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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