MIP-14: Counterproposal to MIP-13

MIP-14 - Counterproposal to MIP-13

Author

  • Merit Ltd

Summary

In light of the recently passed proposal (MIP-13), the Merit Circle DAO is obliged to renegotiate the terms of the financial agreements made between the DAO and Yield Guild Games. We, Merit Circle Limited, would like to propose a solution that has been agreed upon by both parties. A joint statement of both parties (YGG and MC) will follow as a reply to this thread in the following days. Explaining the rationale from both sides, why this is a win for all parties involved and our intention going forward. This is not the end of a hostile chapter, but the start of a collaborative future.

Abstract

The Merit Circle DAO raised a seed round all the way back in September 2021, a period that feels like years ago given the magnitude of everything that has occurred since. At the time, we spoke with dozens of interested parties. As part of the internal discussions, we assessed whether those seed investors could add value and in what way.

One of these investors had been Yield Guild Games (YGG), one of the first guilds in the web3 industry. Pioneering the Guild model. Given the fact that we would be operating in the same industry, the match between Yield Guild Games and the Merit Circle DAO felt like a good fit.

MIP-13
At some point, discussions within the DAO started emerging about whether YGG was a valuable stakeholder to the DAO, citing conflicts of interest among other reasons. At one point, community members started publicly questioning whether they (YGG) should have joined the seed round in the very beginning. Then, challenging the possibilities of the DAO’s governance, one of the community members called ‘Honey Barrel’ issued a proposal.

The proposal, MIP-13, seeks to remove YGG and Nifty as early stakeholders. By reverting their stream and refunding their contribution.

The full proposal can be found here. YGGs reply can be found here
A clause was proposed by Merit Ltd and accepted by the author. The clause gives a week long time-period for a counter-proposal that could overwrite MIP-13 and delay the effects of MIP-13 by two weeks.

After vibrant discussions with good arguments on both sides, the proposal was ultimately voted in.

The conundrum
An agreement for tokens in return of a financial contribution has been made between Merit Ltd and all other parties. We formed these relationships in the hopes of sticking together for many years and collaboratively building a long-lasting project that will live on for decades to come. As a result of believing in us from the very beginning, we believe that each of these parties deserves to be rewarded in due course.

All parties were selected as valuable stakeholders that could add value to our DAO. We have stated this before in our official reply to MIP-13, but will restate again for the avoidance of doubt: adding value was not part of the written agreement. We do not believe YGG or any other stakeholder should, or deserve, to be singled out in this manner. It is a topic that deserves much more nuanced discussion and consideration. Nuance on which we hope to shed more light in our joint statement.

Within the Merit Circle DAO, the rule of the majority plays out through a young and crude, but democratic system. What we saw occurring in MIP-13 brought us into an uncomfortable situation, being conflicted on both sides. On the one end our agreement with an early stakeholder and contributor, on the other hand, the community and the absolute power of the DAO.

We think it is important to strive to honor all moral and legal agreements as a DAO. These agreements affect our relationship with past, current and future relationships the DAO has, and how these will evolve.

We clearly understand that this proposal and the ripple-effects it may cause is something that we wish to avoid. There are dozens of flaws in the current way our, and many other, DAOs are run, and we wish to improve on these.

It is clear there needs to be a more clear alignment between the absolute power of the DAO and the agreements it makes in the past, present and future. All while maintaining the democratic system and the power of the token holder.

We have a lot of governance improvements in mind that should avoid explosive situations like this in the future and will mitigate the potential doubts parties could have around agreements with DAOs. Of course, we will also rely on input from the community and from external stakeholders to come to the best models. Together we can strengthen DAOs and pioneer the way for other DAOs.

The solution
Ever since the proposal was published, we reached out to YGG in order to find a solution that works for all parties involved. Whereas this is far from an ideal way of conversing, both parties have given it their all to work things out in a friendly but professional way. Given the fact that we should honor the governance process, we asked the author to allow us, Merit Circle Limited, to come up with a counter proposal that is amenable to YGG and would mitigate the potential second-order effects.

After careful consideration and debate with the involved parties, we would like to present the following solution. Please bear in mind that this settlement has been provisionally agreed upon by all parties involved in the interest of avoiding legal proceedings for the DAO or for Merit Circle Ltd. Something both parties wanted to avoid. After all, we are all building towards a common goal. It would be a giant waste to put our time and resources to any other use, especially a negative use.

Proposal

Given the context given above, we would like to propose the following.

  • The Merit Circle DAO buys out the YGG and Nifty Fund allocation, a total of 5,468,750 $MC tokens at 0.32$. For a total of $1,750,000 USDC.

  • A legal agreement will be signed, enforcing the buy-out offer legally and protecting both sides against future litigation.

Motivation

In the above shared abstract, we have shared background information on the matter and the most important technical details of the proposal. The motivation will become more apparent in the joint statement we will release with YGG. Reflecting on the matter and showing a positive example forward to other parties in the space. We will highlight a few important general considerations that we think deserve extra attention below.

Reputation
In an industry where fraudsters and empty-promises are on the daily menu, honor is something to live by. The most prominent parties in this industry are those who honor their agreements, live up to their side of the deal and show what they are worth. Everyone within the Merit Circle Ltd is operating in this fashion, and has thereby built their reputation in industry. This same train of thought is reflected in the Merit Circle DAO.

We wish to be a party that always lives up to their side of the deal, a party you can trust and a party that goes above and beyond for their partners. It’s something that we have been, and will continue to be throughout the existence of the Merit Circle DAO.

Decentralization
We are operating in an industry that is young and often we move in unmarked territory. This proposal has shown the capabilities of a DAO, and the challenges that come along with it. The Merit Circle DAO is a democracy, where the tokenholders hold absolute power over the DAO. This is an important underpinning for the DAO. However, some decisions require extra consideration. What may seem beneficial for an organization at first glance can bring serious adverse effects in the long-run. This realization has brought us to believe that our current governance structure needs to be improved upon.

All decisions should be made decentralized and all expert opinions should be considered by the DAO. In specific cases like with agreements or where governance bumps into exisiting laws, there should be extra considerations for the moral and legal implications that breaking this could have. It is important the DAO governance aligns itself with existing agreements and laws. An improvement that can be made by creating a more refined governance process and a more informative discussion period. Making sure voters are well informed to vote in the DAOs best interest. The best functioning democracies are also layered systems, underpinned by a legal framework and constitution.

Balance
This proposal brought us in a conflicted position between honoring previously made agreements and the governance structure that is currently in place. Luckily, we have been able to work out a solution in collaboration with Yield Guild Games which fits all parties.

We have always wanted to make sure that we find the middle ground here, to make sure the DAO retains a good commercial reputation and no party feels diminished.

The next step
To that end, we are currently working on a joint statement with YGG. In this joint statement, we will address the concerns raised by both camps and describe our rationale for the proposed settlement. We describe why this will present a win to all parties and is the best way forward. We thank both Mechanism Capital and Dialectic for mediating this matter. Thanks to them and YGG we will be able to share a message of positivity. Both YGG and we prefer the collaborative approach over the combative approach. It is very easy to fall into adversarial thinking, but this is generally not the best path forward. In fact, it is often a slippery slope downwards. We need to show the world our industry is better than that, that web3 is a future that can work. That the future belongs to optimists and collaborators.

Reminder
In MIP-13 - a three-month cooling off period for proposals that involve a change of token economics or current agreements. This will give us time to come up with improvements to the governance framework.

Copyright

Copyright and related rights waived via Creative Commons CCO

16 Likes

Thank you @Meritltd,

This looks like a reasonable negotiated compromise that doesnt expose MC to future liabilities and lack of trust from our partners.

I will be voting yes on the proposal.

best

4 Likes

A mutual Compromise is the best way forward.
Let’s learn from this and move on.
kudos to Merit , YGG and other partners who helped mediate.

Will vote Yes for this proposal.

3 Likes

Henlo,

I think it’s come clear that the principles of the DAO have been respected. We believe many hours were spent on finding a solution where both parties (YGG and MC) are happy with. We greatly respect the efforts on tackling this challenge, and taking part in writing history.

It’s important everyone wins, from the MC DAO and community members, to the various investors (VCs, Angels, etc.), projects and gamers. We’re all in this together as Frens.

We’re very happy with the counterproposal to MIP-13 (MIP-14).

Thank you for reading,

Honey Barrel
Vanquisher of non-Frens
The Freefolk Fellowship

honey-with-wooden-barrel-vectors

10 Likes

A respectable outcome, a thank you to all parties involved; MeritLtd, YGG, Mechanism and Dialectic, in coming to this agreement whilst respecting the DAO’s wishes.

I’m especially glad that YGG has also agreed to this compromise as I am assuming they have no obligation to do so. Even though there may still be some lingering concerns from MC DAO-members, I am hoping this will bring an end to this particular issue and that we may strive forward in the same space towards to the same goal.

The points raised regarding reputation and decentralisation are important ones. As a leader in the space of DAOs, we need to set a good example. We are setting the precedent for everyone that follows in this space, we cannot take that lightly. I am sure that with the increasing involvement of the DAO, there will be many more discussions regarding the way we go forward in business and in governance.

Thank you again @MeritLtd for the counter-proposal and highlighted considerations.

6 Likes

Thank you @MeritLtd and @YGG for this counterproposal to MIP-13, named MIP-14.

As soon as MIP-13 was published, it was clear to all involved that it would have a significant impact on the future of all DAOs, and thus garnered a vast amount of attention, not just from the Merit Circle community, but from all cryptocurrency- and GameFi communities. Many have weighed in their thoughts and opinions, both on social media, and the governance forum, with some not having even heard of Merit Circle beforehand. We’re happy to see the growing activity all around our precious DAO and its ecosystem.

Merit Circle Ltd and YGG have tried their best to find a middle ground which ensured both sides of the proposal were pleased with the result, whilst ensuring the DAO remains unharmed. We want to thank them for taking many hours over the past 8 days to negotiate, and secure, the deal that this proposal brings.

We believe this counter-proposal represents a win for the DAO, as well as a win for YGG, Merit Circle Ltd, the wider community, and the GameFi space. Merit Circle Ltd have ensured that the principles of the DAO have been followed, and that the DAO was respected. Likewise, by finding a beneficial solution which works for YGG, the reputation of all stakeholders is kept intact. We commend YGG for taking a positive and active role in this.

Going forward, we want to reemphasize that we strongly believe in decentralization and mutual harmony, and the Merit Circle DAO must continue to exemplify this. This counterproposal is an ideal example of how this can happen, while simultaneously making concessions to avoid further (legal) friction, and at the same time preserving the vibrant nature and reputation of all parties involved.

We voted yes to Honey’s original proposal as we believe action needed to be taken, and we will also be voting YES to this proposal because we believe it represents the ideal middle ground where we all win, current and future stakeholders. Whether you are an investor, gamer, partner or cat - everyone matters.

We are all working to make GameFi a better space for years to come, and we are proud of how far the Merit Circle DAO has come. It is vital that the DAO continues to make difficult, but necessary, decisions if it is to live up to the high expectations we all have. The concept of a DAO is a relatively new thing, and we’re delighted to play a part in this.

Let’s push GameFi forward together.

Signed with right paw,

Purrito Meatball
Sad Cat Capital

8 Likes

Greetings, and thank you for the counter proposal.

This is Admiral Erik von Pumpson of the MC Enterprise. As mentioned in our earlier post, we’re still remaining on the planet Donster in Sector XZ-1054. We estimate there will only be a few more solar cycles before we warp back into hyperspace towards new ventures. With strongly believe that we’ll be able to harness our new Techyon weapon system and protect the south quadrant once again. It took us a long while, but we’re finally ready.

Nothing much to add to the counter proposal. We’re happy MC Ltd. and YGG found a mutual solution to continue guarding the gamefi universe. We’re incredibly proud of our ecosystem and DAO.

We will vote YES.

Signed,

Erik von Pumpson
Admiral of the MC Enterprise
Ascending Galactic Federation

3 Likes

I am extremely happy this situation can be resolved without fight and lose-lose kind of outcome. I’m very grateful to both Merit Ltd and @YGG for being mature and smart - not letting it to get out of control (which was quite possible assuming sentiment in both communities). Makes me think this divorce wasn’t really necessary - but anyway now we can leave it behind and move forward. Have no doubts joint statement will be friendly and respectful.

1 Like

We believe that this proposal is significantly better than the original proposal MIP-13 to cancel YGG’s SAFT.

First, we believe that all DAOs should honor their agreements. To cancel a SAFT after the fact sets a terrible precedent for the industry as a whole. Investors might choose to no longer participate in DAO investments or create more onerous terms. While we believe that investors should always strive to add value AND we also believe that YGG contributed substantial value to Merit Circle, if “value add” is not a specific clause in the original contract, then there is a cancellation without cause, and in our opinion breach of the spirit of the agreement. If projects want investors to add value OR lose their investment, then there should be a stipulated scope of work in the agreement. This was not the case in the original SAFT, but could be included in future investment agreements.

We also think the claim that YGG did not contribute value was misinformed. At the time of YGG’s investment, they were the only other guild in the market with a publicly-traded token. Their protocol was valued at least over $5 billion, and public market investors were looking for the next YGG. YGG’s inclusion on the cap table alone led to substantial value creation for Merit Circle, as it was certainly a core factor in the successful LBP which secured a $100m+ treasury for the DAO. This does not account for the other valuable contributions that YGG listed in the previous governance proposal, MIP-13

This proposal also helps to avoid a drawn-out legal battle from the execution of MIP-13, which would have sapped value from both Merit Circle and YGG. This comes at a time when both teams need to focus on building. There are other guilds who would take advantage of this negative situation.

The economics of the deal are sound. A 10x buyout is a win for both sides. It is a respectable multiple on YGG’s initial investment and around a 67% discount from the current trading price. With a 3 year lock up on the SAFT that discount is around 22% per year of locked tokens.

Finally, a note on decentralized governance.

Every DAO is experimenting with different governance strucutres. While some decisions are best made by the community, there are certain decisions that are best left to the core team (ie: product development). To vote on every product decision would lead to stagnation and the inability for the DAO to execute its vision. Similarly, revising the legal obligations of the DAO should be excluded from DAO governance.

In addition, is DAO governance truly representative if entire groups of stakeholders are excluded from voting? The seed investors hold a significant economic interest in the DAO, but have nearly 0 voting power. While the intention behind this was to ensure that DAO governance was not dominated by early insiders, we believe the pendulum swung too far. Seed investors and locked tokens should maintain some voting power (even if discounted) so they can stand up for their interests and what they believe to be the best interests of the DAO. We surely would have voted against MIP-13, but were incapable of doing so, thus being dragged along by other members of the DAO.

We know the Merit Circle team thinks very deeply about DAO governance and we look forward to / are happy to contribute to a proposal to update the governance model of Merit Circle to better account for the interests of all stakeholders.

4 Likes

This is a wonderful proposal which I will certainly be voting yes for.
thank you to all parties involved; MeritLtd, YGG

1 Like

I will be voting yes on this proposal. I think we were able to reach middle ground successfully and everyone is fairly happy with the solution.

I also would like to congratulate Merit Circle’s whole team. I am sure this was a strange and stressful situation but you guys dealt with it gracefully. And of course, @HoneyBarrel for being an absolute legend.

2 Likes

Hello,

Voting power from seed pre-unlock was never and should never be part of this DAO.

You should market buy like everyone else who voted to date, including many who bought at $10+ versus your $0.03 cent entry.

Best regards,
AS

1 Like

We surely would have voted against MIP-13, but were incapable of doing so, thus being dragged along by other members of the DAO.

Pre-unlock seed has no vote, and won’t have a vote. If you read your SAFT together with the pitch deck, you’d know this. You can buy from the market like everyone else, as @asam0oo mentioned.

Have a good day.

2 Likes

Gentlemen. Let us not litter this thread with the discussion regarding seed tokens having voting power or not. I do believe it is an important matter and it does deserve some discussion going forward, in my humble opinion. However, this is not the point of the current thread. I would like to request @MechCap to create a different discussion for this topic if so desired.

2 Likes

Here you go

9 Likes

There’s a lot of merit here.
We can agree vested tokens shouldn’t count for voting, without disqualifying the rest of the content which is spot on.

TY to the Ltd for MIP-14, clearly the core team was put on the spot, and all things considered the middle ground achieved is the least of all evils, it could have been much worse.

One thing still bothers me:

Financially speaking, YGG gets to 10x their seed investment after 8 months, MC gets to buy back tokens at c.67% discount to market. Not bad for both sides.

But there are 3 problems with this:

  1. The forced expense for MC:

Effectively MIP-13 forced this DAO to spend 1.75M at this time, that without it doubtful the team would chose to spend. Who says this is the best use of funds of those 1.75M? Perhaps those could be put to better use. This is an example of the DAO forcing an expense on the team, through a dynamic that starts with a partially informed DAO member, snowballing through the community, comprised of additional less than perfectly informed members.

  1. Loss of YGG:

Contrary to some, I’m of the opinion YGG is a unique player in the space, differentiated from VC’s, and did provide substantial benefits to MC both in the past (assistance in the formation and seed raise), present (presence in the “Cap Table”), and potentially future (cooperations, introductions, development and I can think of a myriad other ways).

We’ve lost that now.

Diplomatic as the solution may be, YGG can’t be happy about being singled out and bought out.

  1. Future deals: This process demonstrated the outsized potential of a single DAO member to create a hostile environment within the DAO that carries negative tangible consequences to other DAO members, seed investors or otherwise. This needs to be rectified. While there are positives in the democratic process, there are also negatives that should be dealt with. Decisions effectively being made by an uninformed majority aren’t the way to go imo. If it isn’t, MC (and other DAOs) may find a much tougher environment on both sides of the table, when they negotiate future deals as investors or investees.

Generally speaking, MC would be best served cleansed of the hostility towards seed investors. I don’t own YGG and am not a seed investor in MC, but frustration from down price shouldn’t be directed at those with a lower cost basis than our own, at the expense of the DAO.

Will vote YES.

2 Likes

I agree this proposal has reached an acceptable conclusion, the right one, as the original MIP-13 was not possible to do.

Afaik, seed investors that wanted a say in the DAO prior to the unlock of their tokens bought during LBP or from the open market due to not having access to their tokens yet as per the SAFT agreement. IF you chose not to have acquired any voting power in those ways like others did, then the best you can do is make posts such as this one and be active. With your reputation and experience, perhaps you could be influencing others towards your opinion or stance. Would still read your proposal with an open mind should you write one, but I’m also not certain it would be technically possible to make the changes you desire.

Don’t agree at all about reducing the role of the DAO, if there are issues in what the DAO wants via voting (such as legal issues or anything else which prevents the proposal from being executable), they can be explained clearly to the DAO voters and then solved like was done here in a respectable manner with MIP-14.

Also don’t agree about the role of YGG in value add nor how you interpret their importance to the LBP raise. They may have brought some minor value add and some additional attention to the LBP which is not really measurable, but there were people prepared to invest 10’s of millions regardless if the brand YGG ever had anything to do with MC and intended to do so before any YGG association was ever known, so I disagree, it is not really possible to claim definitively that YGG was a “core factor” in the successful LBP, it perhaps was an additional boost, the effects of which are not actually measurable in any reliable way.

At the time of LBP, I do agree that YGG had a good reputation. That has deteriorated in my personal view, considering the endless sub-dao cash grabs that they have been running and plan to continue to launch. Such behavior cannot be ignored as it is imo unethical, suggests a potential lack of funding, (was there poor management of existing funds?). I am also not aware of any commitments by YGG to return value to their token holders through the deals they make or their numerous fundraises. This topic alone makes me personally question the legitimacy of YGG as a whole. Which in addition to the lack of value add is why I agreed with and voted for removing them entirely originally. The people I personally know and speak to in the space do NOT have a positive opinion or view of YGG and are as skeptical of their legitimacy and future as I am.

Anyways, thanks for sharing your views, even if we mostly disagree.

3 Likes

Thank you. I will be voting YES.

This is the right way to address this. Further, I completely agree with the cool down period and making the procedures more robust. Nice job everyone.

2 Likes

Thank you team for this counterproposal. Very pleased to see that you have reached a solution that also YGG is happy with. I also think it shows great character admitting that there may be certain flaws in the current governance model and that you wish to improve on these (that is obviously a topic that will be subject to a separate discussion, and I am looking forward to having it).

On another note; I might be missing something, but I cannot see that this proposal or MIP-13 state anything about what will be done with the tokens purchased back from YGG. I would assume that they could (wholly or partially) fall back within one (or more) of the pools reflected in the token distribution section of the gitbook (e.g. the community incentives pool) or be (wholly or partially) burned. I do not think we are in a MIP-7 situation in this event, as the funds that will be utilized to buy back the tokens will, presumably, not be funds from realized profits. Consequently, I am uncertain if we have a framework that clearly states how to handle these tokens, and it would be great to hear what the intentions are in this respect.

As the DAO – if this proposal passes – will incur a cost of USDC 1.75m when buying back YGG’s tokens, one could imagine that the DAO holds off with buying back further MC tokens from the market until the DAO has restored the USDC 1.75m. The tokens bought back from YGG could in such situation be treated as we were in a MIP-7 buy back event, i.e. partially burned and partially allocated to future staking purposes etc., in accordance with the percentage split set out in MIP-7. There are naturally also multiple other ways to handle this, and I am aware of that the DAO still holds a lot of cash and is not in any immediate need of additional cash (even in this current market).

Thanks!

3 Likes