[Incubation] Request a loan of up to $1 million worth of USDC from the Fox Foundation

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

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.

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Without the exact details, most Workstreams heavily cut their budgets by removing positions and/or cutting down compensation (or for a reason that still escapes my understanding were convinced to encourage contributors to take FOX for compensation instead of USDC… I think the goal was to reduce sell pressure on FOX… I’m not quite sure we got it right on this one looking at the chart). Few Workstreams got removed/abandonned/merged (Security WS and Support WS come to mind) to reduce costs, also by dropping some contributors.

You can have the details by checking the WS renewal proposals for all Workstreams between each terms during the end 2021 and all of 2022, all of them usually include a budget.

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iin discord the tokenomics section has updated ‘daosboard’ links. (every 2-3days its updated) with projectsions etc.

https://discord.com/channels/554694662431178782/918251746944487494

That mainly focus’ on the ‘RUNWAY’ which only included stable coins. not other assets. Other tabs were added to include some other items , and with other options, like the bond sales.

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Thanks for putting this proposal together! It’s well written and includes a lot of the points discussed during calls.

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

I am not convinced this is going to change the “motivation” of the DAO (contributors) to improve its performance, we all know what is at stake here: the survival of the DAO in the coming 8-9 months. We all feel this pressure already and we’ve been feeling it in the previous years too. This revenue-based scheme, during this bear market, when most Workstreams are already operating on very tight budgets, seems like a dog and pony show to pretend that if we just applied additional pressure on contributors then revenues would flow in…

From where I stand, all the people I’m interacting and working with on a daily basis, weekends included, in all the Workstreams, are giving their best and often go beyond what they are actually compensated for currently. If the Foundation has ideas about what should be done to reach sustainability quicker they should be stated and not hidden behind revenue requirements for the DAO to continue to be able to operate.

Just in terms of optics, the “loan with requirements” looks like the Foundation would be giving orders/directing the DAO through financial means, considering the reasons why the Foundation exists as a separate entity I do not think it’s something healthy for either party, and it’s really not a good look. A donation would not bear this serious implication and would completely align with the goals of the Foundation (which can’t really help the decentralization of the DAO if there’s no more DAO…).

There is obviously no formal entitlement/obligation for the DAO to receive these funds, but the Foundation already has the assurance that the DAO is composed of the talented individuals FOX holders have chosen to execute these tasks to the best of their ability, if these people didn’t deliver their best (or the very least attempted to do that), they wouldn’t see their position renewed every term. This was done through a sound governance process and the same process was used to define the Roadmap which we follow, so what else does the Foundation need to think we are executing as best as we can?

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.

I would like for these members to witness directly, here, and explain exactly which part(s) of the DAO are inefficient or what we are doing wrong currently that would be solved by these “loan requirements”. It’s actually really unpleasant to read/hear comments like these which imply that we are doing something wrong now because we cannot be sustainable in the current market conditions.

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Thanks for responding @Fireb0mb1. To provide some clarity around this: “Without the exact details, most Workstreams heavily cut their budgets by removing positions and/or cutting down compensation (or for a reason that still escapes my understanding were convinced to encourage contributors to take FOX for compensation instead of USDC… I think the goal was to reduce sell pressure on FOX”:

In mid-2022 various Workstream Leaders independently (but generally acting in a similar fashion to other WSL’s) decided to sharply reduce their monthly spend. This was done specifically in order to prevent the DAO from running out of operating capital; in May 2022 the DAO had roughly $5.3M in stables, and was spending a tenth of that every month, leaving it with only 10 months of runway. Had no action been taken, its runway would have been depleted around the start of the year.

I can’t speak to exactly what was going through the heads of these WSL’s but the main goal that was discussed with spend reductions was simply to extend the runway. The goal was never to reduce sell pressure on FOX; obviously FOX would asymptotically go towards zero if there were no more funds, but this was not the primarily metric being evaluated. The long-term downtrend in FOX reflects, IMO, two facts: a.) we remain in a stubborn bear market where long-tail assets like FOX have been especially weak, and b.) the DAO has yet to find a proven and reliable product-market fit.

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@Fireb0mb1 I share your skepticism that the revenue performance incentive will make much difference in terms of how hard contributors are working already. It could, however, encourage Workstream Leaders to prioritize projects that are more likely to deliver revenue in the short-to-intermediate term. Would be curious to hear about that from individual WSL’s.

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Thanks for replying @foxfren. As was alluded to below, there were no DAO-specific “guidelines” that were set in 2022, but rather a set of related-yet-independent decisions made by the various Workstream Leaders to reduce their budget. The specific reason for this is that in May 2022 the DAO was facing a situation where it only had 10 months of runway remaining, which in turn inspired a community-wide discussion about what to do next. Workstream Leaders, subsequently, made the difficult decision to reduce spending.

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Thanks for the clarification.

The goal was never to reduce sell pressure on FOX; obviously FOX would asymptotically go towards zero if there were no more funds, but this was not the primarily metric being evaluated.

I should have been more specific, I was talking about locked FOX compensation. Obviously nothing was ever forced, but the message to WSLs that risked not getting renewed was to diminish USDC spend since we almost exclusively look at USDC spend when evaluating the runway. Anyways I shouldn’t have brought up this point as it’s not directly related to the proposal here, sorry for the distraction.

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There are a few plans in place. (I dont know details) but the API would be the next focus.

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gm @foxfren, here’s the spreadsheet for DAO expenses

The columns for months prior to 2023 are hidden by default but can be expanded.

Other than SCP-81, there weren’t any specific guidelines proposed. There was certainly increased pressure and scrutiny from the community, and in anticipation of that many workstreams made the decision to reduce their budget and/or adjust their strategies (once at the beginning of the bear market, and again at the beginning of 2023).

To @Fireb0mb1’s point, each workstream has their own budget and goals. DAO-wide S.M.A.R.T. goals have been discussed, but never made it through the governance process.

Thanks for diving deep and hope this context helps! let us know if you have any other q’s

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Whoops didn’t see the entire history of comments before I posted the above :sweat_smile:

@Fireb0mb1 I very much hear your concerns and strongly agree with you that each worsktream and each contributor is already doing their best. To your point, a big part of this is due to the pressure of their only being 8-9 months of stable runway. The idea with the revenue multiplier is to ensure that by giving the DAO additional runway, we’re not alleviating that pressure. The added benefit is that we turn a fear-based motivator into a positive one. Personally I am fine with this being structured as a donation rather than a loan, but as Kent mentions, the decision is ultimately up to the Foundation’s board. After considering both sides, and initially advocating for a donation, I see the benefits of structuring as a line of credit rather than a donation (basically to give the Foundation the flexibility it may need, in the event it needs it), and think they outweigh the cons, which essentially amount to the DAO not having access to that FOX. However, it would at least have stablecoins, friendly terms like 0% interest and 100% collateralization, and the ability to buy back the FOX (plus the possibility for the Foundation to forgive the loan).

@foxfren we discussed this a bit on the tokenomics office hours last week (just in case you want to listen; we can continue the discussion too ofc). personally i agree with @Fireb0mb1's sentiment; the intention with this infusion from the Foundation is not to push the DAO to change course or demand that it focus on any specific initiative(s). This is up to the ShapeShift community and is something that already happens. The community and workstreams are constantly focusing (and refocusing) on the initiatives they believe are most compelling and will deliver the highest ROI within the DAO’s runway. Despite this being incredibly difficult in a bear market (almost every consumer-facing crypto project is struggling, and there’s no recipe for profitability), the DAO is beginning to see the fruits of its labors as revenues and product KPIs grow (many hitting their all-time-highs over the past month). There are some incredibly exciting initiatives that are finally coming to fruition in the next 3 months that will either validate or invalidate the current direction with the interface, including but not limited to Displaying DeFi Positions, FOX Rewards, Portals.fi integration, MetaMask Snaps, WalletConnect V2, Arbitrum support, and EVM <> Cosmos bridging. I’m pretty excited about each of these and expect that they will further accelerate the growth we’re seeing. I also get very excited knowing that if we can survive until the bull market (and continue building in the meantime), it’s not unreasonable to expect KPIs to 5-10x.

In addition to the opportunities for the wallet/interface, I’m also excited about the other bets the DAO has chosen to make, including Arkeo, the API, and potentially another huge one that will be announced in the forum for the community’s consideration soon.

Personally I don’t think it would be a good use of resources to require workstreams or individuals to stop what they’re working on to put together new plans. I would rather workstreams stay focused on executing on the existing initiatives/opportunities that have already been identified and aligned on.

That said, the plans are never set in stone; if any community member or any workstream ever thinks there is something else that should be focused on, they are definitely encouraged to share it :purple_heart:

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Def share ideas. (new ones) or post under old ones, for new thoughts on it etc. maybe an idea that wouldnt work before, could now, etc (or needs a new look at!)

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we have Marketing WS and Global WS. presenting ideas to either/both setups would be good. however budgets are tight , and alot of ppl are working over their listed ‘times’ already. So might be slow to use more ideas. or they are already percolating just waiting on funding/time etc.