners when under collateralized. I am explaining this because many don’t know the story of the one of the first mega DAOs and non-“ponzi”/incentivized based system for decentralized money. Here we are trying to do do something on that scale, possibly even larger, if we can own the right in game assets relative to the risk- adjusted yields and capital appreciation they offer, then we can genuinely own parts of economies in the digital world that we generate massive profits. In doing so, we are removing any need to rapidly incentivize holders beyond the high yield the business generates. Crabada on AVAX is a great example of a launch that was clearly something that with organized effort we could have owned a lot of possibly, which based on any of the price ranges weve seen will generate nice yields for us through players, so i dont think we need to have or focus on emissions, when all or most of us owners are her to find a way to collectively own a portion of the GameFi/Meta economy. Most in defi will probably hate this, but i would be happy with 20% yield until profits begin to flow, and the LP for any good name vs eth is under 100% . Ant holder that doesn’t think we are a good name to hold shouldn’t need more than the risk adjusted return on the volatility service they are providing, and in this case that includes the Implied Vol, needs to be based on any other QUALITY name if we want the holders remaining to be quality investors. I believe this DAO is one of the few that launched with enough capital, and from your proposal, clear discipline in cash management, I am shocked by the rate of emissions and I want to know if we can vote to commit to letting the team really build something and save the emitted tokens for a secondary sale to a CEX at premium or to a future or even to all or us once the DAO has operating profits and we dont want more funding(HAHAAHHAAHAH), but let this be something special and real in a world of inflation and uncertainty. I vote we build over everything and OWN THE FUTURE TOGETHER. - MERIT CIRCLE FLIPS MAKER:2022, just by announcing profits from Axie, Crabada, and NFTs that we are tied to and can reflexively help add value to.

Thanks for reading if you made it.
Jordan

PLEASE NOT THAT THE ABOVE WAS POSTED AS A COMMENT ON THE MERIT CIRCLE GEVRNANCE BAORD on 11/14, SO THE COMMENTS WERE LESS OBVIOUS THEN ABOUT SPELL. See: MIP-2 Broad investment mandate - Governance / Proposal repository - Merit Circle

Poll

If you support this submission as a proposal, please say so so we may determine the processs to open the discourse with a timetable of passing, modifying, or rejecting the Proposal.

“Yes” if you want to see this as a formal proposal to be up for amendments and voting.

“No” to not consider the proposal and continue with inflation at high rates.

Copyright and related rights waived via Creative Commons CCO, and all thoughts have been publicly discussed openly as I spoke with investors and potential investors as well as signatories of the DAO.

2 Likes

I agree with the summary and rational. The specific examples of spell and amm liquidity farming is relevant, but I hope they see that that emissions as rewards for lp’s aren’t sustainable, especially with this product. I really think MC would have been better off with lower emissions as I feel people aren’t interest in Merit Circle to farm… or maybe they are for now since the opportunity is there.

No.

Strongly disagree and will vote against this proposal. I actually sure it will not even close to the vote.

We liquidity providers worked hard to attract such huge liquidity that mitigated every flippers who wanted to flip their million to 3mln since launch. We deserve the rewards.

Peace.

11 Likes

I’ve got 4 questions for you Jordan.

  1. Do you understand liquidity?
  2. Do you understand what happens with liquidity when you cut emission rates?
  3. Do you understand the risk people take locking up their tokens for 52 weeks?
  4. Do you understand the people who want to buy and accumulate your token are the same people who are looking for strong liquidity?
9 Likes

By the look of it he didn’t even understand the aspect of locking and why the APR is showing high.

5 Likes

I will vote no. I locked my LP away for a long time because I believe in the future. Even if the APR looks high to you right now, there is no guarantee at which price MC will trade 12 months after I claimed my rewards. What’s the alternative: Use half of the treasury to provide liquidity?

8 Likes

Long story short. No, I strongly disagree.

7 Likes

No.

I will vote NO.

Im not sure Jordan fully understands LP, locking and APY here.

6 Likes

Hi Jordan,

I appreciate your initiative to help out the DAO. Having an active and participating community is important for its health.

However, it seems you might have either misunderstood or underestimated the importance of liquidity.

It is understandable to be wary of emissions, and I can understand how a high APR can seem dangerous at first glance. This percentage only applies to those who have locked their LP for 52 weeks, however. The same lock on all claimed rewards is enough to mitigate any potential effect emissions could have on the project as well.

The current staking system is probably the most market friendly emission/incentive strategy I have seen.

As such, I’ll have to disagree with the proposal, and will vote against it.

4 Likes

Thank you for the proposal.

It’s clear the author does not understand the implications of lowering the APR for LP providers (hint: LP will drop significantly). High liquidity is required to attract investors.

Also, locking LP for a year + having rewards vested for a year poses a risk for LP providers which should be rewarded accordingly.

A big NO to this proposal.

3 Likes

Response to Jordan

I don’t often partake in public forums, but I feel you gravely misunderstood the point of the staking program.

“current model for emissions is extremely aggressive relative to the value it generates”

I feel this doesn’t do justice to the value of the MC token. Every MC token is precious, and scarce.

“rewarding LP holders, well in excess of any level of risk that a real long-term investor would assess for an entity with $105M in yielding bearing intrinsic value”

I’m sorry, we took a LOT of risk by taking care of all the paper hands who fell off from the leaderboards. Only the trully faithful remained. Every day, we saw the LP get into a war with paper hands. We even had a ton of memes around it with Hard Rock Nick. And here you’re telling us we didn’t take any risk? Without a large majority of the LP people who have a LONG TERM VISION in mind, we’d not be at this great support and valuation.

“The Liquidity Bootstrapping Event raised enough cash to put a $105M valuation floor”

Another misunderstanding. That is DAO money meant to be invested into games, NFTs, and other yield bearing assets to help support the MC value and its many P2E gamers. Most of the liquidity is community owned - for a reason - decentralization.

“real investors will support that price by buying MC if it is undervalued”

Sorry, you are actually saying liquidity providers are not REAL investors? Is this just a troll post or what? Many of whom I personally know are the sickest and most badass investors you’ll ever get to meet. From hardcore hedge funds to activist venture capital to degenerate angels small and large alike. What are you talking about?

“We need to cut emissions and allow any of the “farm and dump” holders to exit the market”

You what mate? How does providing liquidity, many of which are locked in for 52+ weeks, that can’t ‘dump’ their rewards for an additional year anyway, “exit the market”. Again, you didn’t understand the staking program, did you?

“deliver value instead of diluting owners out in favor of Liquidity Providers(less committed owners willing to sell)”

Any idea how many people you just offended, and which stakeholders? This must really be a troll post.

“By reducing emissions to a reasonable 20% for MC Stakers and adjusting Liquidity Provider to a risk adjusted rate based on volatility with a floor of $105M or our growing Net Asset Value, we can use remaining tokens to finance future rounds of funds for growth once we have shown the ability to deliver profitably.”

I don’t know what this means. Maybe you can supply some proper math. Feels like you just used some randomly Googled big words and summarized them. Try again please, please help us out here.

I vote no with the entire fleet of the Ascending Galactic Federation. Can’t be bothered to read the rest of the anti-LP rambling. MC tokens and LP are worth more than what you make them out to be. Not to mention the disrespect this post shows to the wholesome team.

Signed,

Erik von Pumpson
Admiral of the MC Enterprise
Ascending Galactic Federation

9 Likes

Response to JordanFe8

We would like to raise a number of concerns with this suggested proposal. We believe these issues stem from a lack of understanding regarding the purpose of generating liquidity and how the staking program works.

Fundamentally, the liquidity provided for Merit Circle is one of the biggest drivers of sustained growth, volume, price development and stability. This is especially true considering nearly all transactional volume is still conducted on Uniswap. Without high liquidity, price would be much more volatile to both the upside and downside. Volume would also be greatly reduced as a great number of investors would be put off from purchasing due to high slippage. Low volume would then equate to low interest in the project, and it would only be a matter of time before interest was lost completely.

The team recognized this and designed a system in which both Merit Circle holders and liquidity providers are rewarded - the staking program.

The inflation from the staking program amounts to 10% of total supply over a minimum of two years (one year of escrowed rewards, then at minimum another year of unlocks). A 10% increase in circulating supply over two years with a one year cliff would not be considered ‘extremely aggressive’. Ironically, a high level of liquidity is what will further stabilize price during periods of inflation or token unlocks.

In terms of how the rewards are split between LP stakers and single sided stakers, LP providers are allocated 80% of the staking rewards whilst single sided stakers are allocated 20%. This means that the baseline rewards for LP stakers are 4x what is given to single sided stakers - not the 5-15x that you mentioned in your proposal.

The APR difference which you are referring to is a reflection of how diluted the staking pools are. Currently, the single sided staking pool has around double the total value locked compared to the LP pool. This means the single sided pool has double the dilution when compared to the LP pool. This isn’t something the team can control as all staking participants are free to choose which pool they stake in. In fact, if the rewards for the LP pool were so outrageous when compared with the single sided staking, then we would expect a greater dilution in the LP pool rather than the single sided staking. However, even with greater rewards available, it appears that most stakers still prefer single sided staking.

The reason for this is likely related to some of the risks involved with providing liquidity. LP providers must provide both ETH and MC in equal measure and so are exposed to the price movement of two assets as opposed to one. As these assets are supplied in a liquidity pool, LP stakers are also exposed to the risk of impermanent loss relative to the price movement of these two assets. As we are participating in a free market, if the APR for the LP staking pool was perceived as far too high, then more people would LP stake, thus bringing the APR down to a level considered ‘fair’. As the APR has remained fairly consistent recently, it is fair to assume the provided APR is deemed as fair by market participants when considering the risks and rewards.

The Sad Cat Cartel is strongly AGAINST this proposal and will be voting NO.

Signed with right paw,
Mr. Bigglesworth

6 Likes

What is very clear from the responses is that the readers are not familiar with traditional metrics for risk or measurements for compensation of that risk. The idea that after the LBE there was still not a floor valuation near the implied by the cash position held by the DAO is counter to all the evidence provided by the SPACs in the world of equities, which is largely our closest comp at this point. It’s is also quite clear from the dilution to MC stakers that in fact all the claims of “paper hands” and LPs’ "handling “ALL” the volatility after the LBE(not that much once we were even 24 hours past the LBE), are quite counter to the evidence. In fact the number clearly show that most holders are investors committed to owning the underlying DAO as an operating business and without need for the “sacrifices” made by the LPs that locked up liquidity. For every staker that chooses to commit to their lockup, the LP becomes incrementally less necessary to price stability on the downside at least at there are less “paper hands” and less people in fact even able to drop the price through sales. The stakers have clearly shown through the market driven preference to accept even the diluted rates that there is much more demand and support from MC stakers than there is from LP holders. For all those that seem to claim this proposal lacks an understanding of decentralized and data-driven market implications, it is clear their own arguments of “stakers diluting themselves by choice” are quite counter to the evidence they have themselves provided, as many more holders are interested in the long-term investment and ownership even at diluted(lower personal rewards) rates, meaning the issue of “paper hands” is as you might all like to say “FUD” or simply false logic. I understand that all the above are going to vote against the proposal but I encourage a bit more honesty in the intellectual self-reflection on the roles we all have in this and what it means to lock up your MC despite dilution. I am not discouraged by the responses, though I am discouraged by tone of attacks and the clear lack of consideration that this entity is any different from a random underfunded Ohm DAO fork. I will continue to support MC in the way I can and will look forward to seeing how the emissions work out long-term relative to the business model.

High liquidity in an AMM model is not the underlying source of value for a firm or DAO, otherwise the entire game of goose forks and their early LPs providing liquidity would create long term value. Most of the goose forks burn out rapidly as the inflation to the LPs is so high and their dumping of the rewards they receive leads to the price declining despite them having provided the LP. As we all know, the LPs do this because the rewards, which are dumped on buyers rapidly enough that their services are worth it despite the volatility and the impermanent loss. Mostly I just want to say thanks for a real response, without trolling or jabs. Great to see.

Nobody mentioned FUD in any of the message. Jordan are you on the trip actually? I never seen you speaking in community. Come and talk.

Or try to push this proposal and see what’s happens.

We gave you pretty decent replies on what was going on and how liquidity providers took massive risks while also holding huge chunks of the tokens and never dumped a single one.

Was hoping for a higher level of discourse and less “come at me and find out what happens”. Ill just leave you guys to enjoy how this plays out. Was extremely informative to see how similar this space is to a meme coin’s telegram. I would love to come “speak to the community” that is what this forum is for and why i messaged one of the signatories about this as well. At least MC will trend for its innovative idea and eventually the LPs will have their emissions reduced either by price decline as almost always happens first, or by the emissions schedule simply running out of runway, and them all proving they were in it just for the dumping of the rewards. I hope it works out for everyone even through a bear cycle.

Changing outlines and conditions of LP and staking programm, that people have already commited to and locked up their tokens?

No. No no no.

2 Likes

Thanks for your valuable feedback. Everyone should have a chance at having a voice. Perhaps one day, you’ll be able to board the MC Enterprise.

Signed,

Erik von Pumpson
Admiral of the MC Enterprise
Ascending Galactic Federation

3 Likes

Thank You, I’m aboard, and holding as I said. Im one of those people that locked and is willing to consider the implications and need to adjust for a DAO, which has governance for that reason long term, yes it means id give up some rewards…but im ok with that for the long-run benefits to valuation. Appreciate your engagement as well…

Jordan,

If only you had put as much effort in reading the staking guide as writing this proposal.

Better luck next time.

Best,

A liquidity provider.

1 Like