MIP-13: Merit Circle: A New Era

Merit Circle: A New Era

Author:

Honey Barrel - The Freefolk Fellowship

Summary:

Henlo. This proposal aims to demonstrate the lack of value YGG has provided the DAO since becoming a seed investor. It also aims to cancel YGG’s SAFT, refund their initial investment, and remove their MC seed tokens.

Abstract:

The topic of seed investors has become particularly relevant due to the 36 month linear unlock beginning this month. These seed investors were given the opportunity to invest at a cost of $0.032. Even with the vesting terms, this has proven to be a rather lucrative investment for those seed investors. For example, at $1 MC this would represent a multiple of 32x. At $12, this represented a multiple of 375x.

The Merit Circle team has made it clear to the community and DAO, that when seed investors were selected, they were selected due to the value they could bring to Merit Circle. This value add could have taken any form, including marketing, content creation, assisting seed purchases, DAO contributions, deal flow, and so on. Six months on, the DAO has decided to look at what the seed investors have brought to Merit Circle since launch, in the form of Transparency & Accountability posts.

Maven11 - Maven11 - Fund - Contributions - #3 by Maven11
Mechanism Capital - Mechanism Capital / Mechanism Play – Fund - Contributions - #4 by CryptoRJ
DeFiance Capital - DeFiance Capital - Fund - Contributions

We have seen three measured responses from the above firms on the value they have brought to Merit Circle, and their visions for the future of the DAO. Please find them above if you haven’t read them yet. These firms have highlighted specific deals they brought to Merit Circle, introductions to exchanges and partners, and even events organized with Merit Circle in mind.

Let’s compare these responses to YGG’s response.

YGG Response

We also saw YGG post a thread on their contributions to the DAO. It is worth mentioning that YGG didn’t even have a governance account, or any governance posts until 2 weeks ago. We’re talking over half a year of nothing. This thread was initially much shorter, until the community response led them to add more vague information.

This was their section on where they have ‘added value’ prior to editing it:

In their updated thread, YGG’s listed contributions include:

Yahoo Finance, and Coindesk, are both extremely easy to publish articles on. For Yahoo Finance, there are multiple Fiverr services which you can purchase to get your article published. You can find the same for Coindesk and other similar sites such as CoinTelegraph. These are cheap (often $500 and under), and easily purchasable services, which take about 5 minutes to organize.

On October 7th 2021, the YGG Twitter account posted three tweets (here, here and here).

The YGG co-founder, Gabby, also posted a tweet the same day here. More recently, Gabby also posted this tweet on March 3rd 2022. Aside from these 5 tweets, 4 of which were posted on the same day, it is difficult to see any other social media posts regarding Merit Circle from YGG Twitter accounts. A quick search in the YGG Discord also only shows one Merit Circle post which was also posted on October 7th 2021.

Even if there have been other retweets or content shares (which I’m not convinced there has been), is that all we expect from our seed investors? If all we cared about was retweets, then we could have paid influencers with far more followers to share Merit Circle content, and it would have been much cheaper than 5.5m MC tokens.

While this might be a nice gesture, no assets have been lent to Merit Circle to date. We do not know what the lending terms might have been, or what assets were offered. What if YGG didn’t have the assets Merit Circle needed? Or if the lending terms were so unfavorable that it would have disadvantaged the DAO, and only benefited YGG?

Finally, there is a vague mention of early investor introductions and also co-investing in certain deals such as Big Time and Cyball. It is outrageous to suggest that investing in the same games as Merit Circle is adding value to the DAO. This is like saying I added value to the Merit Circle DAO because I bought a Fancy Birds NFT. What about other VCs who ‘co-invest’ who aren’t even part of the Merit Circle DAO - are they adding value as well?

Likewise, it is difficult to gauge how helpful any introductions YGG made were, or how many introductions were actually made, due to the post’s vagueness. Did any of these introductions actually happen? If they did, did any of them lead to an investment by the DAO?

Overall, I do not consider YGG’s response to be acceptable, and in my mind it demonstrates how little value they have added to the DAO since becoming seed investors. There isn’t a single point they made which makes me believe they deserve to be seed investors in Merit Circle.

YGG’s New Raises and Treasury Reports

Recently, YGG postponed the LBP public sale for a new YGG South-East Asia subDAO token. We currently already have both the original YGG token (YGG), and YGG India IndiGG token (INDI) trading. Instead of providing further value and utility to the original YGG token, YGG has decided to remove and dilute value by simply creating new tokens. More subDAO tokens are also planned for the future, to raise further capital for the YGG team. Consider the outrage from the MC DAO if the team suggested that they weren’t going to bother with the MC token anymore, and just wanted to make new tokens so they could obtain more cash from investors. That is what YGG is doing.

The last monthly treasury report that YGG posted was for September 2021. That means no transparency about what is happening with the YGG treasury for 8 months now. There have been constant questions about the lack of reports in the YGG Discord, which are either ignored or simply answered with ‘No ETA at this time’

Is the YGG team trying to hide something? Unlike Merit Circle (which produces consistent monthly treasury reports), this lack of transparency about treasury funds is quite alarming and is certainly a red flag.

These ongoing raises do not fit in with the ethos of Merit Circle and are designed purely as a cash grab, and are not intended to benefit the YGG token and ecosystem. Likewise, a distinct lack of transparency about DAO funds goes against everything the Merit Circle DAO believes in.

Is this the type of project we want Merit Circle to be closely associated with?

YGG Competition

On a separate note, a YGG Discord mod acknowledged that Merit Circle is likely one of YGG’s top competitors. Likewise, I’m sure parts of the MC community see YGG as a competitor, and not a partner. Do we really expect YGG to provide significant value and effort for one of its top competitors? If Merit Circle wants to progress as the top Gaming DAO, we shouldn’t expect help from competitors to accomplish this. It’s likely YGG’s aim is to simply profit from the MC DAO, and would rather see us fail so that they can take the top spot.

Recently, Cryptorank ranked the DAOs which are actively investing, and placed Merit Circle in 2nd place with 54 investments. Despite launching months before Merit Circle, YGG comes in 4th with 34 investments. Even if we included the subDAOs, YGG SEA and IndiGG, this adds up to a combined 57 investments, of which many are shared investments between the various subDAOs. This is a perfect example of YGG losing traction to its own subDAOs, further showcasing the lack of value-add to the YGG token.

Is YGG now having to compete with its own subDAOs for investment opportunities? This is only going to get worse, as even more subDAOs are planned to launch in the future.

Proposal

I propose to find a solution to terminate the financial obligations the Merit Circle DAO has with YGG, through removing YGG’s seed tokens and refunding their initial 175K USDC contribution.

Merit Circle ltd has argued for a clause (link (MIP-13: Merit Circle: A New Era - #58 by MeritLtd)), that will give time for Merit Circle ltd and YGG to propose a solution that would be more beneficial for the DAO and all parties involved in case of a YES vote. I think this is a fair ask as it would give the DAO more options.

Therefore, I am proposing the following two options for vote;

  • Yes, with clause*
  • No

Clause as described here *;

Clause that, in the case of acceptance of this proposal (YES, with clause), delays the proposed actions by 2 weeks and gives a 1 week time period for a counter proposal.
For reference, YGG and YGG co-founder Gabby Dizon 66 (https://twitter.com/gabusch) invested $175k at a price of $0.032 which gives them 5,468,750 MC tokens in total. This was split between $100,000 directly invested through YGG, and $75,000 invested through Gabby’s personal fund Nifty 109 (https://twitter.com/fundnifty).

Motivation and Rationale

The Merit Circle DAO needs seed investors who are adding value. This is something that the team, community and investors agree upon. I have demonstrated that YGG does not fit into this criteria. They are competitors who are only interested in extracting value, and profit, from the DAO, and their actions go against the ethical principles that Merit Circle upholds.

For anyone reading and thinking “But how will removing YGG help Merit Circle? What difference does it make if they get to keep their tokens?” Please consider the following.

The DAO relies on ongoing effort, and contributions, from all members, including the community, team, and seed investors. We have seen huge efforts from some members over the past 7 months, and those efforts deserve to be recognized. By removing an investor who provides zero value, we can ‘trim the fat’ from the DAO, and ensure only those who want to see Merit Circle succeed remain.

We can show our appreciation to seed investors who are pulling their weight. We can recognize the effort these seed investors have put into Merit Circle, and show them their efforts haven’t gone to waste, by taking action against those who do not provide the same level of input. It is likely this action will also encourage other seed investors to provide even more value and input, thus further improving the DAO.

Ultimately, YGG is shining a poor light on the Angels, VCs, and community members who are working hard to improve the DAO. They have shown that they do not care about adding value to their own YGG token, so why would they care about adding value to the MC token. This is not something that can be tolerated, and if we want our Angels, VCs, and wider community to continue helping us, then we must take immediate action.

Budget

$175,000 USDC - The amount that was paid by YGG and Gabby as part of their seed investment.

Polling

YES - YGG and Gabby should have their seed investment refunded, and their MC seed tokens returned to the DAO.

NO - YGG and Gabby shouldn’t have their seed investment refunded, and should keep their MC seed tokens.

In order to mitigate potential unforeseen second order effects, we amend the proposal with the following:

  • In the case of acceptance of this proposal (YES), the proposed actions are to be delayed by 2 weeks and creates a 1 week time period for a counter proposal.

Copyright

Copyright and related rights waived via Creative Commons CC0 7

Thank you for reading,

Honey Barrel
Vanquisher of non-Frens
The Freefolk Fellowship

honey-with-wooden-barrel-vectors

33 Likes

I agree with Honey and will vote Yes in this matter.
Adding zero value as a direct competitor is a no go for me personally.

Although i dont know if it is possible to change an agreement made through a SAFT, but ultimately the DAO decides right?

10 Likes

Greetings,

This is Admiral Erik von Pumpson of the MC Enterprise. We recently came across your proposal.

We’re not of the idea that YGG added any value, and I feel that their topic (after two changes) further emphasized that as well. Deal flow is a minimum requirement, and beyond that so far it seems there wasn’t any value besides paying for a few articles which literally anyone can do (if the news agencies don’t already do it on their own).

Also, I’m a little confused with Gabby somehow having 75k out of the 175k YGG investment. Is this considered okay? YGG is not sharing their revenue to their community like Merit Circle is? What’s the YGG token for then? (sorry off topic but it’s interesting).

We’ve decided to vote YES on this proposal.

Signed,

Erik von Pumpson
Admiral of the MC Enterprise
Ascending Galactic Federation

9 Likes

Hey there, Honey.

I would first of all like to commend you for writing this out so thoroughly.

The observations made on YGG’s contributions are poignant; seeing this highlighted is something I can get behind, as it shows how the current industry standard is lacking in transparency.

I will vote YES.

Regards,
BSide

6 Likes

Hello,

Thank you for the thread, Honey. This post is on point, and I share the same sentiment as your position. Long gone are the days of seed adding zero value.

This will set a significant precedent that seed / VC need to start pulling their weight, as we have previously discussed.

You have my vote.

Thanks,
AS

5 Likes

Subtraction of a value subtractor = net positive value. Totally agree with Honey here.
Voting yes for this proposal. There no place for YGG if they don’t add value.

9 Likes

Spot on with the dilution. +1
I also get the impression that the YGG’s response and standard regarding their contributions sets an unfortunate precedent.

4 Likes

First post from me but this one seems important so decided to jump on

I bought YGG early on and to be honest I feel a bit let down by them. The public sale last summer was stupid and since then all they’ve done is make more subdaos and more tokens. I was actually surprised YGG was an investor in Merit Circle in the first place. I didn’t even realize they stopped their monthly treasury reports last September until you mentioned it.

Hard to disagree with anything you’ve said in the proposal and tbh you’ve made me realize its worse than I thought. Will vote yes to this proposal purely because they’ve done nothing for the DAO and I don’t want them to profit off MC.

6 Likes

Hello.

First off, I agree with the sentiment expressed by @HoneyBarrel and the rationale behind this proposal. However, I’m going to come at this from a different (more traditional VC) perspective. I will also be voting NO pending below info:

  1. Confirm if the proposed refund is permitted by the terms of the seed financing, and
  2. this proposal be revised to authorize the DAO to negotiate a buy out of YGG’s interests at a mutually agreed value

I don’t know how applicable traditional laws and investor protections work in the DAO world, but I do know that being compensated for taking risk and protecting this is vital to build long-term trust.

Like it or not, Merit Circle raised a seed round before they had a massively successful BLBP which broke all records raising $105M. There was no treasury before this and that treasury + the core team is what is creating the durable value. The seed investors contributed $4.5M in return for 141M MC tokens, at the time 14.1% of the max supply, or effectively a $31.9M valuation ($4.5 / 0.141 = 31.91).

You can not just look back 6 months later and be angry with someone who took an early bet on you and say “here is a refund”. We must uphold trust in compensating those who take early risks. Breaking this trust will destroy value, lead to early investors everywhere not take risks on great teams with good ideas. I deal with crappy co-founders and angels/VCs all the time. I’ve even personally bought these types of groups out as well at various startups. However, if I can’t trust the legal protections and/or governance around my investments, then I can’t make investments. This could very well be an unintended consequence of this decision.

Further, setting a precedent like that for other DAOs can come back to hurt MC with its own investments in the future. Maybe we invest in something and add value, but there is a governance vote where the majority say they want to refund MC 100x return investment at cost “just because”. This is a dangerous precedent full stop.

Maybe YGG has failed to live up to its promises, commitments, and expectations, but they still were there and wrote a check before Merit Circle fully became what it is. You can’t change this.

If you don’t want YGG in this DAO, I fully support it, but it must be done within the terms of the seed financing agreement or at a mutually agreed price with their consent.

8 Likes

Hey BambinoValue,

The seed investors agreed to adding value, and agreed to the decentralized nature of DAO decisions.

Erik

9 Likes

Thank you honey for your work and your good objections for the DAO. You and your friends bring an immense value and I am very glad that you are with us.

Very well written, easy to understand and clear. I will vote YES.

2 Likes

Thank you for writing this extensive proposal.

If YGG is not upholding their end of the deal because they are not providing any or not enough value to MC, then I see no reason for the DAO to still grant discounted tokens to YGG.

Your proposal has convinced me that YGG is failing their obligations.

I will therefore vote ‘yes’ on the proposal and I hope this sets an example for other VC’s and DAO’s all around web3.

Badjasman

3 Likes

I totally agree with this proposal. If you see how busy MC is with developing, investing and with full transparency, this doesn’t match with YGG. Please cancel the saft.

3 Likes

Hello Honey, blessed day.
I am in agreement with your points and objectives here. There is a clear difference between the value added by the other funds who have posted and YGG.
Their behavior in regards to their own DAO is borderline scammer with an underlying aroma of rugpull. As their community continues to get diluted a mere association with them can be detrimental to the reputation of Merit Circle.

I am in favor of revoking the SAFT, refunding the 175k, but think there should be some more discussion around what to do with the tokens. Simply returning them to the DAO is of course an option, but there may be more value in something more creative. Burning them, or perhaps adding them to the rewards stream for staking v2. Anyway I suppose that’s another discussion.

I intend to vote YES.
Joey

3 Likes

Just wow! This could be a massive moment for the DAO and it could show the true benefit of a DAO structure. Taking tokens away from VCs who don’t contribute and back into the hands of the DAO to hopefully be burned will be massive!

I think we need confirmation from the Core Contributors of the terms of the deal and whether this is indeed possible. If so, I will be voting YES as there has clearly been minimal/no value add from YGG. Also having $75,000 invested via a personal fund is extremely concerning!

Top work Honey

3 Likes

GM Honey,

I woke up today and saw the sun was bright outside. It was then I knew, today would be a good day.

From your very thorough proposal, it seems we have a seed investor who will not only be not helping Merit Circle, but actually causing active damage. Quite frankly, the lack of value they have brought to Merit Circle is shocking. We should not be paying them millions of MC tokens for Yahoo Finance and Coindesk articles.

You highlighted how poorly YGG treats its own community and $YGG token, and I’m equally appalled. Every new token, and new raise, they launch, just further removes value from the original $YGG token. To think that they have even MORE planned is a worrisome thought.

Also is there any reason why Gabby’s personal fund took $75,000 of the $175,000 allocation? Was that meant for the YGG DAO? Does the YGG community even benefit from these investments?

To be honest, I don’t want Merit Circle to be involved with YGG at all, and I would recommend the YGG community take a long look at how they are treated. The Merit Circle DAO welcomes all.

(PS: and publishes transparent monthly treasury reports…unlike YGG)

I will be voting a hard and firm YES to this proposal.

Yours truly,

Johnny Jawnz
Staunch Merit Circle Supporter

7 Likes

Good evening everyon, first poster here.

First I’d like to thank Honey for making the proposal. I was one of the few unfortunate ones who bought after the LBP but with the recent market I have been DCAing and managed to lower my cost quite some.

Second. When I trade or invest I always do some background research on what I am actually buying. I’m retired (pension) but how we used to do things back in the day was mostly looking at valuations, P/E, credit health, and so on. I won’t bore you with that. However, when looking at the circulating supply and the cost of investment early investors had, I beg to wonder how a DAO perceives all of this. So for me this proposal is not only a way of collecting investment data, it also acts as a way to learn more about the new technologies and governance models the future brings us. Excuse me for my side story.

Now to the problem at hand. It seems that we’ve had a number of angel and venture capital investors who have contributed 4.5m USD in an early seed round. It is to be noted that naturally not every party adds the same value. However, we need to stay away from harming the DAO by rewarding toxic firms who do not add value. Not because we missed their backing for over half a year causing us great harm and opportunities (zero deal flow, nft lending), but to preserve our VCs that DO add value. It is clear that YGG is taking advantage of our good will, and this is unacceptable.

I will vote yes on the proposal.

As an extension to this, I am with the others that after a future discussion the tokens should be burned.

Erik de Bruijn

3 Likes

First of all, thanks to @HoneyBarrel for this thorough overview on YGG regarding MC seed investment.

I agree with all the points noted in the proposal.

Simple fact is, YGG did next to nothing to support, yet alone to provide or add value to MC DAO.

Therefore I will vote YES on this proposal.

Robert No

3 Likes

Greetings,

Totally agree, right on point and sharing the sentiment, it’s been enough of 0-value seeds.

Voting YES on this topic.

Best regards,
JC.

2 Likes

Hi all,

Naturally, thank you Honey for formulating this thread and starting a perhaps well-needed discussion.

The arguments you bring are fair and if these are the only aspects that YGG would add to MC, then obviously they underperformed heavily and pale in comparison to the other seed investors. I am in agreement with you there.

However, I have to assume there are reasons that MC has taken on YGG as a seed investor. This is an aspect we might not get to see (easily), but it is a perspective we need to take into account. As the MC team, even though we are a DAO, they are an integral part to the DAO. Other reasons YGG may be taken on as a seed investor is as a strategic partner. This could be in the form of advice or a sparring-partner; how to spot opportunities, discussing certain projects/opportunities, perhaps advice on how to handle a certain situation, or whatever they might YGG for. I would like to hear the perspective of the team to hear about the value they might derive from it.

@BambinoValue does raise a very good point as well. We have to explore what cutting YGG loose means for MC in the long-term. If this perception about YGG gets out, it will naturally be bad for them as well, but we need to be looking out for ourselves. No, YGG has not met the standards of adding value that is being set for seed investors. If the DAO decides we want to cut YGG loose, then it shall be done, but it has to be done within the possibilities we have.

That being said, if the aspects Honey addressed is all YGG has done; the social media posts, the “co-investing”; the possibility of lending NFTs. Then of course, they have not pulled their weight. Especially as a strategic partner “whose values are deeply aligned with ours”, considering their limited transparency and split-focus of their own DAO with the subDAOs.

To conclude: No, they seemingly have not pulled their weight and have not lived up to the promises made. However, I would like to hear the team’s perspective on how they have derived value from YGG and if it is still a strategic partner.

1 Like