DXD Buyback Program [Signal Proposal] - Draft

Below is a [draft] proposal to signal DXdao’s intentions to purchase DXD on the open market for up to $1m as long as the book value of DXdao’s treasury is below the book value of its treasury (excluding DXD). If this proposal passes, see this announcement for buyback details. Disclosure: I (Caney Fork) hold DXD.

Background

A DXD buyback was discussed in the community and in a forum thread at the beginning of January. This was preceded by an impassioned discussion on the bonding curve as many in the community felt that it was skewing DXD price discovery. Ultimately, the community decided to halt the bonding curve by raising the minimum buy price to a very high number.

Moreover, the appreciation of ETH in the treasury has further distorted the relationship between the economic value of DXdao and DXD. In the bonding curve design, only product revenue drives DXD value accrual. DXD holders do not directly benefit from a rise in the value of DXdao’s treasury. Simultaneously, the long-term prospects of DXD and DXdao are strong, with a well-funded treasury and an emerging, diversified product suite. With a claim on the economic value of DXdao, DXD is positioned to rise in value over the coming years as the products and assets generate cash flow.

The buyback program is an attempt to re-align these incentives, acquire an undervalued asset and reward DXD holders for the rise in the value of the treasury.

Details

The community has been working to enact the buyback program in a decentralized and transparent manner. This signal proposal lays out the conditions of the buyback, the technical steps to execute the trades and relevant risks and other considerations.

This announcement lays out the reasoning and rationale behind the buyback. To briefly summarize, DXdao is committed to purchasing up to $1m of DXD on the open market as long as the book value of the ETH and stablecoins in the treasury are larger than the outstanding circulating supply. These trades will be executed at a price that is 2.5% above TWAP price at time of execution and not exceed 25% of average trading volume.

The trade will require two proposals. One to send the ETH funds to the Gnosis Protocol Relayer, and then a second proposal to set the order using the funds in the relayer at the price determined by an oracle. This technical explainer goes into greater detail on how the GP Relayer works.

This proposal signals DXdao’s intent to execute buyback trades through the GP Relayer as long as the conditions outlined are met.

Risks and Considerations

This is the first time that REP holders are deciding to purchase DXD on the open market. It’s also the first time DXdao has used the GP Relayer. It has been audited and tested on xDai. There are additional risks given that this is a market action that relies on an on-chain action.

This buyback program represents new ground for DAOs and DXdao has crafted a specific document to outline the risks associated with this transaction to be as transparent as possible. See it for further risk disclosures.

DXdao has also produced additional documents regarding its financial position and governance structure to better inform DXD holders and the general public. Please see the attached financial report which gives a consolidated balance sheet and 6 month budget projections. Additionally, DXdao is currently governed by REP holders through holographic consensus. This document explains the DXdao governance process and its plans to include DXD holders and transition to Gov 2.0 system.

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Some of the supporting docs

Announcement doc - this is intended to be a public document that investors or press could cite regarding the buyback program. It should contain all relevant information and links to external documents

Consolidated balance sheet


See full google sheet for supporting data. Some of the items are estimated, need to get final numbers on liabilities from HR.

Risk factors and governance overview - meant to give anyone interested in the tx a quick overview of DXdao. Docs still need some updates.

DXD average trade volume - sheet is through early march with $162k average daily volume. Need to update, but should still be above $140k.

Technical explainer - still need to do!

I will present this briefly on today’s governance discussion and aiming to be open to community feedback until next Wednesday, when we can hopefully tie up loose ends and get the above proposal submitted.

To discuss:

  • Details of the first trade. I put $35k at 2.5% above Uniswap TWAP price. What price bands?
  • Definition of ‘book value’
  • xDai or mainnet signal?
  • Other thoughts!
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Hello, thanks a lot for this post and balance sheet!

Perhaps (?) a small typo? Missing # of tokens.
Screenshot 2021-04-16 at 23.37.16

Regarding the DXD buyback program, I have one suggestion and one question:

  1. [Suggestion] You should include the information in the balance sheet regarding the current circulating supply of tokens.
    I previously assumed the total circulating supply was:
    Total_DXD_Supply - DXD_in_Treasury = 148,976 - 23,739.
    However, I just discovered (LOL! :rofl:, thanks @KeenanL ), to my great pleasure, that the circulating supply is of only 49k, because of the ~76k DXD held in here . So
    TOTAL_CIRCULATING_SUPPLY =~49k DXD

  2. [Question] If the above is correct, do I understand correctly that under the current market conditions (treasury), we are looking to buy back DXD up to the price P such that:
    49k DXD * P =~ 45m usd
    i.e.
    P =~ 918 USD?

If the answer to the question (2) above is “YES”, my feeling is that just a tweet declaring this intention will probably push up the price significantly to the desired level, without much buyback needed.

My suspicion is that (for reasons that are not yet clear to me), the market ignores what’s going on here at DxDAO despite the great transparency (like the one of this thread).

Thanks!

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