Finalizing FOX Range Token Specifications

1. Summary:

This proposal is to present defined Range Token parameters for the purpose of gathering community and investor feedback, and ultimately finalizing the Range Token spec so that it can be turned into an actionable vote.

2. Abstract:

Proposed settlement on FOX range token with the following specs:

  • 6 month expiry

  • Range of $0.4 - $1.0

  • Locking 2.5M FOX to raise $825,000 in stables

  • OTC sale

3. Motivation

The motivation for treasury diversification with Range Tokens was covered by Josh and others in this thread.

This post is a continuation of the “Mint and Sell Range Tokens for Treasury Diversification” post written by @Josh. The motivation of the original post was:

This discussion is just to start the conversation, and start to hammer out some details of what our Range Token may look like. With more details, we can better understand if this is a good idea for the ShapeShift DAO.

The original goal of: “understanding if this is a good idea for the ShapeShift DAO” appears to have been accomplished. With demonstrated community support on the polls posted by @huntthewick here - it appears that the ShapeShift DAO believes that treasury diversification fits in the DAO’s goals.

The motivation behind this specific post is to discuss and finalize the exact details of the FOX Range Token, so that this proposal can be turned into an actionable vote. A straw man Range Token is presented in “Specifications”, with the goal of having the ShapeShift DAO being able to provide feedback and gather feedback from strategic investors.

4. Specifications

As a refresher, basic Range Token functionality is covered in this medium article.

A spreadsheet with full range token pricing is here. The proposed Range Token has the following specs:

Range:

  • Lower price bound of $0.40 FOX/USD. Each Range Token is worth 2.5 $FOX at this price.

  • Upper price bound of $1.00 FOX/USD. Each Range Token is worth 1 $FOX at this price.

This is an adjustment from the original poll results. This adjustment is being proposed for a few reasons:

  • FOX/USD price has moved some since then.
  • A shorter contract life is also being proposed, which allows for a tighter range.
  • The current available funds in the ShapeShift treasury necessitates having more capital efficiency (tighter range).

The FOX/USD price today is ~$0.70. This range represents a ~43% move from current prices to each of the bounds.

This means that at expiry, if the FOX/USD price is at or above $1/FOX and the Range Token debt is still outstanding, the ShapeShift Treasury will have sold the underlying FOX for $1/FOX. If the FOX/USD price is at or below $0.40/FOX, ShapeShift will have sold the underlying FOX for $0.40.

This allows ShapeShift to sell FOX for a higher price at a later date, and also provides the ShapeShift treasury with downside protection in case of a larger than 43% negative move.

This range also seems like it would be attractive to RT investors, as they will still be able to earn yield on their Range Tokens and have a reachable upper bound that would potentially allow them to gain exposure to FOX upside.

OTC Sale:

It’s also proposed that the Range Token be sold OTC. This does not entirely agree with all of the conversations surrounding the initial range token discussion, but the motivation for this over creating a public sale is.

  • It will be easier to reach consensus on Range Token parameters by limiting the market participants.

  • Sale participants would be lined up beforehand, which would leave zero doubt about the success of the sale.

  • Would act as a pilot project to gauge investor sentiment, which could potentially make for a larger more successful public Range Token offering later.

  • This is proven and easier from an implementation perspective.

  • It should be noted that any FOX holder could still take it upon themselves to create the same FOX range tokens and a market for these.

Expiry Time:

  • 6 months from the date of vote completion.

Initially a 1 year expiry garnered the most support in polls, so this an alteration to this is an alteration to that. This is motivated by a few things:

  • Will allow for more capital efficiency when creating range tokens. We can reduce the amount of FOX required to reach the desired amount of stables in diversification, by reducing this period and “sale discount”, since the yield is annualized.

  • Shorter expiry + tighter range play well together.

  • With current availability of FOX treasury funds, this could serve as a pilot offering with potentially a larger one happening later once more FOX is available.

Size and Range Token Yield:

35% net yield. Selling each range token for $0.825 with a notional of $1.

@Beorn, @jonisjon and others in the community have expressed interest in making this a good deal that would be attractive to investors. 35% net yield with additional potential upside on a project of ShapeShift’s caliber, seems like it would be very competitive.

The proposal is to lock 2.5M FOX to mint and sell 1M Range Tokens at ~$0.825, netting the ShapeShift treasury $825,000 in stables. This number is mostly for example’s sake, and definitely need feedback from the DAO about availability of FOX allocation and amount of stables needed.

5. Benefits

Benefits for treasury diversification with Range Tokens were covered by Josh and others in this thread.

The desired benefit of this post is to lead to a finalized vote for a range token that we all believe will be beneficial for the ShapeShift DAO.

6. Drawbacks

This proposal includes the proposal to sell these range tokens OTC. The advantages of this approach were discussed in “Specifications”, but there is also the drawback of not explicitly allowing for general market participation.

7. Vote

An eventual “For” vote (after hammering out specs) would be a vote to use FOX to mint Range Tokens and engage in some method to sell the Range Tokens for stablecoins.

An “Against” vote would vote to not take any action in this regard. To leave everything as is.

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Thank you for laying out so much detail and explanation @sean. As you and I discussed as you were putting this together, I think this all sounds like a good first experiment to mint and sell RTs. I look forward to hearing feedback from others.

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Agree with Josh here, this is a great proof of concept and I appreciate you putting this together.

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Now that we have this I can start putting together a list of Token investors to speak with. I’ll start hashing those out start of the week. If anyone wants to Ping me on Discord to chat about it let me know. User name is scott111111 . Cheers! :sunglasses:

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Glad this is moving forward!

For the avoidance of doubt: ShapeShift the entity is not selling any tokens through this process (and never has sold tokens). Similarly, the individuals mentioned above are not selling any tokens. Any tokens sold in this way come from the DAO at the explicit request of the community.

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I mentioned a few comments to @sean in discord, overall I am very supportive of this proposal, and really appreciate the time and effort that has already gone into making this happen, but I would like to see a few changes personally.

(1) most important, I think 825k is to small for the DAO’s effort on this even as a PoC. My suggestion is the DAO should get at least 1-2 mil in stable coins for this PoC to make it worth the time and effort of this. Anywhere in that range I am fine with, but I prefer closer to the 2 mil range. This is the point I feel most strongly about and prob would not support a proposal that raised less than 1 mil in stable for the DAO.

(2) less important, but I would prefer to see a longer expiry (9 months or even a year) and I would prefer a higher range on the upside (either 1.50 or 2$) to retain more upside for the DAO on this. This is my preference and I think would make the proposal stronger, however this item would not stop me from supporting the current proposal as written if it went forward without changing.

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I would also like to see more FOX. I like the 3-6 month timeframe.

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Appreciate all of the feedback.

Like @jonisjon said, we talked about the size in Discord and I agree that it is too small. I used a conservative number in my initial proposal simply because, as a newer member of the ShapeShift community, I didn’t feel like I had a great understanding of the DAO’s available capital and acceptable size.

Since there seems to be general consensus on a larger number, as an amendment I’d like to propose:

  • 6.25m $FOX as collateral to mint 2.5m Range Tokens
  • ~$2.06m in stables

Also appreciate the feedback on the length and range. I’ll put together a couple of alternative solutions with a wider range and longer expiry so that we can compare.

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Thanks for addressing these specifications Jon. It’s also worth noting that raising $5 Mil in stables has full support on the original proposal and in the polls (57% majority). As you’ve brought to attention, original treasury concerns will no longer apply by the time this proposal goes to vote.

Personally, moving from a mixed public/private to an OTC sale is not a deal breaker. It makes sense to do the groundbreaking in this manner, learn from it, and build awareness as more Foxes come to participate in the DAO.

OTC makes it possible to build an attractive Range Token for both the investor and the DAO. A longer drawn out process makes nailing down the right Range difficult at best.
And as @sean said, anyone can design and launch their own Range Token via UMA’s permission-less contracts.

As for coming to consensus on the expiry, I see the merits of having both a shorter and longer timeline. I’d support anything from 6 months to a year.

Finally, it comes down to range for me. I’m open to a wider range should we extended the expiration. I’m interested to see how the numbers Sean comes up with play with each other in light of the additional collateral.

Thanks again for your guidance in these regards, as well as all the effort from everyone involved.

Inalittlewhile.

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I would support a larger raise. I’m also good with a higher upper threshold, thinking if FOX at expiry is less than the upper bound, it is the discount it’s being sold for that is the attraction. I think the length of time is the biggest question for me. The longer it goes, the more chance it ends outside the range, and the less the discount matters and the more how far out of range it is matters. This is why I like a shorter range, and it seems more likely to be predictable, which I think would be more attractive to buyers. That’s my thought process, and I may be wrong.

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Good points here Josh. I see an expiry far above the top range as a win/lose situation. On one hand, the investor got a discount and really made out on that upside exposure.

On the other hand, how hyped would the ShapeShift DAO be to see that value on the remainder of the FOX in the Treasury? Plus, the DAO would have fulfilled the desire to diversify into stablecoin.

I think expiry at the bottom range or below is the worst case scenario for investor and DAO. And even then, the DAO has a max FOX payout in place while the investor is protected against liquidation.

Always up for listening to other’s perspectives and points of view.

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Hey Foxes.

Put together a couple of alternative Range Token specs in the spreadsheet attached to my original post. These are shown under the “Fox Range Token - August 2022” (rtFOX-0822) and “Fox Range Token - Feb 2022” (rtFOX-0222) tabs.

rtFOX-0822 specs:

  • Expires August 31st, 2022
  • Range of $0.15-1, so wider than the last proposal and adjusted for recent FOX price movements.
  • 30% Gross Yield, with 15% of it coming from the options value. Sale price of $0.767
  • 6.67 FOX to cover the RT for settlement at the lower bound, and 1 FOX at the upper bound.
  • 18m FOX as collateral to mint 2.7m Range Tokens to raise ~$2.07m in stables.

rtFOX-0222 specs:

  • Expires Feb 28th, 2022
  • Also a $0.15-1 range
  • Also a ~30% gross yield, with a sale price of $0.877/rtFOX-0222
  • 15.5m FOX as collateral to mint 2.325m Range Tokens to raise ~$2.03 in stables.

Hopefully this is useful for deciding on a range as well as if a 6 or 12 month expiry is more fitting. Happy to answer any questions or put together more alternative scenarios if people wish to see them!

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I talked to @scott and am now setting up a call with @sean, him, and me. After that, we are hoping that Scott has enough info to determine who he could reach out to and how to start the conversation.

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Thanks for sharing and providing details to your point.

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