With the success of our last proposal (MIP-6), the Sad Cat Capital is excited to share with you our second official proposal!
Sad Cat Capital
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.
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.
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:
- 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).
- 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.
- 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.
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.
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,
Sad Cat Capital
Copyright and related rights waived via Creative Commons CCO