Mint and Sell Range Tokens for Treasury Diversification

Awesome, thanks for that further detail @inalittlewhile - look forward to learning more and collaborating with the UMA team/community as I think this is a great way to explore treasury management for the DAO.

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My pleasure. It goes without saying how elated I am to hodl my own $FOX via the airdrop. Looking forward to further discussions. :rocket:

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Hey @Josh and @jonisjon

I think the main things to decide right now are 1. if your community wants to do a raise 2. if they’d prefer to borrow against the tokens or sell them. I suspect that at this stage they are feeling pretty bullish, and would prefer to avoid selling them too cheaply.

So long as the community is interested in doing such a raise, then we can get more definite on the actual design. I’m bringing in Kevin from our team to have a look too.

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Thanks @clayton - I think there is interest in some general treasury diversification for operational reasons, I am just one community member but IMO the DAO would probably prefer to borrow against its treasury right now rather than sell them for the reasons you mention.

I think that is probably what we should explore at this juncture, but anyone else can weigh in here with thoughts on that.

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Thanks @clayton. I am a strong proponent of treasury diversification at this time - particularly into a stablecoin.

I also favor borrowing at the moment. I would strongly oppose selling FOX on any DEX or CEX. I would entertain the notion of selling OTC or through personal network connections.

Look forward to more input / guidance from the UMA team on what this could look like.

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Hey guys, Sean from the UMA team here. I think @jonisjon, @Josh and others have done a great job already summarizing the advantages of using a Range Token or Success Token for treasury diversification. Because of that, I’ll keep this post pretty practical and do my best to try to summarize and answer some of the questions that have popped up.

What is an UMIP? What is involved in creating a Range/Success Token?

An UMIP is an UMA Improvement Proposal and is used to, among other things, propose new price identifiers and collateral types that the UMA Optimistic Oracle can support. Think of this as the design doc for your FOX/USD price oracle - the goal is to clearly communicate to UMA DVM voters and price proposers/verifiers how to calculate the FOX/USD price.

Really all that is needed is to decide on a design. Like “inalittlewhile” said, usually, before using new types of collateral or pricing implementations, there needs to be some governance action in the form of an UMIP. In this case, ShapeShift doesn’t need to worry about the UMIP process. Clayton alerted us about ShapeShift’s potential interest, and we’re planning on proposing the pricing implementation and collateral support for UMA governance review ASAP.

Once these UMIPs are voted in, launching and using a RT or ST should take a defi savvy dev no more than 20 minutes. Would be more than happy to help out with this deployment process or even just deploy the contract once governance is complete!

Do Range/Success Tokens need to be sold OTC?

Not necessarily. These are just erc-20 tokens, and can be sold in whatever way seems most appropriate to ShapeShift. Previously all other RT/ST sales have been OTC, and there are a few nuances around how they behave in traditional AMM’s since they have capped floor and ceiling prices, but alternative methods of distribution are definitely possible and really should just be whatever fits ShapeShift’s goals best.

Breakdown on the function/difference between Range Tokens and Success Tokens

Neither the success token or range token are immediate sales of the FOX token. In both cases, to mint RT/STs you need to collateralize your debt position with FOX, but there is no immediate sale of FOX.

Range Tokens

For a Range Token holder, it looks like a credit product between the range, being short a put option below the range, and holding a call option above the range. So with a range of $0.2 and $5, a Range Token holder would typically buy at a discount (say $0.95), get $1 worth of FOX when the contract expires if FOX/USD is between $5 and $0.2, and be exposed to the FOX price above and below $5 and $0.2 respectively.

Not precise pricing (just a RT numerical example for illustrative purposes):

  • FOX RT with a range of $0.2 and $5, expiring 1 year from today. Each RT is backed by 5 FOX tokens.
  • Each FOX RT is sold for whatever discount is agreed upon. Say a 15% discount, or $0.95. This is not the same as directly selling tokens at a discount.
  • A year from now settlement, FOX/USD is at the bottom of the range at $0.2. Each RT is worth 5 FOX tokens ($1).
  • FOX/USD settlement at the top of the range at $5, each RT is worth 0.2 FOX tokens ($1).
  • FOX/USD settlement in the range at $2. Each RT is worth 0.5 FOX tokens ($1).
  • FOX/USD above the range at $6. Each RT is worth the floor amount of 0.2 FOX tokens or $1.2. This is the imbedded call option, and looks like the ShapeShift DAO selling FOX at $5. ShapeShift has maintained upside exposure until the end of the range.
  • FOX/USD below the range at $0.10. Each RT is worth the capped amount of 5 FOX tokens or $0.5. This is the imbedded put behavior, and gives the ShapeShift DAO downside protection since it looks like ShapeShift selling FOX at $0.2.

Success Tokens

A Success Token looks slightly different. STs consist of exposure to 1 token of collateral + an imbedded call option. Typically STs are sold for the current price of FOX without a discount, since ST buyers are compensated for their cost of capital with a free call option.

Again, not precise pricing but:

  • FOX ST with a $5 strike expiring 1 year from today. Each ST is backed by 2 FOX tokens.
  • Each ST is sold for current FOX price, say $0.75.
  • A year from now at settlement, FOX/USD is below $5 (or the call option is OTM). ST holders get 1 FOX token in return for their ST.
  • Alternatively, a year from now at settlement, FOX/USD is $6. ST holders get 1 FOX token + ((Settlement Price - Strike Price) / Settlement Price) or (6 - 5)/6 = 0.167 FOX tokens. Total ST redemption value of 1.167 FOX. FOX token price has increased, so it’s a win/win for the DAO and the ST investor.

In both situations, of course ShapeShift would potentially have the option of buying back the RT/ST debt instead of allowing RT/ST holders to claim the FOX collateral. Both structures are non-liquidatable, and would allow for stablecoin borrowing now against FOX tokens.

Summary

I know that was long, so let me know if anything wasn’t clear! Bottom-line, I think diversification makes sense, there are various structures we can explore and either of these structures can be live in prod as soon as this weekend.

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Wow @sean - what an incredible post explaining all the UMA options in detail!

So appreciate you and the team jumping in to help here, laying out all of our options, moving forward on the UMIP do we don’t even have to worry about that part, and even offering to do some of the development, I am blown away!

If I wasn’t convinced decentralized communities working together was clearly the future before now this post alone would have sold me, thank you!

After reading through your post I am now leaning towards perhaps a success token actually being the way to go, away from my original inclination. Still could prob be convinced of either though, really curious to see the communities’ thoughts after your explanation.

One question that isn’t clear to me @sean - how is the timeline set for the call/strike in either option? Do we simply just choose a timeline I assume? Like 1 year, 2 years, or whatever arbitrary date we deem appropriate?

Again thanks so much for the time and help, looking forward to this and future collaborations!

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Do we simply just choose a timeline I assume? Like 1 year, 2 years, or whatever arbitrary date we deem appropriate?

Yep! The timeline can be any arbitrary date. The imbedded options would just have the same expiry time as the rest of the structure.

If there was a desire to break the this up across different dates or even structures, that would be easy to do as well!

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Great, thanks so much for the info and support @sean - I would like to hear some feedback from a few other members of the community and then see this move forward in the governance process.

One thing we need to figure out is how the DAO wants to sell these - @willy do you think a bonding curve or the like would be possible/make sense for this or should we just find individual parties interested in buying either the range or success tokens (depending which way we decide on)?

Agree with @jonisjon - great post @sean - thanks so much! I’ve been really impressed with the engagement from many parties in the UMA community. I think this could be a great way to diversify.

As per the decision on RT vs ST - I think the biggest factor for me is what potential buyers would most be interested in and if either is more conducive to the avenue we choose for selling. All of that being equal, I do like the mechanics of the Success Token. The fact that as FOX price goes us, each ST is redeemable for more FOX is great. To make it more attractive, I’d consider making the strike price lower than 5x current price.

Curious to hear @willy 's thoughts on this next. And would love to hear input from others.

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Hey Josh. In regards to more community engagement, the SuperUMAn team has planned an engagement party in the ShapeShift Discord. It is planned for this evening starting at 6 Pacific time.

We have run these ‘parties’ with other communities and have been successful at generating interest and discussion. Typically, we run the party for 24 hours to give all time zones an opportunity to chime in.

Was wondering if you have any feedback for the SuperUMAns? Is there a certain Discord channel we would be more effective in bombarding? Or does the team have a channel preference?

Looking forward to the Discord engagement later today and appreciate your feedback.

  • inalittlewhile
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@SS-Matt see recent post from @inalittlewhile from UMA - talking about a Discord “party” in ShapeShift Discord. What channel do you think would be best for that? #proposals maybe?

@inalittlewhile - do you basically hang out there and answer questions for 24 hours? Is that the idea behind a “party”? I like the idea of getting more people in the conversation.

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yeah - starting in the Discord would be a good start @inalittlewhile. I would want to loop in our Growth team to help coordinate and promote. If you post in #general in Discord, I can get you connected to the right people

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Yes exactly Josh. We’ll be over in force in just over an hour and drum up the conversation. We decided on the Gov Channel earlier, but we can easily switch to proposals if that’s better. See you soon and we’ll have eyes on the conversation for the next day to answer any further questions.

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I figured we’d announce in #general ten or so minutes before we begin. We’re you referring to something else?

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I think that was posted before the discord conversation, posting in #general when things begin would be great :slight_smile:

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It was a comment earlier today when we were trying to coordinate when we were going to have the event but that is all taken care of now

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This is a fantastic summary, thank you @sean !

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Big fan of this idea (either RT or ST) for two reasons:

  1. Diversify treasury a bit
  2. Engage and collaborate with another innovative DAO, learn a new system, and help pioneer some new financial tooling.

Win win win win

A couple principles I’d suggest as this moves toward specific scoping:

  1. It’s important this first experiment is successful, which means whatever token is created it needs to be quickly bought. Let’s err on the side of being overly generous to the buyer of the token by weighting the pricing range or other attributes to be a “killer deal” for the buyer.

  2. Whether we do an RT or ST should primarily depend on what buyers are most interested in. How can we assess that? Perhaps we can design/spec both an RT and ST and before creating them, see whether one specific example has more interest.

  3. We don’t need to perfectly design this first iteration.

I’ll very likely support this once it turns into a specific proposal. As a cool bonus, it’d be nifty to create a Uniswap liquidity pool of these.

Looking forward to seeing this idea develop, and great thanks to the UMA folks for engaging here.

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I think you make some very good points here. UMA went ahead and created a 2-month range token and sold $2.6M quite easily. It was a good proof of concept, but of course 2 months isn’t terribly long – But it did a great job at testing how it would work.

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