(Ideation) [SCP-TBD] Request a loan of up to $1 million worth of USDC from the Fox Foundation

Proposal Discussion
1

This proposal has been conceptualized and co-authored by various members of the TMDC and Fox Foundation.

Incubation draft is here: https://forum.shapeshift.com/thread/incubation-request-a-loan-of-up-to-1-million-worth-of-usdc-from-the-fox-foundation-44914

Summary

This proposal is designed to provide a clear and unambiguous signal that ShapeShift DAO is requesting a loan of up to $1 million worth of USDC from the Fox Foundation, per the terms listed below. The purpose of the loan is to extend the current stablecoin runway by roughly six months.

Motivation

ShapeShift DAO currently finds itself in an interesting position: despite some early successes in building a platform and community based on the core crypto ethos of self-custody, its ability to achieve sustainable autonomy and maximal decentralization is at risk.

Despite extensive budget cuts in 2022, the DAO has not yet been able to generate enough revenues to offset its expenses. There are existing revenue streams, to be sure, and promising opportunities for the DAO to pursue in the near-term. And it may potentially be well-positioned to thrive when bullish market conditions return to the crypto space. However, at the current run rate, it has just 8-9 months of runway denominated in stablecoins.

This situation has become more precarious due to the precipitous decline in the price of FOX Token. FOX has been a reliable tool, in tandem with decentralized bond sales, to diversify the DAO’s FOX holdings into stablecoins; in recent months this has allowed the DAO to add roughly $50,000 to its runway per month. However, with FOX trading near historical lows, there appears to be insufficient support on the DAO’s Treasury Management and Diversification Committee (TMDC) to continue bond sales at these levels.

Thus, if current market conditions don’t change (or even worsen), and the DAO continues to lack sufficient revenue to meaningfully offset expenses, it’s on a path to potentially be unable to sustain operations in less than a year.

In light of this situation, ShapeShift DAO is requesting a loan of up to $1 million worth of USDC from the Fox Foundation to the DAO. This loan would be 100% collateralized by a transfer of FOX tokens from the DAO treasury to the FOX Foundation.

An infusion of $1 million in stablecoins would have a notably positive impact on the DAO’s runway, extending it from the current 8-9 months (ending in January 2024), to roughly 14 months (ending in July 2024). These added months would provide more time for the DAO to prove out and bolster its current revenue streams, as well as build out new sources of revenue.

Further Context on the Fox Foundation

The mission of the Fox Foundation is to support the decentralization of ShapeShift DAO. There is approximately $4M worth of cash and stables in the Fox Foundation treasury. Its burn rate is approximately $150k per month. That is an approximate runway of 26 months. Meanwhile, ShapeShift DAO currently has approximately 8 months of runway in stablecoins.

If ShapeShift DAO were to run out of operating capital, the Fox Foundation would have no ability to fulfill its mission of fostering the DAO’s decentralization. Therefore, it seems reasonable that Fox Foundation might consider a direct loan to ShapeShift DAO.

$1M would extend ShapeShift DAO’s runway to approximately 14 months. It would reduce the Fox Foundation’s runway to approximately 20 months.

Specification

The loan will act similar to a line of credit, with each transfer subject to the following terms:

  1. 0% interest

  2. 15 months to repay, with the clock starting with the transfer of each specific tranche.
  3. 100% collateralization (in $ value of FOX at the time borrowed, using the 24-hour VWAP price on Coingecko (or Coinmarketcap if Coingecko is not available)

Collateral sent by DAO to separate Foundation-controlled multisig account created for the sole purpose of loan management, as monthly funds are borrowed

Initially 250,000 USDC will be made available by the Fox Foundation. Beyond that, the amount of available loan capital will increase in monthly increments. Every calendar month, the Foundation will make available an extension of the loan in the amount of 5x the amount of revenue the DAO earned in that month, up to a maximum of $1 million in USDC (calculated at prevailing market prices using Coingecko).

The underlying goal behind tying part of the loan to revenue is to motivate the DAO to meaningfully improve its performance, rather than use the infusion of funds to simply sustain the status quo.

The TMDC will be given authority to make these monthly requests on the DAO’s behalf to the Fox Foundation.

Similarly, the TMDC will decide when to repay the loan, and in what amounts. (For example, the TMDC may decide to repay 50,000 USDC, with the Foundation using Coingecko’s 24-hour VWAP to calculate the amount of FOX sent back to the DAO.)

Sources of revenue that would be included as part of the monthly revenue calculation include, but are not limited to:

  1. Affiliate Revenues

  2. Donations
  3. API revenues, if/when implemented
  4. DAO’s share of validator commissions
  5. And DeFi activity that does not directly or indirectly sell FOX
  6. Fees charged to users, if implemented
  7. Grants received

Grant must be for stables or tokens that are immediately liquidatable

The dollar value of any non-stables for the given month will be as reported in the DAO Revenue Tracking spreadsheet (which uses CoinGecko for price reporting).

Specifically excluded from revenue included in the monthly 5x multiplier are any proceeds from:

  1. Direct selling of FOX

Any DeFi initiative that indirectly sells FOX

There’s a few moving parts here, so let’s take a look at what this might look like using some concrete examples:

August 1st: Following approval of this loan by both the DAO and the Fox Foundation, the Fox Foundation transfers $250,000 worth of USDC to the DAO’s mainnet treasury. In a synchronous fashion, the DAO sends a corresponding amount of FOX tokens ($250,000 worth) to the Fox Foundation’s treasury.

September 1st: Per the revenue definition described above, the DAO earns $15,000 in revenue for August. Using the 5X multiplier, the DAO is eligible to receive an additional infusion of $75,000 in September. The TMDC votes to request this full amount. $75,000 worth of USDC is sent to the DAO treasury, while a corresponding amount of FOX collateral is sent to the Fox Foundation.

October 1st: $25,000 in qualifying revenue is earned in September, meaning that the DAO could receive another loan of up to $125,000 in USDC. However, the TMDC votes to request just $100,000 for the month. The corresponding USDC and FOX are sent from the respective treasuries.

18 months after the first tranche of $250,000, the DAO pays off that loan by sending $250,000 worth of USDC back to the Fox Foundation. The corresponding amount of Fox Tokens are sent back to the DAO’s treasury.

Benefits

The DAO would be able to extend the timeframe to become revenue-positive. Crucially, this could be done without the need for additional bond offerings or other means for converting FOX to stablecoins. (The TMDC would still have the ability to do so, if it so chose.) The added runway would provide extra time for both the current platform and revenue streams to begin bearing more substantial fruit, and also allow more time for experimentation and pursuit of new opportunities.

Drawbacks

Some community members have expressed concern that a loan of up to $1 million would amount to a “blank check” that would only perpetuate the status quo, at best, and could even create a lackadaisical environment by removing any sense of urgency. Additionally, if the DAO fails to prioritize its work accordingly, it may not earn a sufficient amount of revenue to qualify for the full amount of available capital.

Additionally, there is some nonzero added risk with another entity holding a large amount of the DAO’s FOX in collateral. However, the authors of this proposal are highly confident that the Fox Foundation employs best practices with respect to its own treasury security. The amount of risk to the DAO would also be greatly minimized by the fact that it would be receiving a corresponding amount of USDC for each FOX that is transferred to the Fox Foundation.

FOR

Approval of this proposal signals that the DAO is requesting a loan from the Fox Foundation, per the terms described above.

AGAINST

A rejection of this proposal signals that the DAO does not want to request a loan from the Fox Foundation.

2

i support this. but i would want to see some others vote for signaling.

3

“Similarly, the TMDC will decide when to repay the loan, and in what amounts. (For example, the TMDC may decide to repay 50,000 USDC, with the Foundation using Coingecko’s 24-hour VWAP to calculate the amount of FOX sent back to the DAO.)”

I have some concerns with this approach because it could result in a scenario where the DAO has repaid the loan in full but not received all of its FOX back.

I suggest replacing this so that whenever the DAO pays x% of the outstanding loan amount, the Foundation transfers x% of the remaining collateral to the DAO. This would enable the DAO to recoup 100% of its collateral by paying back 100% of the loan and removes price from the equation.

Otherwise this looks great to me. I’m planning to abstain from voting in the official vote though.

4

To add some clarity to community members who have asked about voting power with respect to the FOX collateral, the Fox Foundation has previously and will continue to take the stance that it will not participate in governance with it’s FOX treasury unless there is a malicious proposal that the Foundation believes to be a threat to the DAO.

6

Thanks for addressing this. Rest assured I have not raised this question on Discord to cast doubt on the trustful and productive relationship the DAO has with the Foundation.

I simply believe that all terms should be clear/transparent so these question that might seem obvious to everyone working/contributing for either party are just as limpid to all the other FOX holders!

Thanks again for helping us to build a proposal that I hope will convince the community.

7

I simply believe that all terms should be clear/transparent so these question that might seem obvious to everyone working/contributing for either party are just as limpid to all the other FOX holders!

Agreed. Thanks for pushing for this.