DXD Token WG Meeting #5, Nov 17

Meeting Date & Time:

2022-11-17T16:00:00Z2022-11-17T17:00:00Z

(16:00 UTC)

Special Meeting Link: Jitsi Meet

At the last DXD Token WG meeting, we went over the draft token model (slides here) and then also some of the governance processes that would be needed to implement it.

At the next meeting, I will have a draft proposal for review. This would be a big change for DXdao, and it’s important that the proposal be up in the forum for long enough so everyone in the community has the time to comment/review, reject or maybe propose something different?

Agenda:

  • Current DXD liquidity check-in
  • Proposal Draft Review
  • Schedule for passage through governance

In addition to last week’s meeting, the midway checkin also has some helpful info.

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Proposal to approve new DXD Token Model [DRAFT]

Tldr: The DXD Token WG proposes a new token model, where “DXD gets its value from DXdao’s treasury, which grows from product revenue and its investments into decentralized technologies.”

Background

The DXD Bonding Curve was launched in May of 2020 by DXdao. The bonding curve was an effective fundraising tool but the mint/burn functions of the contract were never able to create a liquid market for DXD. In May 2021, DXdao launched the DXD Buyback program which purchased DXD off the open market using ETH from the general treasury as well as from the buyback reserve. The program bought over 15,000 DXD (30% of circulating supply), but it was never viewed as a sustainable long-term model for DXD value accrual.

Since the bonding curve launched, DXdao has launched and managed several DeFi and governance products, diversified its treasury into $10m+ of stablecoins, and has a team of 20+ full-time contributors focused on building and growing the DXdao ecosystem. The DXD token is at the center of this ecosystem, but there has not been a formal link between the value that DXdao creates and the DXD token. This creates uncertainty for DXD holders, especially as DXD has traded at a significant discount to book value.

In August 2022, DXdao launched the DXD Token Working Group to draft a long-term model for DXD. The below signal proposal is an output from the Working Group, who’s new token model for DXD can be summed up as:

The proposal commits DXdao to:

  • Introduce four tools in the DXD Monetary Policy Framework that would enable a fair and liquid market for DXD
  • Establish a DXD Monetary Policy Committee
  • Funding product development and other initiatives that further DXdao’s core mission to enable community freedom

To further simplify and answer the question, “Why is DXD valuable?”, the WG affirms: DXD gets its value from DXdao’s treasury, which grows from product revenue and its investments into decentralized technologies.

Details

DXD Monetary Policy Framework
This proposal establishes four tools to be used by DXdao governance under guidance from the DXD Monetary Policy Committee. These are:

  • DXD Floor Price Guarantee - DXdao commits to buying any amount of DXD on the open market
  • Inverse bonds - smart contracts where DXD can be deposited for a defined period of time in return for a certain % of DXdao treasury assets
  • New DXD minted - allow DXD to be minted in exchange for assets at full NAV
  • Protocol-owned liquidity for DXD

DXD Monetary Policy Committee
Management of these tools requires close tracking of the DXD market as well as DXdao’s treasury. The committee should be at least three individuals and also include full-time contributors. This work should be compensated in vested DXD. The committee is tasked with:

  • Providing quarterly reports on general general direction and outlook of DXD
  • Issue monthly recommendations on inverse bond issuance and protocol-owned liquidity
  • Work with DXdao governance and treasury on managing redemptions

Product development funding
DXdao’s mission is to enable community freedom. It was launched in 2019 as a radical experiment in decentralization. The DXD fundraiser was intended to raise funds for product development in line with this vision. The new token model represents a new social contract between REP & DXD holders. The DXD Token WG affirms DXdao’s commitment to building and funding decentralized products that enable community freedom by committing at least 7.5% of DXdao’s treasury ($2.3m) to fund DXdao’s product & operations for a year.

This % can be changed at any time by governance and represents an overall budget suggestion for DXdao. This incentivizes contributors and the community to grow the size of the treasury through increased revenue or successful investments.

Implementation

This signal proposal is the output of the DXD Token Working Group, and if passed by REP & DXD holders, should be implemented by DXdao. Some of the elements will require significant development work before they can be put into practice. In the DXD Monetary Policy Framework, the DXD Floor Price Guarantee and the protocol-owned liquidity can be implemented using DXdao’s existing governance tools.

This proposal commits to implement:

  • DXD Floor Price Guarantee of 55% of Treasury NAV
  • Provide $250k in DXD/ETH on mainnet once DXD hits 60% of Treasury NAV, another $250k deposit at 65%, another $250k deposit at 70% and another at 75%
  • When ready, $500k in DXD inverse bonds with 90% of NAV payout after one year will be issued

Definition and clarifications

  • Treasury NAV - ultimately defined by governance through guidance from the DXD Monetary Policy Committee. This proposal affirms treasury NAV includes all stablecoins, ETH (including staked ETH and other derivatives), Swapr LPs or other liquidity provisioning instruments. It incorporates the value of other treasury assets (like SWPR, ENS, etc) with a pre-defined liquidity discount
  • Inverse bonds - these will be individually launched according to specific parameters (duration, dividend stream, etc). The bonds should payout the % of NAV when they are due, not the NAV when the bond is issued or the DXD deposited.

Thank you for putting together this draft proposal. I am looking forward to our call today.

Unfortunately, I can’t support this proposal in this format as it fails to fulfill what has been discussed during previous working groups and doesn’t create a healthy pattern for DXD.

First off, the DXD Monetary Policy Committee doesn’t require a party composed of multiple individuals and full-time contributors. The task of providing quarterly reports, compiling data, issuing monthly recommendations, and working on managing redemptions can be managed by one part-time individual. In order to concentrate knowledge and optimize productivity, this task should be handled by one individual that will submit data-driven decisions to governance.

Product development funding - currently, DXdao is in a stage where there is close to no product-market fit, judging by revenues and volume on the suite of products. Right now, DXdao would compare to an over-funded seed stage startup that hasn’t achieved product-market fit but is staffing without a clear goal and vision towards achieving profitability. Spending ~$2.3M per year without having demonstrated a capacity to ignite growth isn’t financially viable, especially in a bear market where every unnecessary cost should be cut.

Therefore, I would suggest a commitment of 5% of DXdao’s treasury ($1.5M) for 18 months, in order to support the development of key features that will contribute to significant growth and help DXdao products achieve product-market fit.

Implementation of the monetary policy framework - during all the conversations and working group sessions, the floor price guarantee discussed has been 70%. Enough effort has been put to settle on this number, moving away from it sounds like a malicious attempt to fragilize the objective of the proposal.
On average, banks that trade at <x0.7 of P/BV (price to book value) are considered struggling in efficiency and holding bad assets. Sorry for the comparison, but I think we should hold DXdao to a higher standard than toxic and opaque banks.
Supporting an x0.7 of treasury NAV should be a starting point for the price floor, and lead to an increased price floor over the course of the next 18 months when the treasury contributes to the development of multiple products.

Liquidity - $500k in DXD/ETH at 70% of NAV would help create a liquid market (still low as this would represent 3.4% of the market cap) and enable DXdao to capture fees.

Inverse bonds - I think this requires more discussions and fine-tuning, a strict and low budget would result in only bots benefiting from this opportunity and undermine the efforts.

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I’ll keep this short.

Looks like the meetings we had were a complete waste of time. All of these numbers in your proposal are far worse than anything that was discussed.

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Check out the video of the discussion today. I’ve incorporated the feedback into a new draft which you can find here.

@Molotov thanks for your comments. I’ve incorporated them in the updated draft. the one point I don’t get is this one on inverse bonds being eaten up by bots. Given that they would be over an extended period of time, it couldn’t be a speed game? The inverse bonds are meant to avoid the type of redemption-arbitrage loops.