MIP-6 Early Stage Investment De-risking Mandate

We’re delighted to share with you the first official proposal of the Sad Cat Capital. Meow!


Sad Cat Capital


This proposal gives the DAO a venue to de-risk early-stage token and NFT investments at the time they become liquid. By mandate the DAO would be able to do so quickly and flexibly, giving it more opportunities to benefit from short-term market conditions. It will also reduce the amount of governance overhead for something that is, in our opinion, a clear win for the DAO.


The DAO is doing a lot of SAFT and NFT investments. Usually, these occur in the early stages of a project. Where tokens or NFTs are sold at a fixed price to early supporters, usually with a vesting schedule. At this stage, there is normally no liquidity for the given NFT or token.

Then, there usually is a second stage, where the token or NFTs starts trading, but the early supporters are still subject to a vesting schedule, hence their tokens stay illiquid. When these investments finally become liquid, when both the lock has expired and the token or NFT trades at the open market - they often trade at high multiples of the purchase price. This means the DAO effectively sits on a profit. There is currently no clear path or protocol in place where the DAO de-risks one of the investments or takes profit on one of the investments.

Of course, the DAO invests with the intention of holding the assets for a long time and in many instances the intention to turn the assets into productive assets on the partner gaming platforms/worlds. At the same time, it is also the DAOs mandate to return profits from investments to the DAO in addition to the P2E revenue it generates.
In this balance between investment profits, long-term support to partner projects and P2E revenue generation, we think it is very sensible for the DAO to have a de-risk and profit-taking mandate. With there being so many different investments, we fear the DAO will sit for too long on too many investments.


A solution would be to give the DAO a mandate that gives it the ability to de-risk any token or NFT investment within certain parameters. It would be an ability that does not have to be exercised if the investment committee deems it a bad time to sell. This will avoid selling 20% of a 10x, when the committee believes it will be a 20x next month due to certain market assessments - or when the committee thinks we should keep or even increase exposure to a certain project.

The parameters we would propose are the following:

  • De-risk any investment as standard procedure when it hits a 10x multiple from the purchase price or more and the investment is liquid
  • Standard de-risk by selling up to 100% of the initial dollar value of the investment at current prices back into the market
  • A standard procedure where to take profit on another 100%, effectively taking back 200% of the initial dollar value that was invested
  • Take profit on a maximum of 20% of the total token or NFT position. Meaning, the profit taking part could exceed 200%. This is up to the discretion of the investment committee, acting in accordance with the DAOs mandate and best interest.
  • At this point, the DAO would have doubled their investment. The investment is now completely risk-free and the DAO has double the amount of capital it can put into new projects.
  • For larger sells (or buys) of tokens or NFTs the DAO should issue a proposal and go through a form of discussion and/or voting process.


  • De-risking the treasury of the DAO
  • Diversifying (and with it further de-risking) the treasury of the DAO by freeing up more capital for new investments
  • Giving the DAO flexibility to quickly benefit from market opportunities when certain investments spike up briefly
  • Having a clear-cut procedure that the DAO can rely on and can point towards, which should greatly reduce the amount of discussion and time spent on explaining and defending potential de-risking decisions parties external and internal to the DAO.


Isn’t this just dumping tokens from partners?
The DAO is in no way auto “dumping” or selling out of a partner project. Even at a 10x, this would only equate to 20% max of the position. At 100x, it would only be 2% at the standard procedure of 200% de-risking of the dollar value, and up to 20% at the maximum of the take profit mandate. The majority of the position can be held until a new DAO decision is made on what to do with the remaining tokens. Ideally, only when the long-term prospects of a partner game have shifted drastically. In the ideal scenario, a partner project is fundamentally so strong that the DAO would never be inclined to sell more and might even increase exposure.

How will this impact the relations with partners?
We believe that this is better for the long-term relationship with partners. They have complete transparency and clarity on the policy. Versus a scenario where the DAO participants would suddenly and unexpectedly have to make this decision. This is a policy where most of the tokens are held for the long-term. Because most of the games the DAO backs are for the long term. Tokens and NFTs should be held as long as the project keeps delivering, any project cooperating with the DAO should have an incentive to keep delivering to be attractive to the DAO. Just like the DAO has to keep delivering to stay attractive to the partner project. This is indirectly an extra incentive, free market dynamics at its finest.

To the contrary, the investment committee could overrule an “auto-sell” at a 10x and issue a proposal to buy more of any given token or NFT. As has been the case with Axie Infinity until now, the DAO has not been reducing, but increasing exposure in the past months. Because Axie offered a venue to make money on productive NFTs. In this instance, a good ecosystem to the DAO gets rewarded.
We do believe it is critical the DAO keeps looking for long-term, high-quality investments and partnerships, as it does currently. Not for quick flips. At the same time, something that starts as a long-term investment, might at some point not make sense anymore.

Wouldn’t this trigger people to benefit by setting alerts or bots at the DAO addresses?
In theory there could be scenarios where the DAO gets frontrun. However, since there is a discretionary element in timing, size and yes/no. There is no way for bots to accurately predict and frontrun any sale. This is why the discretionary element is so important.

Added, after discussion:
Include discretionary option for the committee to sell token and NFT investments OTC within the same parameters.

Final words
We hope this proposal pleases the DAO participants, the partners and the team. We’d like to invite everyone to share their opinion. Let’s hear your thoughts!

Signed with left paw,

Sir Tom Purralot
Sad Cat Capital


Copyright and related rights waived via Creative Commons CCO


Fully backing this idea its crucial to sustain the constant revenue from the different mechanics and investment possibilities anyway we can’t promise any investments to be held forever. Trust and transparency is the key. :handshake:


I think this is an excellent framework and as mentioned above a mutually beneficial arrangement that keeps both parties aligned. I think it’s worth mentioning that the DAO should also have the ability to sell OTC, should the project have a relationship with a market maker etc. to facilitate the sale.

OTC sales would also further aid in this concern, although the sale would be transparent and visible on-chain, the terms and price would be predetermined therefore eliminate any risk of front-running.

I think this model would also make for a great way to manage the DAO’s treasury by both growing the DAO’s ‘warchest’ enabling more and larger investments in the future while maintaining it’s ability to leverage these assets to generate revenue for the DAO.

Two paws up! Great proposal.


Excellent proposal. This provides a path to grow the Merit Circle war chest and expand the opportunities that Meritians can take part in.

All for it!


raising both paws agree with this proposal.

this is also a good way for a both dao and partner to show and grow their vision and seriousness to the project.

also agree with this, OTC should help to mitigate front running problem.

as always, sad car cartel with its useful ideas.


First, a big thank you to the Sad Cat Cartel for actively participating in the community and DAO.

Second, the early stage investment de-risking mandate reads good to me. It’s good to be able to be transparent and have a clear mandate to follow when it comes to de-risking, taking profits and ensuring healthy growth of the treasury.

With there being so many different investments, we fear the DAO will sit for too long on too many investments.

Especially this is a risk when it comes to actively investing in new games. And so, the standard de-risk to take out the initial dollar value of the investment upon launch (without/different from just dumping) makes a lot of sense.

Right now having capital available for deployment in new investment may not be a problem, it could be in the future as the DAO continues to make investments without clear re-allocation/profit strategies in place.

Also appreciate you considering the relation and view from Merit’s partners.

That said, looking forward to seeing this proposal shape as the community provides more input here!


We think it is important to make sure that it is just the ability and not a rule, that’s the way it reads now :+1:

Also, think the OTC suggestions by @joebags is interesting. We could include it, it would give extra optionality. However, we do think OTC sales should be treated more prudently, as the DAOs brand is more important for long-term value creation than any single investment. We do not want to be perceived as the “OTC-Gaming-DAO”.

We want to be known as the Gaming-DAO that looks for long-term partnerships and value creation between ecosystems.

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Support, but would love to see a similar rule applied to underperforming projects, so that our strategy is not just one of cutting the flowers and keeping the weeds.

For example, clean up projects that after 2 years have lost say more than 80% of its value. Rationale is mental hygiene (stop the team from tracking, and hoping, for the losers) and opportunity cost.

Just by the nature of early stage investing, numerically it is likely there will be more cases of value loss than value creation (while we hope the absolute quantum of gains outweigh the loses).

And so if we are setting portfolio management rules, I think it is important to have agreed guidelines to deal with losers, which are much tougher than winners (for the winners, 10x, derisk 10%, o 20%, I’m all good, those are happy times).

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Thank you for the proposal.

We found the language somewhat unclear: if the intention is to provide the team with a mandate to act in the manner proposed when THEY deem fit, we’re all for it. We Agree with providing the team max discretion as to management of DAO funds and treasury, and the flexibility to run the day to day investment management decisions. Ideally, in our view only decisions with substantial potential impact on the DAO as a whole should be put up for community vote, and we should collectively have a discussion about the weighting of such vote, perhaps at a later stage.

We disagree, to the extent that is the intention of the proposal, with binding the team’s hands by procedures (rooted in tradfi), forcing the team to act according to a pre set procedure regardless of project/market conditions and their own discretion, like a forced sale of x% if certain prices are hit. We feel that would result over time in suboptimal DAO results, and is in contrast to the motivation behind investing and participating in this DAO to begin with.

We believe, and that is definitely true in our case, that very few allocations to this DAO were made with the expectation for it to double in price. The metaverse is at its infancy, and we’re holding the token for long term max exposure to the metaverse as a whole and to the specific projects the team chooses to get involved with in particular.
From our point of view, max exposure is the way to go. We fully understand not all investments the DAO makes can or will be profitable, yet we feel in the grand scheme of things, this DAO is well positioned to leverage the metaverse as a whole, and we would refrain from inhibiting its ability to fully exercise its advantageous position.

The team is better placed than any of us to make a call on which assets to dispose of, to what extent, and the best timing to do so. We shouldn’t limit their discretion and tying their hands by forcing them to comply with arbitrary criteria.

Having said all of that, if the proposal’s intention is to provide a framework for the team to use at their discretion while eliminating in advance the need to revert back to the DAO for a vote on decisions that are within the everyday management mandate the team has, we are all for the proposal including the criteria detailed in it.

Thank you again for bringing the proposal to the community’s attention, as the discussion itself has value too.

Hopefully the cat won’t be sad for long :slight_smile:

I have thoughts on this proposal but first I am trying to get an answer to a question from the core team. I asked it in the governance discord chat but received no response. Can anyone provide some level of context / data on the following:

The MIP-2 governance text states: “For SAFT or NFT investments there is no need for an additional proposal if the individual deal amount is below 1% of the total treasury value. In case the investment exceeds this, a governance proposal is required”

My question is: How many <1% SAFT or NFT investments has MC made to date? How many might be made annually?

Delighted to read this wonderful proposal. Important for the DAO to reduce risk where possible and to realise profits. I look forward to voting yes for this.

Hey Bambino

Excellent question.

Currently about 28 investments in 11 different projects.

About 5M in total. Totalling approx 4% of the treasury value.

The current value of the investments is much higher.

There is no # limit annually, currently, we want to seize as many good R/R opportunities as we can find in this bucket. However, the total value of the treasury should ideally consist of at least 20% other assets, more cash-like assets.

And within the NFTs/projects tokens, the amount of productive nfts would be based on how many we need and how fast we can scale that side of the operations.

All these parameters are subject to vote. I think in general, we will know more about which parameters make sense as the operations grow and the P2E landscape forms.

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The proposal has now been put up for vote:

Note that the following text has been added to the proposal based on the input in this discussion.
Added, after discussion:
Include discretionary option for the committee to sell token and NFT investments OTC within the same parameters.”

Voting will be open till December 16th 8:34 pm CET.

Thank you, Tommyq for the information. It is incredibly insightful.

I see by now this will already pass and be accepted by the DAO. I will vote yes as well. However, I want to provide the below thoughts in the hope it is useful to the investment committee and the core team as you continue to refine your process and build the long-term vision and culture of Merit Circle.

Outside of MC, I am an investment professional (private equity/hedge fund background) and am fortunate to work within a family office where I manage a permanent capital vehicle. We invest in private companies, public companies, have seeding managers launching new private equity and hedge funds, and are a limited partner in many firms. I have been both fortunate to witness firsthand the benefits of long-term compounding as well as how to learn from mistakes that resulted in losing money or taking profits too early. Here are my thoughts on the implications of this proposal based on my understanding of the long-term strategy of Merit Circle.

1) Having the ability (but not the obligation or expectation) to do what this proposal says is great.
I think having the flexibility to de-risk investments and take profits is great. However, actively focusing on this with these types of investments could prove to be a distraction, could lead you to only take profits from your winners, and could change the mentality of your investment committee to be momentum traders vs. long-term focused. I would simply encourage you to stay true to your 10+ year vision and not let profit-taking become an expectation or overly influence your decisions.

2) Understanding Power Laws and portfolio construction with high-risk early-stage investing
Merit Circle has >$100M in capital to deploy into a category that is likely <5% developed (PlayToEarn/P2E). It has also established an investment strategy (reviewing the MIP-2) that implies the majority of investments will be <5% of AUM, and specifically many of these SAFT or NFT investments will be <1% of AUM. The allocation methodology you are taking appears to naturally derisk the strategy without needing to focus on profit-taking. You currently have 28 investments in 11 different projects. I won’t be surprised if this grows to 80-100 investments in 40-50 projects. I suspect you will see:

  • Many 0x - 2x returns
  • A few 1x - 10x
  • A very small set of investments that will end up generating a substantial 10x - 500x – These Will Be All That Truly Matter Down The Road

I am lucky to know an incredible venture capitalist. His firm led the 2009 Series A of Roblox and still owns ~15% of it today (the largest shareholder). Over the last ~20 years, his firm has invested ~$1.5 Billion into >200 companies and those investments are now worth >14 Billion. I can tell you having seen their detailed performance and returns, over 75% of the $14 Billion comes from <10 companies. This is how power laws work in “Winner Take Most” markets. I strongly believe that P2E will follow this distribution and Merit Circle is ideally situated at the right time with substantial capital to be one of the first investors in some of these long-term winners. As such, I would encourage the investment committee to be very thoughtful when it comes to short-term profit taking and at the very least weigh the probability of what an investment can be in 10-15 years. This leads to my last point for considerations…

3) You likely have no ability to know what the long-term value of these <1% SAFT or NFT investments may be worth. Be careful taking profits just to take profits.
I spend a great deal of my time thinking about what investments could be worth in >10 years. I have permanent capital and my only mandate is to compound it for the rest of my career at an attractive return. I spend a lot of time talking with individuals who have made $500M, $1B, or even more. Something I have consistently learned is that for investments that produce >100x returns, there is almost zero chance you can truly see any of the drivers of that long-term return today. In 2021 I saw up close a colleague at another firm see $10M invested into 3 companies between 2000 - 2011 become worth $1.5B by 2021, or an aggregate return of >150x and an annual return of ~39%. I can tell you that the value of these investments in 2018 was still only ~$150M. So after >10 years, the investments had done well, but only a few years later they were worth another 10x more. This was not very visible and could not be underwritten but the markets those companies were in and their position as category leaders always left open the possibility they could (and still will) continue to grow in value.

In conclusion, I just want to encourage the Merit Circle investment committee to stay true to its long-term vision. Taking profits can certainly be the right choice to make in specific instances and that is your responsibility to determine. However, I want you to know you have at least one investor that thinks you have the opportunity to capture meaningful ownership positions in the seed/series A equivalent of what may become the category leaders of the P2E industry. P2E’s TAM is a few billion in size today but very likely will be >$50B or larger down the road. I encourage you to invest like you have permanent capital and stay focused on the long-term potential of your best investments.


Excellent comments @BambinoValue

The investment committee very much agrees and is cognizant of the points you re-iterated there.

MIP-6 has passed, this topic will now be closed.

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