Draft Proposal: ShapeShift DAO to DAO ecosystem treasury

  1. Summary - The ShapeShift DAO is in a unique position when it comes to deal flow of new decentralized projects and DAOs, as well as an opportunity to collaborate with and support the very ecosystem the DAO wishes to provide a decentralized global interface for. One of the best ways the ShapeShift DAO can leverage its treasury to support this, is to form and fund a sub-DAO focused on DAO to DAO relationships supporting, partnering, and investing into the ecosystem the ShapeShift DAO wishes to see evolve.

  2. Abstract - The ShapeShift DAO community votes to create a Sub-DAO D2D treasury focused on the growth of the decentralized and aligned ShapeShift DAO ecosystem. This would be a commitment from the DAO to fund this treasury with $1 million USDC (or part USDC/FOX and equivalent amounts), and as part of that receive 90% governance rights to the vFOX governance token (venture FOX). The other 10% of the vFOX supply would remain in the sub-DAO treasury to be distributed as incentives to the sub-DAO committee which would source and vote on the allocation of sub-DAO funds (or to be used ultimately for whatever vFOX governance wishes). This would give the ShapeShift DAO 100% of governance rights at the genesis of the vFOX sub-DAO.

  3. Motivation - There are a number of motivations to create the vFOX DAO to DAO ecosystem treasury:

a. The ShapeShift DAO has a large and growing treasury and is in a great position to invest it. By investing in up-and-coming decentralized projects with which the DAO wants to partner, not only will closer relationships between the ShapeShift DAO and its product(s) be formed, but the DAO will also participate in the potential upside of investing early on into the global decentralized ecosystem that the ShapeShift DAO is already betting on and supporting. The potential success of such a model was put on display when the TMDC allocated to SILO in its genesis event, however long term this type of speculative investment is more suited for a dedicated vehicle (such as vFOX) rather than as part of TMDC’s mandate and duties for the larger ShapeShift DAO treasury.
b. Sourcing deal flow and partnering with various projects in the ecosystem with potential bright futures helps empower the ShapeShift DAO to buidl the best possible decentralized interface for the world.
c. The ShapeShift DAO can help foster the wider growth of the decentralized crypto ecosystem by making sure to support projects that otherwise might not get the chance of existence. Furthermore, the ShapeShift DAO community can also offer invaluable support via a group of connected angels that can co-invest alongside the vFOX treasury.
d. By putting ShapeShift DAO treasury assets to work in this sub-DAO format, the treasury receives vFOX which it can use as a treasury asset managed by TMDC and larger DAO treasury governance.

  1. Specification - The ShapeShift DAO will spawn a sub-DAO (vFOX) and commit to funding the sub-DAO treasury up to $1 million worth of USDC and/or FOX. The vFOX governance token will be issued back to the ShapeShift DAO treasury, holding 90% of the supply of vFOX with 10% held by the vFOX treasury for future incentives and allocation at the discretion of FOX holders (who will hold all vFOX governance rights at that point through the DAO’s allocation). The funds do not need to be released to the sub-DAO treasury all at once, instead only as needed based on token positions and deal flow of new opportunities. The goal of the sub-DAO will be to deploy/allocate those funds over the next 6-12 months in order to prove its thesis out, including always holding a long position on FOX in regards to any FOX allocated to it.

The ShapeShift DAO can fund the vFOX treasury anyway it wishes, but preferably this would be done as a combo of FOX and USDC as the treasury will want to acquire and be long FOX regardless (perhaps even long term turning into a liquidity sink for FOX if vFOX governance voted to allocate revenue that way). Funds will be sent from the ShapeShift DAO treasury to the vFOX treasury up to the $1 million limit passed in this proposal as necessitated based on deal flow/ vFOX treasury taking positions. For the treasury to raise any further funds, it would have to ask for more as necessary from the DAO treasury in future governance proposals and it may or may not mint more vFOX to that effect based on governance.

The first act of vFOX governance should be electing a committee/management team whose purpose should be managing sourcing and closing of dealflow, as well as sub-DAO treasury defi positions on behalf of the vFOX treasury and thus managing the mutli-sig of the sub-DAO - it is proposed as part of this proposal (to accelerate vFOX hitting the ground running) that this first team be a committee of 3 (appointed for a term of 6 months to start) including JonisJon, WillyFox, and Kent who will be paid both with long term streaming contracts of vFOX (2% of total vFOX each streamed over 3 years or until revoked by vFOX treasury) from the incentive pool of the vFOX treasury as well as a yearly (committee shared) performance fee of 20% based on treasury gains year to year (USD denominated). The committee will be responsible for the full life cycle of the treasury, including sourcing deals, establishing and supporting partnerships with vFOX backed DAO’s/protocols on behalf of the ShapeShift DAO, maintenance and strategy of the vFOX treasury positions, communicating to the larger vFOX holder community (primarily the ShapeShift DAO community of FOX holders itself), and multi-sig execution for those various tasks. The committee will communicate on a regular basis on its activities as well as engage regularly with the community to keep the larger FOX community involved.

There should be little limitation on the vFOX treasury strategies that are deployed by the committee except sticking generally to supporting the larger decentralized ecosystem, forming partnerships that benefit the ShapeShift DAO, and generally deploying strategies that are effectively long FOX. In addition to allocating treasury towards new and emerging decentralized projects, it should also include the ability to do things like (responsibly) going leverage long fox and engaging in experimental high risk/high return defi strategies.

If the vFOX treasury proves itself effective over the first deployment of $1 million across the ecosystem then it may make sense for the ShapeShift DAO to increase its funding in a second phase (but of course based on results and in relation to DAO revenues and treasury position at the time).

  1. Benefits - The benefits of this proposal will be the creation of a more nimble sub-DAO treasury which can be used to effectively put the DAO’s funds to work on supporting the wider decentralized ecosystem, forming partnerships that benefit and support the ShapeShift DAO’s product(s), and participating in potential upside of the ecosystem. The DAO will also gain a new treasury asset in the vFOX governance token which can be allocated and used by the DAO as needed.

  2. Drawbacks - the Drawbacks of this proposal related to allocating a substantial amount of treasury funds that may go towards speculative plays supporting the ecosystem and other DeFi strategies that could mean a loss of treasury funds if on the whole the winning strategies don’t outweigh the losing ones. This could mean the elected committee is not doing a good job administering the vFOX sub-DAO treasury, however FOX holders controlling the majority of vFOX governance means they can easily replace those committee members as needed if they are not performing up to what the community would expect.

6 Likes

I like this idea. The benefit of being a resource that other DAOs can use for some early funding is great. Also like that this can provide returns to ShapeShift DAO. I would want to be sure we have hit, or at least made significant progress toward our stablecoin goal to be able to pay salaries in a 2-year bear market before we allocate funds to this sub-DAO.

From a logistical perspective - the sub-DAO deploys a new smart contract which people can deposit FOX or USDC, and it mints vFOX when that happens. ShapeShift DAO can then deposit FOX and USDC as needed, up to the approved $1m worth over a 12-month period.

The sub-DAO can then spend the FOX and USDC as it sees fit. Is this all correct?

And you say the sub-DAO will be long FOX. Does that mean that whatever FOX SS DAO deposits, will just remain locked in the smart contract? Or might the sub-DAO use it for staking? The TMDC or SS DAO can stake FOX, so I don’t see the benefit of SS DAO sending the sub-DAO FOX. What am I missing?

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Reiterating what I’ve said in discord - I think this is an immensely powerful opportunity for the DAO. Being an incubator of beneficial projects for DeFi - especially ones for ShapeShift can be a shaping force for our product, our marketing, and the app.shapeshift.com experience.

In fact, as an incubator, we could incentivize or create a system of incentives that make integrations part and parcel of the deal. I could see a system where a project applying for funding commits to their dev teams integrating their project into app.shapeshift.com - pending security and engineering and product approvals. Thus creating multiple pipelines developing solutions for our users simultainously.

100 votes yes from me.

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Hey @Josh - thanks for the feedback and some great questions in here, i’ll respond to the particular points:

Agreed that obviously the stable coin diversification remains a priority and I would not want to put that in any danger and I too remain focused on making sure the DAO acquires the 10m+ in stables that have been targeted. That being said, I think the opportunity cost of waiting to do this is too great, there are too many good opportunities this sub-DAO will be in the position to jump on and I think it is the best interest of all FOX holders if this moves forward swiftly as if run correctly this will provide another diversification effort (though albeit more speculative) for the DAO that could become significant with the right use of capital. There are 3+ mechanisms built into this proposal that should help with this concern IMO:

(1) No funding is required immediately at the time this proposal passes, this is done on purpose to alleviate any pressing funding concerns, instead the sub-DAO only needs to be funded when appropriate deals/positions are identified (and these will probably be smallish like 50-250k at a time depending on the deal) and that will be at the discretion of the TMDC, so if the treasury is feeling uncomfortable that it can’t fund the sub-DAO for a specific deal it doesn’t have to and can wait for the next one. This will allow the funding to be elongated over many months as the sub-DAO committee identifies new opportunities and not needed before.

(2) One of the purposes of allowing the sub-DAO to be funded in either USDC or FOX is to allow discretion to not hurt the stable coin position as needed by the DAO treasury, so one way around this is to simply fund the early positions over collateralized FOX and allow the sub-DAO to take leverage to fund its positions against that FOX.

(3) The creation of the vFOX governance token that the DAO will primarily control gives the DAO optionality to use that asset to acquire further stablecoin funding if it wishes to utilize it that way.

Given these aspects I am not concerned about this interfering with the DAO’s current stable coin goals and believe this can be done in such a way to be helpful to that overall goal rather than a detriment.

On this logistics side, a new smart contract is deployed for the vFOX governance token as well as a new gnosis safe (and perhaps snapshot space for vFOX governance voting). The sub-DAO mints the initial allocation of vFOX 90% of which goes into the DAO treasury with the remaining 10% in the sub-DAO treasury. Only the DAO is contemplated as funding the sub-DAO right now, though the DAO could choose to sell some of its vFOX as a funding mechanism for itself if it wishes to do so. No additional minting of vFOX would occur unless specifically approved by vFOX governance (probably would only be done if the treasury was being expanded at a future date IMO).

While the sub-DAO can in theory spend the FOX and USDC as it sees fit, it is important that the proposal stipulates the sub-DAO will always remain long FOX. What this generally should mean is that sub-DAO never sells FOX to the market, instead it uses any FOX in its treasury to safely leverage positions it wants to take, or to even go long FOX itself via leverage. It could also stake FOX as part of its DeFi strategies (such as in FOXy or tokemak) but that is probably not what it is going to do with it, instead it would likely use any FOX in its treasury as a source of collateral and in more novel DeFi strategies that would be too risky or speculative for the top level treasury of the DAO to undertake.

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Thanks for the feedback and support on this proposal @PeteCoin ! I am glad you are excited about it and see the immense potential this can bring to the table in terms of making the interface that much more powerful by fostering strong partnerships that integrate into the ShapeShift ecosystem.

Thanks for the clarification on my logistics questions.

As for funding and stablecoin accrual for bear market, I would be okay to pass this proposal now, and fund as needed. Knowing that we can decide how to fund when the need for funds arises. If the decision is to fund in FOX, it might take quite a bit of FOX in order to meet collateralization ratios and avoid liquidation.

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Thanks Josh, glad that was helpful, It definitely could take quite a bit of FOX to collateralize some of these positions and these would need to be things that the TMDC considers when the sub-DAO has a funding request.

One good part of this though is that when using FOX as collateral rather than funding with stables, the treasury has an ample supply of FOX which would otherwise be sitting idle, so the opportunity cost would hopefully be low in those cases. Also the positions being on the smaller side to start would hopefully also help mitigate this problem.

Either way, these will be good things for the TMDC to consider when funding vFOX positions.

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To be more inclusive for those who are new to ShapeShift, DAOs and the governance process…
Could you provide a ELI5 or TLDR for the sake of discussion?

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editing this, will follow up later

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Can you speak to the limitations of the current structure of the DAO and the TDMC as currently formed in DAO to DAO relations, and how a subDAO is the best strategy to move forward in future DAO to DAO relations.

Is there a strong reason for this to not be some form of a workstream (like partnerships) in the current ShapeShift DAO organizational structure?

I personally still feel opposed to multiple governance tokens inside our DAO while we are still developing a stronger body of active voters and community. Creating a more complicated voting mechanism that has say and direction in the future of the DAO, to me, seems contrary to making things easy for our users/community, and could potentially weaken or threaten our current process with fragmenting votes, voter fatigue, over complicated subjects for voting, etc. Is the governance token model the best way to achieve the goals desired here? Are there other potential successful ways of funding DAO to DAO relations that were explored and discarded before choosing this subDAO strategy?

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Hey good question @cryptmiss I am hoping the abstract of this proposal helps for the more summary version of this proposal, there is a lot of detail that is important to get out there for completeness/transparency of what this proposal is trying to accomplish.

I think a basic TLDR of this proposal would be something like “Create a small sub-DAO focused on supporting/investing in the ecosystem that ShapeShift DAO wants to take hold and thus further power the decentralized interface that ShapeShift DAO is building while participating in further upside of the ecosystem”

Even that is a bit of a mouthful, but not sure how to make it that much simpler than that. Perhaps you could ask some specific questions you are confused about and by answering those it would help bring further clarity?

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IMO the TMDC is not the right vehicle to be making speculative investments within the ecosystem. The TMDC’s goals are primarily around administration and diversification of the DAO treasury and while the TMDC did do the one off investment in Silo, I think this was the exception that proved the rule about why there is a need for a separate sub-DAO/committee which is focused on sourcing this type of deal flow and making much riskier allocations of its treasury in the space, whereas the TMDC should remain relatively conservative in its actions by comparison. TMDC is not the right place to make 10-20 allocations towards early stage DAOs/projects/protocols nor the right place to take on more aggressive/risky strategies such as going leverage long FOX. The sub-DAO structure allows for this in an easier manner while sectioning off the risk from the main DAO treasury (which also brings a bunch of benefits on the technical level of not exposing the main treasury to every potentially dangerous contract that could endanger the entire treasury).

I would be supportive of a more dedicated partnerships workstream of some type which could work hand in hand with the vFOX sub-DAO, but I don’t think these are the same thing nor should be structured it the same way. The purpose of the vFOX sub-DAO is to allocate its treasury to the best benefit of the DAO, this should have the added benefit of helping form stronger bonds with potential partners we want to see succeed in the ecosystem and integrate with us at an early stage, but is not the same effort as just forming and maintaining partnerships which is a broader and less specific effort that often will not include any sort of treasury allocation, the important part of the sub-DAO is the allocations it makes and the returns that hopefully generates. I thought a lot about the potential structure of this and came to the conclusion for a number of reasons outlined above, especially around the ability for the DAO to gain the vFOX asset and do what it wishes with it, that this was a superior structure to others for this purpose.

I understand the skepticism and reticence here (its very healthy), but I also spent a lot of time considering possible options and kept coming back to this as the best possible structure for what vFOX would try to accomplish. I am not personally overly worried about this becoming overly complex for the average FOX holder, the reality is that vFOX should not require a significant amount of governance once setup except to occasionally elect/re-elect the committee members, make changes to its high level structure, decide what to do with treasury as it grows, or maybe at one point in time mint more vFOX if governance deems so. Since the main DAO treasury would control the vote of vFOX, all it would require is normal governance votes about how to vote the vFOX in the main treasury and then there is nothing else a FOX holder needs to understand to engage in governance. Are there other potential ways this could be done? Of course! But that doesn’t mean they are superior ways IMO.

A couple of the big benefits of this structure we wouldn’t otherwise get, some already mentioned here or elsewhere:

(1) vFOX becomes an asset which the DAO treasury can do whatever it wants with, including selling it for further diversification if it wishes, if this was done without the sub-DAO this wouldn’t be possible and would mean the DAO would be otherwise “locking” liquidity for long periods of time it could not access without sending it out of the sub-DAO.

(2). vFOX can be used to incentivize the committee members directly on their activities and the wider community as vFOX leverages ShapeShift DAO members to contribute without costing the DAO a single FOX. It can even mint more as required as the sub-DAO treasury grows, again all without costing a single FOX in terms of that mechanism.

(3). The sub-DAO treasury signing can move far faster than the higher level DAO treasury can, this is highly desirable and needed for the type of speculative allocations the sub-DAO will be making where the opportunities will often be quite time sensitive. This also takes workload off of the current multi-sig signers on the main treasury level which has already grown to be quite considerable.

(4) Breaking out into the sub-DAO structure protects the larger treasury from any smart contract risk that may be incurred with riskier DefI strategies by isolating those contract approvals only to the sub-DAO.

(5) This structure allows for a very granular level of transparency, being able to see all of the Sub-DAO’s actions on a granular level on chain, whether otherwise they would be mixed with the main treasury and difficult to track.

These are just some of the benefits, but again the more I have considered this proposal over the last 30-40 days, the more I have come back to this being the right/best structure for this. I also think this serves as a relatively low risk experiment for the ShapeShift DAO to experiment with sub-DAO’s which may be more needed as we move forward (and is more common place today in a number of other DAOs), the learning we get from this will be quite valuable and if we find the sub-DAO structure isn’t working we could always shut it down and roll things back into the main treasury (though I don’t expect that will be the result).

I hope this helps answer some of your questions @Tyler.

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In less words, it appears this proposal is to have the ShapeShift DAO fund a Venture Capital fund. There are four primary concerns with this:

  1. The incentive structure of the committee is too loose. The proposal is asking for a 2% annual fee plus a 20% profit fee. Generally funds like this charge a profit fee based on performance in excess of a benchmark. (i.e. the crypto or DAO market as a whole). Also, how is profit being defined? Does it include unrealized profits? The proposed incentive structure, of guaranteed 2% and 20% of profits, encourages extremely high risk with little regard to losses.

  2. The investment strategy is very unclear. You mentioned things like investing in decentralized projects that partner with ShapeShift, to leverage long FOX and other experimental high risk/high return defi strategies. While the deal sourcing and partnering with upcoming projects sounds intriguing, the leveraged long investments and high risk defi strategies are something that FOX token holders can invest in independently of the DAO, without paying a 2% management fee and 20% profit fee.

  3. I think the proposal should be split with a separate proposal for the committee members. We don’t have any background about the qualifications of the members or if there are other DAO token holders who are equally or more qualified than those included in the proposal.

  4. The sub-DAO doesn’t really sound like a DAO at all. “There should be little limitation on the vFOX treasury strategies that are deployed by the committee”

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@GunnarBuddy thanks for the feedback, will try to respond to your concerns as best I can here:

There is no 2% annual fee as you call it, instead the committee members are given a stream of the vFOX governance token as an incentive mechanism to align their interests with that of the sub-DAO, this stream would be put into a vesting contract (sablier or the like) and streamed over 3 years, this could be revoked by the DAO at anytime and has no guarantees attached to it.

Regarding the 20% performance that is contemplated in the proposal, again here the idea is to align those working on this treasury to seek outsized returns (and the performance is in lieu of any regular compensation of any form). The idea is since this DAO will generally be allocating towards other token based projects, all or the vast majority of the treasury should be liquid at all times, when calculating year over year performance the baseline would be against the amount the treasury allocated at the time (so if it allocates 100k and the treasury reaches 1 mil in value, the performance would be 900k). This seems reasonable and straightforward enough given what is being contemplated, however am open to suggestions if you think there is a better way to design or measure this mechanism. How that is paid out would be up to governance, it could be paid from the larger treasury, or funds could be sold or disbursed from the sub-DAO treasury itself, whatever governance aligns on, but does not necessarily need to be prescribed ahead of time with no knowledge of the contents of the sub-DAO treasury at that future date.

To be clear on the risk/reward, this sub-DAO is definitely geared to be a high risk/high reward part of the treasury, this could go to 0 or experience many multiples on return, one of the whole reasons for this being separated from the main treasury is to isolate that risk from the rest of that from things like the larger treasury and the TMDC which should naturally take a more conservative bent to treasury management.

The strategy for allocations of the sub-DAO treasury is purposely left broad in this case, with the ultimate authority rolling up to the DAO. The high level is to focus on other DAO’s in the ecosystem that could contribute value back to the ShapeShift DAO decentralized interface, but to also leave the door open for more high risk DeFi strategies as appropriate. The idea is to delegate much of that operational strategy to the committee in order to allow for speed of execution, knowing that the DAO can replace them or revoke the structure entirely at anytime if governance chooses to do so. Something like going leveraged long FOX and high risk DeFi may very well be things a FOX token holder could do on their own, but the DAO cannot, and the goal is to maximize value of the DAO’s idle treasury while bringing value to the decentralized interface that ShapeShift DAO is building.

This is a reasonable request, I do think much of the DAO community are familiar with all three of the committee members that are initially proposed, but too much may have been assumed for anyone especially coming and reading this for the first time without interacting in discord and on our weekly calls etc. Similar to what we did in the TMDC, we can put up a poll in ideation that allows the community to vote forward the committee members they want to see in the first proposal. Anyone who wants to put their name forward is welcome to submit themselves here and I will include them as part of the poll in ideation in addition to the three that were initially nominated for this above. That way we can at least get some feedback on the individuals of the first committee before moving this forward to any sort of snapshot vote.

I think this would very much still be a DAO from my perspective since the ultimate control would rest in the ShapeShift DAO treasury, meaning all FOX holders have a say in it. FOX holders would control 100% of vFOX voting right at genesis and thus would be able to vote on whichever governance items they wish related to the sub-DAO, including changing its structure, reorganizing or firing/replacing the committee, and winding down the sub-DAO entirely if it does not appear to be meeting its goals in a timely fashion.

Given that, and the high risk/high reward nature of this sub-DAO treasury, putting little limitation on how the capital is deployed (but obviously still limited by the amount of funding it has) seemed the most prudent course. If the community would rather there be specific types of mandates it can or cannot allocate towards I am open to that feedback and changing that in ideation as well, but I personally believe that is well enough covered by the ability of the DAO to block funding to the sub-DAO and/or replace any part of it any anytime as it so wishes.

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@jonisjon - Thanks for the detailed explanation. I completely understand what you are saying, but I cannot support the proposal in it’s given form.

In the crypto world, simply achieving a profit is not an adequate goal. There has to be a meaningful benchmark. When the tide rises so do all boats. Based on what’s outlined in the proposal, you could simply leverage BTC or ETH at 10x or 100x and make a prayer it goes up. Or more simply, you could take the $1M and put it in a stable coin, earn 10% interest and call it profit. Neither of those strategies is worthy of a 20% performance fee.

The governance structure is not meaningful since you could lose all the money before the DAO or TMDC can do anything about it.

There are concepts within the proposal that I really like, but the ambiguity is too hard to ignore.

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I appreciate the honest feedback @GunnarBuddy, if there are specific suggestions you have to improve the proposal I would be happy to consider those and incorporate them in the ideation thread.

Regarding losing all the money, the sub-DAO will need to get TMDC approval for funding on specific allocations, so I think that is unlikely unless it all goes to 1 or 2 positions which is not the goal here, the main goal is to spread it out across 10-15+ interesting early DAO projects that can add value to ShapeShift, but I also am not trying to downplay the risks here either because a loss is of course on the table with these type of positions.

Since this proposal has generally been supported so far, I plan to move it to ideation probably Sunday or early next week, I am trying to give extra time in incubation to allow for more feedback and incorporate any changes from the community before moving this forward.

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I’ve had a chance to really dig in and scrutinize the ideas behind this proposal, and I really dig it. It puts us on the path to implement early-stage strategic investments that can pay off in a major way, while simultaneously encouraging said projects to integrate with our platform. It has my support and I’d be happy to serve on the initial Committee.

That said, I do understand the concerns @Tyler voiced about the increased complexity of another governance token. I think it’s very doable to execute on this vision without adding vFOX. If the community is concerned with taking both those steps, perhaps it would make sense to begin by creating the investing process and committee, but without initially creating the Sub-DAO.

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@jonisjon - would be worth adding some clarity on the profit. Is this profit measured against a benchmark of top ten by market cap crypto or fiat? etc.

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Right now the idea is the benchmark is simply the capital allocated into the sub-DAO. That seems to provide a easy and traceable benchmark, but I am open if there is another one the community think works better.

I don’t think top of crypto market cap necessarily makes sense, my thought is that this capital in the treasury would otherwise be sitting idle (at least today) so what we are measuring against is if that just sat in the treasury as fox or usdc vs deployed by vFOX.

@0xean do you have a specific benchmark or two you think we should apply in this case? Happy to consider that before moving this to ideation.

Just to make sure I understand,

If the SS DAO treasury contributes ETH, returns for the portion of the portfolio are ETH denominated and if the SS DAO contributes a USD analog, the returns from that allocation are denominated in USD?

I think that is fine, just would recommend clarifying it to be “in-kind” profit or something similar.

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