MIP-7 - Sustainable future vision

With the success of our last proposal (MIP-6), the Sad Cat Capital is excited to share with you our second official proposal!

Authors

Sad Cat Capital

Summary

This proposal has the purpose of creating a sustainable ground for the future of Merit Circle and the MC token. We propose to use the proceeds from realized gains on investments across various investments done by the DAO to be deployed in a structured manner. This consists of using one part to re-fill the treasury in USDC, one part buying back MC tokens for the treasury and the remaining part burning a part of the MC tokens bought back.

Abstract

The Merit Circle DAO has been doing and will continue to be doing a wide range of investments in the Play-to-Earn industry and beyond. Functioning as an index fund for the metaverse and Play-to-Earn industry, a healthy and sustainable vision towards the future is crucial. We believe that the future of Merit Circle can only be guaranteed by a mandate as proposed beneath.

This proposal comes as both a practical solution to current activities and an expansion on MIP-6, the de-risking mandate allowing the DAO to sell off any proceeds from investments made.

To address the expansion of MIP-6 at first, we would like to propose a more concrete and transparent way of processing these proceeds. Momentarily, we have seen those within the investment committee in the DAO communicate about certain activities, as well as certain wallet activity that can be traced back to the DAO in correlation with MIP-6. However, it remains unclear what eventually happens with the proceeds, and if this is the most useful way of utilizing this.

As far as MIP-6 is concerned, the current method is simply allowing the DAO to de-risk any investments to secure and sustain the DAO’s treasury, allowing sustained investment availability. However, given the data on most of these investments, the returns are far larger than the invested amount, leaving a large percentage of the proceeds untapped. Simply adding into a larger treasury might not be the smartest solution here.

Then, to address another issue that can be solved within the same proposal, please read along.

After carefully analyzing the token distribution for the MC token there is one major concern for many investors - the large difference between the circulating valuation and the fully diluted valuation. Comparing the two numbers based on the data on the 27th of December, we would get these two numbers:

  • Circulating market capitalization: $258 million
  • Fully diluted valuation: $6,059 billion

In discussion with current investors who are closely paying attention to these metrics, we have identified that this gap is too significant to ignore. To sustain current price levels, and simultaneously have the potential to explore higher regions, a solution must come in place.

Solution

As a way to address both concerns within the community, we suggest a more transparent and clear-cut way of handling the proceeds. Therefore, we propose to implement a strong set of rules, as indicated within MIP-6 too, what happens with the proceeds from realized gains. These rules come down to:

Proposal 1:

  • 20% of the proceeds will be sent back in USDC to the treasury - allowing the DAO treasury to keep building up its non-native token treasury, and allowing us to maintain one of the strongest treasuries in the space;
  • 5% of the proceeds will be sent back in crypto assets (mostly ETH and WBTC) to the treasury as the harder part of the cash reserve - allowing the DAO treasury to keep building up its non-native token treasury, and allowing us to maintain one of the strongest treasuries in the space;
  • 60% of the proceeds will be used to put a strong support on 10%-35% below the market value, this will be done on-chain and therefore verifiable by everyone - every 7 days the limit order price will be adjusted according to the market price. Bought back MC will over time be the main source for MC staking dividend. Additionally, it can be sold to strategic investors with long lockups or burned, subject to DAO governance. The general idea of the bought back stack is to enhance value accrual for the token and maximize the benefit to the DAO;
  • 15% of the proceeds will be used to buy back MC and send them to 0x000000 (or in other words; burn baby burn).

Proposal 2:

  • The biggest non-circulating portion is the community incentives bucket which contains 29.4% of the total circulating supply. Until today, zero MC of this bucket has been spent and no proposals have been made so far. At the current market price, $37M unlocks (but stays soft-locked, until decided by the DAO otherwise) every month. We propose to burn 75% of the unused tokens per month. This would give the DAO enough tokens in the treasury going forward to cover any major community proposal, while also transforming to a more realistic FDV.
  • The percentage (75% of unused MC tokens) is to be reviewed on a quarterly basis. This review is based on the collected feedback of the community and the investment committee, and then voted on by the DAO participants.

Motivation

  • Keep refilling the USDC treasury to build a strong non-native token treasury and to aggressively grow the “Metaverse index fund” branch of the DAO by doing new token and NFT investments in partner projects;
  • Building a non-native token treasury that is robust and productive;
  • Buybacks (on spot price) are only rewarding short term speculators, while having a strong support and less downward fluctuation strengthens community sentiment;
  • Making the MC token deflationary and with it enhancing the value-accrual mechanisms of the token;
  • Displaying a more realistic FDV and circulating versus total token supply ratio makes it easier for outsiders to assess MC without the need to go in-depth which token categories the total token supply contains.

Rationale

Isn’t it a waste of tokens to burn the supply?
Burning a supply is only a waste if there is a better use for the same liquid MC. Every token use decision should lead to the max amount of value creation for the DAO. We think there are instances where there are better uses. Such as staking dividends, sales to strategic partners with long lockups, or incentivizing certain behaviors that will generate more profits to the DAO. However, as it stands today, and in the current proposal, we have enough MC available to facilitate these needs. In general, a split will probably serve the DAO best. Not in the least, because different stakeholders will value different things. Burns can be a much more tax-efficient way to distribute profits, whereas staking rewards more active participants and locks up supply.

Is there a better solution?
With the information we have at hand today, we believe this is a good solution. However, it would be ignorant to think this is the best solution. That is why, as a DAO, we will keep iterating based on market feedback to find the best solutions, as well as the best ratios in which to split realized gains over different use cases.

Why have you chosen these specific percentages?
Currently, we still have a significant amount of cash reserves from the Balancer sale. Therefore, it makes sense to predominantly use proceeds for direct MC value accrual, such as buybacks, dividends, and burns. MC will most likely also have an indirect treasury claim, therefore, any non-native treasury increase also (indirectly) accrues value to MC. It also has the benefits of providing resiliency and as fuel for treasury (and profit) growth, as USDC, ETH and BTC can be used for new investments, whereas MC can’t. A tail of crypto non-native assets in addition to USD will enhance the cash position, making the whole of the position more productive and protected against dollar and industry inflation. The idea is to have a very balanced split between native and non-native treasury distribution over time. As long as the non-native cash part is still very big, it makes sense to tilt the split towards direct MC value accrual uses. By splitting the MC value accrual mechanisms, different boxes with different benefits are ticked. As a DAO we can always choose to distribute more or less to any specific stream.

Isn’t it more useful to convert realized gains to stable-coins to use for future investments?
The investment pipeline of quality early-stage investments is only so wide. Meaning, it will take some time to deploy all USDC into quality projects, since these opportunities are limited. The general idea is to always be able to scale the investment side of the DAO at full speed. For this there should always be enough USDC, however, there is no use in excess USDC. Not beyond what is needed from an operational and diversification perspective. When the USDC reserve declines over time, we could always opt to re-adjust the split to accommodate the investment side of the DAO.

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,

Count Meowton
Sad Cat Capital

image

Copyright

Copyright and related rights waived via Creative Commons CCO

17 Likes

Thank you Sad Cat Cartel for this proposal.

Just one quick question regarding the buy back that pops up in my head:

Are we thinking about using 1InchExchange or Matcha.xyz for this or are there also other methods to use limit orders on Uniswap?

2 Likes

Thanks for this proposal.

My only two points would be:

Could we have an adjustable burn rate, so proposales could be brought up in case circumstances would favor a higher or lower burn %

Would a support price be susceptible to bad actors selling into that support?

Appreciate the effort and quality of the effort.

Regards

3 Likes

Yes - we would use matcha in this case, to see if it actually works and trigger on the right times. Want to prevent using a CEX as I love transparency around entry levels.

5 Likes

My first comment would be: doing spot market buybacks would give them a higher exit, then putting a strong support. Also, buybacks at spot would be frontrunned most likely.

6 Likes

Thanks for taking to time to come up with the proposal. I like it a lot.
The slow buy-backs and burns will turn MC into a deflationary token and benefit long-term holders greatly.

4 Likes

thank you sad cat cartel for always bringing thorough idea to MC.

fully agree with this two points. the FDV of mc always debatable, and many think its over price. people always compare with other “similar” guild project with the FDV subject, tho most are garbage. crypto participants love buyback also love burn, deflationary + superb project = bullish x infinity price discovery!

1 Like

Much needed proposal. Would definitely vote for it going forward. The buy back part has to be improved tho.

Also just an idea I have in mind to have % of unused MC for other L1 blockchains rewarding perhaps? Like that we can reach a bigger audience as its clear many people are now not even using Ethereum and we can drastically improve that by implementing reward pools on different chains. Food for thoughts.

6 Likes

Thank you for this proposal Sad Cat Cartel. As usual, wonderful ideas. Broadly, I am very interested in moving this proposal forward.

1 Like

Thank you Mrs. Sad Cat for the proposal.

As the Play-To-Earn industry grows, and the Merit Circle DAO investments begin to give bigger and bigger returns (as has always been the intention, à la 'P2E index), we must think of what our optimal route is for dealing with these investment proceeds.

Until now I think most people either don’t know what we do with these proceeds, or think we add the USDC gained to the DAO and perhaps use it to buy back MC tokens. While this isn’t necessarily a bad option, similar to Mrs. Sad Cat, I also doubt that this is the most useful course of action.

Taking a quick look at the %s you have given for the splits for the proceeds the standout point is the 60% being used for limit order support. DEX limit orders can be notoriously unreliable in execution especially in times of large volatility but this would be the only way on-chain so I don’t see a way around this.

I’ve also been thinking a lot about the fact that people will know there are orders set at certain price levels and I don’t actually think the issue of ‘people using them for exit liquidity’ is a real one. There is enough liquidity on Uniswap to already exit fairly large positions and I don’t see why it would make sense for people to wait until these limit orders are placed before exiting. With such a large supply of the circulating MC tokens locked up staking already, there really aren’t that many liquid ‘MC whales’ who are looking for exit liquidity and would need limit orders like these. This might change in the future and will depend on how big these limit orders are, where they are placed and the distribution of MC. Also if someone did want to ‘dump into’ these limit orders (not that they work like CEX limit orders do), all this would mean is the MC DAO gets to buy back tokens at a cheaper price, rather than at a higher price by market buying, as well as helping to push the price back up.

With regards to the FDV ‘problem’, it clearly is an issue for many investors, after many of us (including some ‘influencers’) have had to spend time repeatedly explaining why we didn’t think it was as big a problem as some seemed to think. Regardless of which side is right, one of the first thing new investors see is the FDV. If they see an enormous number they can often be put off, irrespective of why the number might be that high. The only way to reduce this FDV (whilst maintaining a high token price) is to reduce the total supply, and of course, the only way to do that is by burning tokens.

15% of proceeds being used to buy back MC and burning them seems a reasonable enough number to me. It means the vast majority of the investment proceeds continue to be added to the DAO (including the proposed limit order funds) but we still get a noticeable token burn from these proceeds.

The 75% of unused tokens from the Community Incentives DAO portion initially seemed quite high to me but I’m hoping this will at least ignite a desire within the team, seed investors and DAO community as a whole, to start actually using these tokens rather them letting them sit idle, or otherwise letting them get burned.

One final comment I would give is that Sad Cat have come up with a series of logical percentages to use for these proposals and while they seem OK initially, I think its important to remain flexible on them, especially when it comes to burning tokens as this is an irreversible action. The main one I’m looking at is the 75% unused tokens monthly burn from the Community Incentives. As this could potentially be a very large burn each month, it might be worth reassessing this number at least once a quarter just to reaffirm that we still think this is the right decision. We wouldn’t want to be in a situation where we think we have accidentally burned too many tokens and suddenly need them for a large incentive undertaking at some point in the future.

Otherwise I will happily be voting YES to this proposal.

Gratefully Yours,
Johnny Jawnz

4 Likes

I support it, but I believe there is a better solution. We can refer to TOKEMAK which is popular in the second half of this year. We can use part of MC to participate in TOKE reactor at the same time of buyback and destruction to get a very cheap liquidity pool. This is the token value of the long-term accumulated have absolute advantages, look at ILV also and TOKE cooperation, they have cheap reactor, reduced the tokens of dumping, everything is in order to be able to long-term development, not like many tokens model, there are also buy-back destruction of deflation, but also ensure the continued fall of tokens. Working with TOKEMAK, on the other hand, allows us to use our MC in a way that is more valuable than rewarding short-term speculators

Thank you, Sad Cat Cartel - your proposal looks solid, with thorough explanation. One feedback I have is to propose more flexible, discretionary % ranges vs. specified percentage as conditions may change from business to market condition standpoint. Generally speaking, i would vote in favor of this proposal.

2 Likes

Having a more realistic FDV is something I can get behind, amongst the other suggestions. It has definitely been a turn off for a reasonable amount of investors.

I don’t have any suggestions regarding what to change with the proposal; looks good.

1 Like

Greetings,

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

We’ve decided to vote YES on this proposal, but we would like to leave some room for percentile adjustments voted on by the DAO if needed. So perhaps one day a 75% unused MC token burn is not enough and needs to be 80%, we can vote on that. Or 70%, and so on.

Signed,

Erik von Pumpson
Admiral of the MC Enterprise
Ascending Galactic Federation

4 Likes

Dear Cats,

I appreciate you taking the effort and time to come up with such proposals, much appreciated.

While I agree with the proposal mainly, I do want to raise some concerns that I’ve seen across the board from some community members. You could view this as an addition to the ‘rationale’, would much appreciate a response to these before pushing through voting.

Thanks for putting in the work to write this! I’m not sure I follow the rationale though. In the end MC is a business operation that needs to deploy capital to grow - burning tokens seems like nothing but cosmetics and the has a huge opportunity cost.

What’s your stand regarding the above statement? - Doesn’t burning tokens simply stimulate a certain type of investor, or did Ethereum embracing burning tokens immortalize the burning mechanism?

Remaining flexible with the percentages in the above proposal

The common sentiment across most replies in here is to maintain the ability to use these percentages in a flexible manner. Would you be able to adjust your proposal in a manner that it suits this thought, maybe by implementing a range of percentages instead of a solid number?

The main one I’m looking at is the 75% unused tokens monthly burn from the Community Incentives. As this could potentially be a very large burn each month, it might be worth reassessing this number at least once a quarter just to reaffirm that we still think this is the right decision

I think this is very important. Personally, I find the 75% of unused tokens for this category quite high. However, given the fact that it’s such a large portion of the total supply. While this is one of the main catalysts of a decrease in this total supply, thus tightening the gap between the current circulating supply and the FDV, in the long-run there might be some opportunity cost here.

Eventually, Merit Circle will grow very large and thus have a larger interest in holding a large position for incentives coming from within the community. On that note I agree with the above, and to have this implemented within the proposal; a quarterly review of the burning percentage by the investment committee - taking into consideration the opinions of the community as a whole.

Those were my thoughts, meow, bark, woof!

1 Like

Meow everyone,

Thanks for all the thoughts, feedback and kind comments. I’ll do my best to summarize.

@saisback Are we thinking about using 1InchExchange or Matcha.xyz for this or are there also other methods to use limit orders on Uniswap?

As @MC_MARK mentioned, the most optimal way would be an on-chain protocol that is transparent and verifiable. Matcha is indeed one of the better ones out there, and being used already.

@tyghh @JohnnyJawnz @kidragon423 @AdmiralErik @freekiebreakie Adjustable burn rate

An adjustable burn-rate can be created, yes. The investment committee can review the burn-rate percentage on a quarterly basis - with any changes being voted on by the DAO. We believe that further showcases the importance and value of strengthening community activism.

@SpeedyG Reward incentives for other L1 blockchains

You mean for staking rewards on other blockchains such as BSC, Avalanche, Solana, Harmony, and so on? If so, we think that might be best suited for a future or different proposal. It’s a fun idea, though! There’s some feedback on the BSC blockchain in one of the other threads.

@freekiebreakie What’s your stand regarding the above statement? - Doesn’t burning tokens simply stimulate a certain type of investor, or did Ethereum embracing burning tokens immortalize the burning mechanism?

We believe exemplary token/coin systems such as BNB, FTT, ETH but also many others, show that burning (generally) has a positive effect on the value of a token due to an increase in scarcity. We think it’s important to understand that FDV is one of the largest concerns for the community and investors. See the first paragraph at Rationale.

For Proposal 2, I have added the following paragraph in regards to future adjustments:

  • The percentage (75% of unused MC tokens) is to be reviewed on a quarterly basis. This review is based on the collected feedback of the community and the investment committee, and then voted on by the DAO participants.

As for Proposal 1, we personally don’t see a need for ‘range of percentages’. As written earlier, 25% is meant for hard assets (20% USDC, 5% ETH and WBTC). 60% is for general price support, and 15% is for buying back MC and burning that. That should be sufficient to keep our steady stream of proceeds as future-proof as possible, while creating a strong baseline.

Thanks for all the thoughts! They are greatly appreciated.

7 Likes

Thanks for the solid proposal. As for the “strong support” I’d rather if the aim was getting as much value as possible for $MC than having a price support or even reducing volatility. So I’d favor more spot buybacks than a fixed % drawdown trigger.

Surely it’s hard to mention valuation when we’re talking crypto, but surely purchasing at a lower price (US$ 4) purchase is preferable to paying a high price (say US$ 16, if the price went into the 20s and fell from there). So I’m more skeptical about having solely market value as a reference.

MC might have better results investing the $ than paying a high price on its token during up markets. On the same hand, very agressive buybacks for MC in periods in which the token is overly discounted makes a lot of sense for long-term hodlers.

1 Like

Sad Cat,

Thanks for putting these thoughtful proposals together. I agree with the ideas and would also vote in favor. My only comment is we should leave the DAO with some flexibility to alter course when needed as market conditions change or opportunities present themselves.

Also someone mentioned Tokemak liquidity. I think that is worth exploring and a number of the projects we have invested in have tapped into that liquidity pool. We have a decent amount of voting power in the Tokemak reactor and would be happy to vote in support of directing the liquidity towards MC should the team and the community think it makes sense to go down that path.

2 Likes

How MC benefit by supplying liquidity via tokemak reactor? This subject needs to be explained a bit better as there are so much projects in crypto that we obviously are not aware of some. Perhaps it isn’t the main subject of this proposal and can be discussed separately?

Yeou Jie from DeFiance here. I think this is a great proposal that addresses some of the concerns from the community regarding Merit Circle’s treasury and the price of the token. Other guilds with large treasuries can also learn from this proposal.

Particularly liked the buyback idea which will strengthen community sentiment and support. Doing it on a dex will also provide more transparency and accountability.

This proposal essentially enables the MC team to build a robust treasury, and also invest aggressively in early stage gamefi and NFT projects at the same time which can potentially maximise returns

2 Likes