MIP-2 Broad investment mandate

Co-Authors:

  • CitizenX
  • Maven11
  • Flow Ventures LP
  • Sergei Chan

Summary
Merit Circle DAO raised $105,576,956 million in the Balancer Liquidity Bootstrapping Pool on Copperlaunch. The sale concluded on November 5th at 2 pm UTC after a 3 day raise period. After the conclusion of the sale, these funds were sent to the MainDAO in a 4 out of 7 multisig. We are proposing that the DAO have a broad investment mandate so as to enable our sizable cash position to be as productive as possible for the DAOs benefit. This mandate will be developed and may, at a later stage, narrow the investment mandate and may also create sub-mandates. All these future proposals will be voted on by the Merit DAO community, the $MC token holders, before they are enacted.

Abstract
After concluding a record-breaking Balancer Liquidity Bootstrapping Pool on Copperlaunch there’s now a large cash position in the MainDAO’s wallet. This cash is currently sitting idle, and we are of the view that it should be being utilised to further the DAO and the Merit Circle’s objectives as soon as possible.

The mainDAOs main wallet: 0x7e9e4c0876B2102F33A1d82117Cc73B7FddD0032

As outlined in MIP-1, $5 million has been used to purchase Ether to provide liquidity in the ETH/MC pool on Uniswap together with 1,151,398 MC tokens. This liquidity has been provided to sustain trading activity after the Balancer sale concluded. This provided the market with sufficient depth and liquidity in the intervening period between the close of the Balancer sale and the release of our staking pools which further incentivized the community to provide liquidity. The LP tokens owned by the MainDAO will not be staked to increase the APR of individual stakers, unless governance decides otherwise.

We, the authors of this proposal, have made a list of short term changes that need to, in our opinion, be processed to ensure the smooth scaling of the Merit Circle DAO. These proposals have been considered and draw on the community’s expertise which includes directors of funds and industry experts.

  1. Proposal 1: Replace two multi-signature signers and replace an existing signature key.
  • DeFiance Capital to be replaced by Flow Ventures LP
  • OPCrypto to be replaced by Mechanism Capital.
  • Change the key of CitizenX from:
    0x085843dbde124ab8babd558fea60534962628338
    To:
    0x7fA32E98C5f3C8594DE1785e23905FB0C74bcCd7
  1. Proposal 2: Seed all current and future multisig wallets (as and when appointed) with 0,5 ETH signing fees. The last signer pays a fee in Ether, by seeding these wallets with ETH will have more signatories that are able to be last signer and with it increase the flexibility of the 4-7 multisig. There are currently 7 signatories, therefore the current outlay would be equal to 3,5 ETH total. These will be bought with USDC at market price. The Ether can only be used for fees associated with DAO transactions. It should be noted that the DAO may purchase more ETH to fund existing signatories or newly appointed signatories as and when the multi signatory arrangement changes. Lastly, it should be noted that these funds are borrowed from the DAO to signers that are on the multi-sig or to signers that have been part of the multisig rotation. If a signer has been outside the multisig for more than 12 months, the Ether should be sent back to the MainDAO 4-7 multisig address.

  2. Proposal 3: Mandate for a combination of the following entities and persons: Flow Ventures LP, Sergei Chan, CitizenX and Maven11 to deploy up to 100 million in USDC out of the MainDAO’s treasury to utilize for DAO operations. The above parties will form a discretionary investment committee to make investment decisions. The DAO’s investment operations include and are limited to:

  • NFT investments
  • Token investments
  • Crypto assets (including crypto assets in yielding positions - yield farms)
  • USD stablecoins (including stablecoins in yielding positions - yield farms)
  • Liquidity Provision token positions such as (but not limited to:) Uniswap or Sushiswap LP tokens

The permission detailed above is in addition to the main lutisig 4-7 multisig wallet. The newly formed investment committee will operate a 2-3 multisig wallet. The signatories to this wallet are the entities detailed above. The 2 out of 3 multisig wallet has 3 cold-storage signers. The operation 2-3 multisig wallet is authorized to use single sign cold-storage wallet for deployment. The single signer cold-storage wallets that are used can only be owned by any of the above listed parties. The single signature wallets are not used for long term holding or storage of asset, only for deployment.

  1. Proposal 4: Grant the MainDAO authority to fund ongoing Axie Infinity operations of the scholarship vaults and the breeding vaults with ETH.

  2. Proposal 5: Authorize buybacks of $MC tokens with $SLP (The reward token used in the Axie Inifinity gaming ecosystem) profits from Axie Infinity operations at market prices, conducted through the Uniswap V2 pool. It should be noted that until new governance proposals are accepted that specify a different use of funds, all (100%) profits from operations will be used to buy back $MC tokens for the DAO, to be held in the DAO treasury.

The above mandate has set specific rules to seek to ensure that the mandate is not breached and therefore prevent any unforeseen circumstances.

  • Up to $5 million USD in asset value can be deployed in single signer cold-storage wallets. These are wallets that are earmarked as DAO wallets. Right after deployment, the assets will be transferred back to the MainDAO 4-7 multi-sig or the MainDAO operational 2-3 multi-sig.
  • All used single wallet and operational multisig wallets will be transparently published in a live document.
  • All used wallets are cold-storage and owned by stakeholders that are also in the 4 out of 7 multisig.

Motivation
Firstly, the change of multi-signature has been driven by our experience over the last few months where we’ve been operating the multi-signature wallet in numerous time zones and therefore the signer availability with the current parties has been extremely challenging. It is our intention to have a healthy rotation of signers to prevent complacency and provide further transparency to the Community.

With the aforementioned mandate Merit Circle DAO ’s current operations can scale in a much faster, efficient and exponential manner. Furthermore, the substantial cash position, currently idle, needs to be put to work in an efficient and coherent manner for the benefit of the DAO. By leveraging the DAO contributors’ expertise on NFT purchases, Play-to-Earn investments and yield farming, we believe that this mandate can create a significant surge in assets under management and therefore would increase the operational funds and overall scaling of Merit Circle DAO’s presence in the metaverse.

Budget

  • 3,5 ETH in total to be bought with USDC at market value, at time of writing valued at 16,5K USD
  • Up to 100 million in USDC

Rationale
As explained above, the budget will be put to use (as described above) to scale and grow the operations and presence of Merit Circle DAO in the crypto-enabled metaverse. Despite the enormous success of the DAO’s raise, the operational funds aren’t limited and consequently need to be put to work to maintain the desired growth that the DAO envisages.

Process
We are currently mapping out the exact processes for handling proposals, voting and implementing proposals if approved. Therefore, this proposal will follow its own process which cannot be seen as a blueprint for future proposals as this can evolve over time. MIP-2 will proceed in the following manner;

  1. This proposal will be open for discussion until the 13th of November 2PM UTC
  2. After the discussion concluded and any possible adjustments have been made, the proposal will be up for voting on Snapshot. This link will be provided in due course
  3. The snapshot voting will last for 24 hours after it goes live
  4. After the voting concludes and if the proposal is accepted by the token holders, the proposal will be ratified by the multi-signature signers

Copyright
Copyright and related rights waived via Creative Commons CC0

2 Likes

Request for addition under point 3 -

Use 5% of passive income proceeds to buyback $MC conducted through the Uniswap V2 pool.

This percentage could be changed by DAO governance based on expected inflationary pressure due to unlocks / inflationary farming rewards from the currently vested $MC tickets / locked staked capital.

This would ensure further price appreciation and stability of the $MC token and allow the DAO treasury to remain capable of deploying and utilizing its $MC treasury capital.

2 Likes

Proposal 2 - Amendment

Add either a fixed USDC fee or a maximum and minimum cap on fees USDC to be paid to the signatories in ETH.

0.5 ETH is to high when you consider ETH could go as high as $40,000 this cycle, and probably higher in the next cycle.

Each payout to the signatories would be $140,000 if that were the case.

Likewise when we enter a bear market the ETH value will drop and the fees would be protected by a minimum acceptable rate.

For example the minimum fee could be set at $10,000 and the maximum set at $20,000 to be paid in ETH.

Very good point. Possibly even more, this has been discussed among the funds and in initial designs. This is very much the consensus.

However, I think this point is better served with a new proposal - a sub-mandate. Because point 3 is very broad in terms of investment buckets. It is very easy to dissect 5% of profits from a yield farm, it is much less convenient to do so for NFT’s and illiquid token investments.

Better to have sub-mandates around these different investment buckets, where we find the best way to return profits to $MC, tailored to each bucket.

Also note that in theory (assuming $MC will vote in what’s best for $MC) the treasury value will always flow back to $MC stakers and holders over the longterm, indirectly or directly. Be it through buybacks or distribution. So there is no need to rush additional cash-flow to stakers if it complicates short-term execution.

2 Likes

I agree with the buybacks of MC with part of the incomes generated by the treasury if used in yield farming strategies.

For the proportions, i propose that 50% of the revenues be used for MC buybacks on the open market

1 Like

I get your point, but it would still not change the total amount of operational fees the DAO has to pay. ETH fees are priced in ETH, not USD.

Also note that these funds remain DAO funds - they do not become ownership of the signatory. Signatory wallets borrow these funds as long as they are in the multisig rotation roster and they can only use the ETH for fees.

Infact, thinking about it, I think we should mostly specify that part.

Good points.

Based on above comments amended into:

"2. Proposal 2: Seed all current and future multisig wallets (as and when appointed) with 0,5 ETH signing fees. The last signer pays a fee in Ether, by seeding these wallets with ETH will have more signatories that are able to be last signer and with it increase the flexibility of the 4-7 multisig. There are currently 7 signatories, therefore the current outlay would be equal to 3,5 ETH total. These will be bought with USDC at market price. The Ether can only be used for fees associated with DAO transactions. It should be noted that the DAO may purchase more ETH to fund existing signatories or newly appointed signatories as and when the multi signatory arrangement changes. Lastly, it should be noted that these funds are borrowed from the DAO to signers that are on the multi-sig or to signers that have been part of the multisig rotation. If a signer has been outside the multisig for more than 12 months, the Ether should be sent back to the MainDAO 4-7 multsig address. "

1 Like

I first had my doubts about changing the percentage for the buybacks thinking it will simply increase short term spikes in the price and attract a type of investor that might not be beneficial to MC.

To add on to that, with a larger position of revenue flowing back into novel investments in NFT’s or scaling the current operations, the potential seems much larger than simply purchasing MC off the market that heads back into the treasury. The extra step here doesn’t seem necessary on the first hand, but I might not fully understand the reasoning behind it.

EDIT: Having spoken with several thought-leaders and core contributors of the Merit Circle DAO and thereby understanding the thoughts behind the buyback mechanism I do fully support the buybacks, even up to 100% of the operational revenue as long as current operations have enough breathing room to continue scaling

1 Like

In general, capital should be deployed in the manner that most efficiently promotes the long-term profitability of the project. Given the project’s focus on the metaverse/play-to-earn sector, it would be most efficient to leverage the team’s expertise in identifying promising opportunities in this sector and deploying capital accordingly. Only when no better use of capital is forthcoming should it be returned to token holders in the form of buybacks. Even then, buybacks should be performed strategically, recognizing the cyclical and particularly volatile nature of the cryptocurrency market. Consideration should be given to buying back $MC only when it is suitably “undervalued” on a fundamental basis. Finally, let us note that buybacks are a blunt instrument that benefits both stakers and non-staking holders equally through simple market supply reduction. If there is a desire to incentivize staking, thought should be given to reward mechanisms that target stakers specifically, especially over longer time frames.

4 Likes

I agree, 50% is a bit aggressive. We need to ensure there’s efficient capital allocation. Majority of the revenue should be re-invested in scaling our operations and investing in current/non-current assets. Perhaps we can increase the buyback percentage at times when we have no idea where to deploy the capital effectively.

What’s the estimated revenue? So we can have a better sense for the buy back

1 Like

Also another proposal.

Provide NFT for address stake longer than certain length of time as a early supporter membership. When the early supporter NFT stay longer at an address, their can share a very small portion of the revenue.

Please don’t use this proposal to discuss other ideas. We are discussing the current thread.

You can always start your own proposal!

1 Like

Agree with the direction of the proposal, idle assets are depreciating assets so putting them to work is the clear first step in realizing the DAO’s potential. I understand logistically there are times when deploying capital needs to be done in a timely manner and may not be suitable for an individual vote, but will the DAO have a chance to vote on specific protocols if funds are being deployed into smart contracts, i.e. yield farming, or perhaps a set of parameters that if met, a vote would not be necessary, i.e. multiple audits, age of contracts without exploit, or something similar where the DAO can collectively agree that contracts that meet these requirements are considered “safe” and bypass voting

1 Like

Do I understand this correctly that the four authors are proposing to be fully in-charge and deploy our $100mm war chest? With no oversight? Decisions made solely at their discretion?

I understand deploying working capital and would be willing to agree to a percentage of the treasury but 100% sounds nutty to me.

EDIT: To Clarify, the proposal reads as though we are forming a new investment group of 4 signers, the authors of this proposal. It reads as though they will operate with no oversight and can operate as needed without signatures from the main 7 signers. If this is not the case then the proposal should be revised. If that is indeed the case, then I am against this proposal.

The idea of putting the treasury to work is good, but I want to see more safeguards to prevent any of the signers using the $100M to benefit any projects, NFT, token etc. that they are invested or connected to.

This mandate creates a hidden incentive where the signers can direct $5M or more to a project they’re already involved in - either by buying the token/NFT, by providing liquidity or increasing the TVL. Using the MC holders & treasury as exit liquidity.

I’m not saying this is going to happen, but $100M is a lot of money and Flow Ventures, Sergei Chan, CitizenX and Maven11 should inform all MC holders about who they are, what they do and how they think they could make better investment decisions without involving the vote of MC holders. For example, what are their current AUM, what is their experience in directing $100M funds and where will the investment deals in NFT/Tokens and Crypto assets come from.

And precautions for fraud should be taken too, e.g. by:

  • Penalties if MC funds are used for personal gains or gains for affiliated parties
  • Full disclaimer of any positions/connections where the funds are directed too
  • Independent committee of MC holders to evaluate such investments and make sure it’s all done fairly.
  • Potential investments can be submitted by the community only and can’t be connected in any way to any of the 4 signers.

In any case, I don’t think it should be obvious to trust these 4 entities with $100M without checks & balances. Of course, they are seed investors in MC and should be on the same team as the MC holders, but being able to direct $100M is a lot of power that needs to come with even more fiduciary responsibility.

I would greatly appreciate hearing from the four signers on:

  1. How they believe they can do better than the MC holders
  2. How they can ensure the funds will be used for the benefits of MC holders ONLY, and nothing else.
  3. How they view penalties when code of conduct/ethics are breached in investment decisions
  4. Why the community is not involved in having a say where to invest the collective treasury in
7 Likes

To Whom It May Concern;

We hereby present the official Sad Cat Cartel’s response to the recent Merit Circle DAO proposal.

In summary, five proposals were put forward by Flow Ventures et al and we have outlined our initial response to all five individually.

Proposal 1
The Sad Cat Cartel approves of the changes to the multisig wallet signatories. It is vital security is kept to a high standard, whilst also not providing significant friction towards deployment of funds. If the following proposal will allow for easier wallet signing due to time zone alignment then this will ensure more efficient deployment of funds.

Proposal 2
The Sad Cat Cartel approves of seeding the multisig wallets with Ether for gas. As proposed, 0.5 ETH per signatory seems to be an appropriate figure based on current gas fees and price of Ethereum. While it seems unlikely the wallets would run out of gas if seeded in this manner, is there any back-up plan for how the wallets can be seeded with Ether for gas in an emergency? Likewise if the price of Ethereum significantly increased or dropped or if gas fees changed considerably, would this 0.5 ETH figure need to be changed by DAO vote?

Proposal 3
By far the most significant proposal put forward in this mandate and requires the most thought. Deployment of the DAO’s funds is of top priority for the Sad Cat Cartel and so we are glad to see such a proposal pushed forward.

The Sad Cat Cartel approves of the proposal to use an additional 2-3 multisig wallet for deployment of funds to single signature wallets to then deploy within the market. As per the proposal, it is vital that no funds are kept on the single signature wallets for any time other than the bare minimum required to deploy funds. If funds are to be deployed for ‘yield farming’ or ‘liquidity provision’ it is important the multisig wallet controls the withdrawal/deposit of these positions and not a single signature wallet, otherwise this would be no different to holding or storing assets on the single signature wallet. Likewise all purchased assets, be it NFTs or token assets, would need to be transferred to the multisig wallet immediately after purchase.

In terms of additional information regarding what positions will be taken within the mentioned list of:

  • NFT investments
  • Token investments
  • Crypto assets (including crypto assets in yielding positions - yield farms)
  • USD stablecoins (including stablecoins in yielding positions - yield farms)
  • Liquidity Provision token positions such as (but not limited to:) Uniswap or Sushiswap LP tokens

Naturally, these are a very vague set of possible areas in which to deploy funds and would require much further detail before the Sad Cat Cartel can comment on approval of investments made. After receiving clarification from the team, we understand that this merely represents a broad mandate and is not signing off on a ‘blank cheque’ for the investment committee to use as they see fit.
We believe it to be appropriate that wherever possible, individual investments are submitted to the DAO for approval before proceeding. That being said, we understand some potential investment opportunities cannot be publicly disclosed prior to investment (without losing the opportunity for investment). In those circumstances, the Sad Cat Cartel is comfortable deferring to the investment committee to use their combined knowledge and investment experience to make decisions on the DAO’s behalf. In such cases, it would be expected of the investment committee to submit a post-investment explanation on why they felt the undisclosed investment was of benefit to the DAO.

Proposal 4
The Sad Cat Cartel approves of the ongoing Axie Infinity operations which are used to further the strength of the Merit Circle DAO.

Proposal 5
At some point in time, we believe there will be a more beneficial use of operational income than just rebuying the Merit Circle token $MC. However at this point, the Sad Cat Cartel is happy to continue using these funds to add $MC to the DAO treasury until a DAO proposal votes to change this.

9 Likes

I suggested a change to the phrasing of proposal 3:

Proposal 3: Mandate for a combination of the core contributors (team members of Merit Circle LTD) and the multsig holders to deploy up to 100 million in USDC out of the MainDAO’s treasury to utilize for DAO operations. There is no need for an additional proposal if the individual deal amount is below 1% of the total treasury. In case the investment exceeds this, a governance proposal is required.

Which simply means that it’s the core team + the group of multisigs seen the fact they need to approve certain funds outflow anyways. I’m in favor to see an overseeing committee which consists of other members then the one deciding on allocations, which evaluates every X period how the core team is performing. Realistically this will happen in a few weeks or months after the community have been grown and we figured out a process to elect the relevant persons for this.

6 Likes

Very well written and fully described position.

2 Likes

Hi everyone, Sergei Chan here.

First of all, I totally trust Merit’s core team experience and knowledge in the crypto-enabled metaverse space. As a multi-signer, I see my goal in ensuring that all the investment decisions or any other treasury outflow transactions are made for the benefit of MC community and holders. This includes doing due diligence on the projects we invest in, as well as checking if there is any misappropriate behavior has taken place (including other multisigners actions which can damage MC).

@biohzrdUK raised legitimate concerns, some of which @MC_MARK addressed in his suggestions to proposal 3 which I agree on: Broad investment mandate - #19 by MC_MARK

We are currently working on revised proposal 3, which should be more detailed and posted soon.

For more transparency, I would also suggest the following addition to the proposal too:
Each multisigner should disclose his/her interest or position in the project in which Merit Circle DAO invests in. E.g. if DAO invests in Game A and I have invested in Game A too, I should disclose it either in Proposal or Community Discussion

9 Likes