choobie If there are more viable solutions on market that benefit the DAO, the LM programme should not remain active
I am not clear why it has been waited until the LM program has seven months to go to finally think about "viable solutions" around liquidity. This BIP is essentially rehashing Ben's original proposal, which was to outright end the LM program. You are pointing here to the final goal.
choobie We are a small DAO and agility is required at this stage. I think this is very important to reiterate
This is one of my favourite and most useful trump cards, but it has been used multiple times. Bottodao not that small and not that young. The need for agility and for a superior goal must be proved with facts and actions, not with words. Countless ideas have been proposed towards building PoL in the last months, and "adminstrative negative silence" has been the most common answer.
Analysis of the BIP
Fact: Our current liquidity pool is about 1000 Eth + the $botto equivalent.
This BIP prompts us to jump from a plane (our pool) without a significant parachute (mitigating measures that would ensure the pool remains within reasonable limits) in the middle of the bull market, and that we will safely land on a pool supported by:
- Our PoL (c. 18% of the current pool iirc)
- The 50 Eth + $botto equivalent (second point in the specification) – c. 5% of the current pool
- The contributions made by the LM miners, who will see their allocation reduced cut by 66% (correct me if I´m missing too widely here)
Fact: issuance will be cut by 66%; APR will suddenly drop to c. 20%. APR will re balance as capital leaves the pool. Net effect: pool shrinkage. Size of that reduction: unknown, but we can do some guess with the figure above. My opinion: who in her/his right senses would want to stay locked in the contract at c. 20%-30% if the token is going to become a casino? (IL, pump-dump opportunities etc.). The incentives are perverse.
Although Choobie said that additional parachutes are in the assembly line (perhaps only in the blueprinting phase), the supporters of this BIP argue that we must jump now to save some $Botto. For this endeavor there would be different types of parachutes, some of which can be combined. However, none is ready, and there are still no committed resources for any (apart from the 5% mentioned above). Fact: those parachutes will bear a cost, be it in terms of opportunity cost (of funds/Eth), token dilution (additional fundraising), or revenue/vps dilution. Those costs are not accounted for in the BIP and such analysis is postponed. This BIP however puts a lot of emphasis, misleadingly or plainly falsely, in that that the DAO pays 425k USD worth of $BOTTO to rent liquidity. I say misleading because 1) the cost analysis of something that does not exist can´t be contrasted/compared, and 2) because the program dilutes some holders, but only those who don´t participate in the program. The program is permissionless, everyone can join and help support the project´s liquidity. In fact, we wouldn´t probably be having this discussion if everyone was a participant. I have invited the proponents of this BIP countless times to join the LM program: it´s a strong tool, with robust incentives, that has kept the Eth - $botto pool at a reasonable size (reasonable means that there is not a huge sensitivity to purchases, but also to sales). Such proponents didn´t want to join (they didn´t have enough liquidity, didn´t find the APR sufficiently attractive for the risks, or just decided to acquire a few 1:1s; all are fair game).
There are two big issues with this BIP
And none have been adequately addressed. One has to do with governance, the other one has to do with economics and governance:
1) Unilaterally extending the LM program (for the second time).
A minority (LM miners) made a rational decision based on information that did not caution (or even suggested) that the term was extendable.
There was an allocation for LM. The fact that this allocation has been modified twice doesn´t signal that what is preached/advertised by the DAO is or will be preserved. There was a certain allocation for the airdrop too, one might think that the only reason why there is not a BIP to unmake that airdrop is the factual impossibility to do so, because, by the same argument, it was also dilutive/expensive/wrong for the DAO to a considerable extent. The only difference is that LM miners have been making the decision to stay committed daily, most since inception. The signal is that those who stay and trust might get trapped if a majority decides to do so, and that faits accomplis are the only enforceable and immutable rule here. If every previous agreement can be superseded, what else will be subject to change in the future? What more rights and expectations might not be met? What if a majority decided that we raised the fees the collectors pay on the 1:1s retroactively to 50%? (oh yeah, faits accomplis, lucky them), some for the beneficiaries of the airdrop. You could come up with intricate scenarios related to every single stakeholder in the project.
This is why this BIP was born with a governance flaw. This flaw could be compensated by two means: 1) by gathering the support of a vast majority of the affected minority, and/or 2) by strongly proving a superior need that would justify to cause the above-mentioned harm. Point 1) has not been met (by Discord discussions), and the reason for 1) is actually 2). Does the need (rationale in the BIP) justify all the cons (the economic ones below too) of extending the LM program? If both liquidity and saving $botto were that important, why the efforts towards those two ends have been almost null for so many months? The suggested alternatives have been many (increasing PoL via locked funds, saving Eth through different means (…)) but the only thing that the guys supporting this BIP are sending to a vote is…this. Great. And we will also be raising funds (dilutive), but not sending Eth to build PoL (opportunity cost); or giving extra vps to those who contribute some liquidity (thereby diluting revenue and adding a layer of complexity that can´t hardly be subject to economic analysis). Beautiful partisan experiment.
It is claimed that this BIP is useful for “creating time”. Apart from standing impermanent loss risk, locked liquidity, giving up fees (…) LM miners are now receiving another duty, one that wasn´t in the docs: creating time for the DAO to do what had months/years to do, but has left undone (for reasons x,y,z). Poor signal.
2) Risk and Volatility during the interim period; risk of "shitcoinization"
This is going to be done without any additional cushion (those 50 Eth + equivalent $Botto represent ONLY 5% of the current size of the pool). On top of that, this BIP proposes to do it in the middle of the bull run. The 20/30% APR might be even lower if there is a sudden drop in price. Bad news for those trapped in the LM contract. The pool should be kept at a reasonable size (at least as it is), and the LM program should have been reduced progressively, accompanied by parallel increases in PoL. A few more and I have been advocating for this since October, and we have been ignored. Why not this way remains an unanswered question.
The DAO´s treasurer believes that volatility is good. “Volatility is good. Numbers go up is good. What's not to like?” (per conversations in Discord). Reminder for the treasurer: volatility goes both ways. It scares some people and attract speculators. Current $Botto holders will also see the opportunity to play in this pump-dump accordion. Volatility is a zero-sum gain: there is no value creation, every time a “smart” holder buys cheap or realizes a gain, it will be at the expense of another holder. The incentives are thus perverse, and the risk of Botto´s “shitcoinnization” Botto will grow. Some people love volatility and zero-sum games: in the casino and in lawless places like the old wild west, mostly when they have insider information. With the current pool we were able to x7 in just a few months. What else do you want? One should not be artificially messing with the organic risk profile of a project. Sure, you can make it riskier: breaking things is always easier than fixing them. Manipulating the risk/reward profile of its own shares/token is not an action that a company should make unless it is to reduce the ratio. This is common sense (or should be). This project already had enough financial experiments.
Quoting a comment by Rarest: “it's about being liquidity trapped. We can have a super tiny pool and have the price explode, but guess what? You will be rich on paper but you won't be able to sell the tokens. SBF's playbook. Have your bags pump on super low liquidity, and then... what? Well, SBF's plan was to borrow money using his illiquid scamcoins as collateral... Is this the plan now?” In the middle of the bull market?
- Volatility is the devil, and as a variable should always be kept under control. Is volatility even mentioned in the BIP? Is there a plan to mitigate volatility if this BIP passes? No sir. It should have been a criterion of success. So what´s the goal of this BIP? Saving some $Botto? At the expense of what?
What should be done
I´m asking for a “no” vote for this BIP because first things must go first. As a LM I´m even willing to support the LM program wind down if it is for the sake of the project. Saving $Botto is legit and might even be necessary. But it can´t be done in a rush, by halving the size of the pool in the middle of the run, and by plainly neglecting past commitments and over running a minority. This can´t be the first, cheap, and only option. Bottodao deserves to be better. A plan, with real commitments, must be approved in advance. Too many neurons have been busy in shooting down the LM program while the key issue remains unsolved.
Yes to start building PoL, yes to a BIP with clear specifications of fundraising for PoL building. With real will and commitment, being aware of the trade offs it can be done in a matter of weeks on a best efforts basis, using the strong urge some have to "save" that $botto, to build what needs to be built (with its costs). Otherwise we will just be, like in the past, buying time at the expense of 1) and 2). It will be a mistake and will set a bad precedent.
Thank you for your time reading. I hope we can make together the best decision, one that looks well today and that will look well when we (or anyone) looks back in time.
(I will probably not be able to check the forum over the next days. So please get in touch with me in Discord if you need/want to interpellate me).
