0. Summary
This BIP seeks to increase Botto DAO’s Protocol Owned Liquidity (POL) and thus grow its treasury’s ownership of the liquidity in the BOTTO + ETH pool on Uniswap V2 on Ethereum mainnet through ongoing POL contributions from a portion of Botto DAO’s weekly net revenue.
The strategic objectives of this BIP are summarized below:
Build and increase Botto DAO’s POL.
As of 8/1/24, the treasury’s POL equates to just over 17,215 LP tokens, which is just under 30% of BOTTO’s total liquidity on Uniswap V2 (59,650 LP tokens).
Note the treasury does not stake its POL in Botto’s Liquidity Mining contract, wherein nearly 70% of BOTTO’s total liquidity, as provided by BOTTO holders, is staked as of 8/1/24 (41,541 LP tokens).
Allocate 20% of Botto DAO’s weekly net revenue to increase POL in a committed and consistent manner, thus reducing the reliance on BOTTO holders to provide liquidity over time.
Align incentives of BOTTO holders and Botto DAO at large, to advance trust in the community and the viability of Botto Project for the long term.
1. Rationale
In order for Botto DAO’s stakeholders to achieve the long-term vision of Botto to become a fully decentralized and autonomous artist on Ethereum, Botto will need to become more economically sustainable. Liquidity is a critical consideration in this regard.
Notably, BOTTO is the governance token that enables staked holders to participate in training Botto via the voting mechanism and associated voting points (VPs), and it is the crypto currency around which Botto’s overarching ecosystem revolves.
Thus, in order to facilitate the participation of a wider audience of users to further decentralize and distribute Botto’s training inputs, BOTTO will need deeper liquidity on-chain for stakeholders across the spectrum of potential participants, including whales, to more seamlessly enter and exit Botto Project. By extension, more substantive POL would likely contribute to increased market confidence, as there is a need for BOTTO’s liquidity to not have to be reliant on its users.
Currently, BOTTO holders are incentivized to be liquidity providers thanks to the Liquidity Mining contract, but its BOTTO rewards will end on 10/15/25. And while Botto users will continue to be incentivized to provide liquidity thanks to the 200 VP per LP token that is generated weekly for staked LP tokens, Botto DAO should nevertheless proactively think ahead on increasing POL.
Accordingly, Botto DAO and its active members play a key role in acheiving a balance between the financial incentives of providing weekly training feedback to Botto (via active rewards), and maintaining operational capabilities to advance Botto’s development (via the treasury’s allocation of auction proceeds).
Currently, 50% of Botto DAO's weekly net revenue in ETH is distributed to the community via active rewards, and 50% is allocated to the treasury. However, for Botto DAO to achieve the aforementioned goals, BOTTO’s liquidity needs to steadily grow.
This BIP thus seeks to allocate 20% of Botto DAO's weekly net revenue to increasing the treasury’s POL, whereby the allocation to active rewards would remain at 50%, and the treasury's allocation would be reduced to 30% during the duration of this proposal's applicability. In so doing, active rewards will be preserved to uphold BOTTO's utility narrative and value proposition to sustain the ongoing training of Botto by its active users, whereas the treasury will continue to accrue ETH to augment its reserves for operational needs.
2. Proposal specifications
- Revenue Allocation to Grow POL: every week that there is a mint/auction, Botto DAO will allocate 20% of the net sales revenue in ETH and deposit it into the Uniswap V2 liquidity pool on Ethereum mainnet with a corresponding amount of the treasury’s BOTTO to grow POL for the benefit of all Botto stakeholders.
Accordingly, the weekly distribution to active rewards will remain at 50%, whereas the treasury's allocation will be reduced to 30%.
For example, if a weekly mint is sold for 5 ETH at auction, then after SuperRare’s 15% marketplace fee, Botto DAO will receive 4.25 ETH, and the distribution will be as follows:
To BOTTO stakers via active rewards (50%): 2.125 ETH
To Treasury (30%): 1.275 ETH
To POL (20%): 0.85 ETH, which will be paired with an equal amount of the treasury’s BOTTO and deposited to the BOTTO + ETH pool on
Uniswap V2.
- Frequency of POL Contributions: for operational simplicity and to minimize the treasury’s costs of adding liquidity in terms of gas fees on Ethereum mainnet, POL contributions will be made in monthly lump sums.
ETH apportioned for POL contributions will be announced on Botto’s communications/social media channels weekly, and monthly POL contributions will similarly be broadcast to raise awareness of this initiative.
The treasury’s BOTTO contributions to POL will be deducted from the up to 4M BOTTO allocated "to build long-term liquidity" per BIP-42. * Specifically, 500K BOTTO from this 4M BOTTO allocation will be apportioned for this proposal.
- Contingency: in the event of a weekly auction not attracting a collector, the Treasury Working Group will use the average ETH allocation to POL over the last six months to determine the amount to be deposited into the liquidity pool to uphold BOTTO’s liquidity growth.
This ETH contribution will be from the treasury’s ETH holdings, and will be paired with a corresponding amount of BOTTO from its holdings too.
The only time no deposit to POL will be made is during the 13th week of each period when no works are being auctioned as Botto selects the final fragment of the period itself, which is then minted to Botto DAO’s treasury.
- Duration of POL Contributions: this proposal will be committed for one year from its approval, or through the end of the final period in which the one year end date falls, whichever comes last.
Thereafter, Botto DAO members may opt out of this proposal through another governance vote. Otherwise, the proposal’s terms will carry on as established herein, and POL contributions will then only end when the 500K BOTTO apportioned for it has been fully utilized. At that point, Botto DAO members may revisit reviving this proposal under similar or different terms, if a continuation of POL contributions is agreed upon moving forward.
- Voting Options: instead of the proposed 50/30/20 percentage split between active rewards, the treasury, and POL contributions, voters can also vote for one of the following options:
50/35/15: In this case, active rewards would remain 50% of net revenue, and the treasury's cut would be 35% instead of 30%, such that contributions to POL would be reduced from 20% to 15%.
40/40/20: In this case, active rewards would be reduced to 40% of net revenue, and the treasury's cut would be equal to that instead of 30%, such that contributions to POL would remain as 20%.
50/50/0: In this case, the current arrangement of 50% of net revenue being allocated to both active rewards and the treasury would remain as is, and there would thus be no contributions to POL.
All four options will be presented on Snapshot with a ranked choice voting, where governors order their preferred options. If no option receives at least 50% initially, the bottom choice is eliminated and those votes are shifted to the governors' second choice. This continues until an option has >50%.
3. Criteria of success
Consistent and steady growth of liquidity in the BOTTO + ETH Uniswap V2 pool on Ethereum mainnet.
Amplification of Botto Project’s visibility from the weekly announcements on Botto’s communications/social media channels of the ETH revenue apportioned for POL, and the separate announcements of monthly POL contributions, further reinforcing Botto DAO’s pledge to sustaining BOTTO’s liquidity.
Improved distribution of the BOTTO supply thanks to the ongoing allocation of the treasury’s BOTTO holdings towards POL and thus into circulation over time.
Codifying the apportionment of a percentage of Botto DAO’s weekly net revenue towards POL, thus bolstering its skin in the game and enhancing collective trust in the community.
4. Disadvantages
Impermanent loss from Botto DAO’s ongoing contributions to increasing POL, though this may be considered a price Botto’s stakeholders are collectively willing for its treasury to pay to uphold BOTTO’s on-chain liquidity and ensure its accessibility to users, which is essential in consideration of the token’s utilitarian role in facilitating the training of Botto.
The reduction of net revenue allocated to the treasury may limit Botto DAO’s operational optionality during the duration of this proposal's applicability, though the treasury’s holdings are currently sufficient to cover expenditures “for years to come,” not counting any additional revenue the treasury will accrue.
As of June 2024, Botto DAO’s treasury holdings, from which the core team’s operational expenditures are covered per BIP-43, consist of:
381.83 ETH
1,485,066.41 USDC
15,792,794.26 BOTTO
