BIP-02 - Change Botto's Buyback and Burn Model - Botto

BIP-02 - Change Botto's Buyback and Burn Model

mantis

Summary
Botto's buyback and burn model is simple but not financially optimal for a new organization that could be growing exponentially. The goal of this proposal is to use Botto's revenue more efficiently in bringing growth and token holder value to the DAO.

Background
Botto currently uses the proceeds of the weekly auction to buyback and burn its own token, reducing the supply and theoretically increasing the value of BOTTO owned by tokenholders. This comes out to an annual burn rate of ₄%.

Rationale

Many traditional companies use the buyback approach to bring returns to investors, however, this is typically for mature companies that do not have potential for future growth, such as those in the tobacco industry.
Here is an example of a company (IBM) that has used buybacks extensively but has seen very poor results in its long term returns in recent decades: https://www.cnbc.com/2014/10/30/investor-dilemma-should-companies-reinvest-or-buyback-stock.html
Recent auction results have been a mixed bag at best, and token value has reflected that, with BOTTO currently sitting at $0.38 per token. This indicates to me that 1. Too few people are interested and bidding on Botto's pieces and 2. The current token model is not working, rather the ETH gained in auctions should have been invested elsewhere.
Potential alternatives: reinvesting auction $ into marketing, R&D for Botto improvement or development of an additional AI artist (poetry, music, etc.), paying DAO-members to contribute (rather than paying in Botto which they might sell), increasing assets in the treasury to support Botto's longevity in the case of market downturns, acquiring another artist/art engine to produce work for the DAO's benefit.

Proposal Specification

A yes/no vote to cut buyback and burn to 25% of auction revenue
If YES vote passes:
4-week period for proposals and comment on specific allocations of remaining 75% to be reinvested
During this time, 75% of auction proceeds are set aside for the purposes of this reinvestment
A vote is made on the specific uses of funds

Criteria of success (if a larger project)

Average Number of Bidders on Botto's artworks increases
Total Botto revenue in ETH terms increases
Botto price in ETH terms increases

Advantages

Allows investment in the growth of Botto in its early stages
Reduces size of BOTTO burn purchases, reducing opportunities to front-run the transaction

Disadvantages

Reduces automatic buy pressure on BOTTO token, relies on market participants to believe in future Botto growth

Wikdst

I've seen the value of other projects making similar shifts. For example, NFT projects with no royalties and too little funding adding a %5 royalty to support devs and growth. It worked. I think a different revenue split makes sense here, as long as we keep a burn mechanic in place. 25% is enough to signal the importance of burning, while 75% can be significant enough to enable innovation and growth. You have my support.

TheMuffinMan

This feels like an incomplete proposal. I’d feel much more comfortable voting on something where we are also deciding what to do with the 75%

justinn

TheMuffinMan i agree. i would totally be in support of this proposal if we had a plan for the funds. right now it feels a little like:

“change model > ???? > profit”

ill think about it a bit more and try to suggest some options for discussion.

a potential alternative: if the group can’t reach consensus on what to do with the funds within 4 weeks of acquiring them, they get burned.

Ben

To make an informed decision here, I think it’s necessary to have more information on ElevenYellow and Carbono (the two agencies involved with Botto), and specifically what funding reserves they have committed/can commit to Botto.

If they were not in a position to provide a runway for Botto, I would advocate something like this or to pursue venture funding. And in that case, we would need a solution to diversify the treasury which is currently entirely $BOTTO.

Hopefully, someone from the team can share more info on this.

zoku

I believe that this proposal is well oriented. Personally, I am a big detractor of burning systems, I have already said it in detail in the discord. But since I saw that I had enough defenders, I withdrew. Now, I think I would support this initiative if it is more clear and defined.

But as other members have said, this proposal is incomplete. That generates a ballast and lack of interest.

We can complete the purposes, at least provisionally, just to give an example, let's say that from 75% we will use 50% to grow the Botto treasury from which new initiatives are financed. And the remaining 50% we will divide 25% into promotions, events and marketing, and the remaining 25% we will use to buy works from artists that use AI.

postscript: in the week I will propose an idea on Discord to grow the influence and the circles where Botto is relevant. I think it will serve as an example, to give us an idea of the importance of having a treasure that can finance this type of event.