Hi @anonymous1. Thank you for these questions, and for casting a critical eye on this proposal.
1.) In the past two terms the price of FOX has lost 99% of its value (I know tokenomics isn’t designed to protect price), but if tokenomics were designed better this shouldn’t have happened.
I don’t think it’s accurate to say that the sharp decline of FOX is primarily due to its tokenomics. In crypto bear markets these types of declines are not uncommon; even ETH, in the prior bear market, dropped more than 90% from its all-time high. And many other tokens have dropped 90% or more during the current bear market.
This is very common for long-tail crypto assets in a bearish environment. In a risk-off environment, a token representing a relatively new project without a product-market fit is about as risky as it gets. In other words, this type of decline is precisely what you’d expect to happen for a token like FOX. In early-2022 I warned repeatedly about this scenario in our weekly Tokenomics discussions, with the follow-on advice that the DAO should prepare for a potential decline by diversifying into stablecoins.
That said, the tokenomics of FOX may play a role too. Some of this was “baked in” at the DAO’s inception; these are factors like overall supply, scheduled distribution to the DAO, and streams to employees of the old centralized ShapeShift. Other factors are things that could change over time; namely, defining value-accrual mechanisms for FOX. I’ve outlined a focus on that value-accrual piece for one of Tokenomics’ focal points in Q1/Q2.
2) Bad decisions have been made such as rari pool that ended up costing much more than expected.
The Rari loans were unequivocally a bad Tokenomics-related decision. No argument there, and lesson learned. The DAO needs to remember this lesson moving forward, no matter how prevalent the moon fumes get. High-interest debt is toxic.
<IMPORTANT REVISION: After reviewing the on-chain data, the DAO paid a total of 3,980,872 FEI toward the Pool 7 and 79 loans, while making 356,456 FEI in interest payments. This actually sounds more reasonable, rather than the initial perception that we had paid more than $4 million strictly in debt service costs. I apologize for the confusion. In light of this, the Rari loan doesn’t seem like such a negative for the DAO. Still, high-interest loans should be avoided in the future.>
3.) Ichi’s One Fox experiment was abruptly stopped and generated no positive impact.
Agreed; OneFOX was a failed experiment. It was a distraction and wound up costing the DAO 90,000 USDC to close out the program. Yet these costs were manageable, and again we learned a valuable lesson here: don’t jump into DeFi projects with a questionable value proposition. And in fact, I think its abrupt stoppage reflects positively on the community and the TMDC; as soon as there was a clear indication that it wouldn’t work out, action was quickly taken to cut our losses and reduce any additional exposure.
Despite these mistakes (made during the first half of the year), in my opinion the DAO is in a reasonably strong position with respect to its finances, as outlined in my proposal.
4.) Selling FOX bonds with a discount have created more inflation than benefit.
By “inflation” I assume you mean price pressure? This has been the topic of much discussion in the Tokenomics Workstream, TMDC, and broader DAO community. Bond Protocol just presented information in today’s Tokenomics call (this should be uploaded to twitch within a day or so) showing that “Bond sales often (but not always) resulted in “buy” reaction after sell → buy pressure from Arbitrageurs…to rebalance pool and reduce overall token price impact.” Additionally, from July to November there was more sell pressure than buy pressure, even excluding bond sales.
So while there was certainly some amount of price pressure applied to FOX as a result of the discounted bonds, Bond Protocol’s analysis indicates that much of the price decline would have happened anyway. Again, this makes sense; there aren’t many buyers for a highly-speculative token like FOX in a crushing risk-off environment.
During today’s Tokenomics call the focus was on talking through this topic; it’s crucial that we look at all the relevant data, and it’s crucial that everyone in the community has an opportunity to voice their perspective.
Let’s pull back for a moment and address one of your other questions, as it’s very much related to the bond offerings:
“What would have happened if the DAO just paid expenses using FOX since the beginning? (Would) we be in the same place?”
This is a hypothetical question that’s impossible to answer with certainty. However, it’s likely that FOX would be much lower than it currently is. In the second half of 2022 (even after the beginning of budget reductions and implementation of the Boosted FOX program designed to encourage contributors to accept time-locked FOX instead of USDC), the DAO spent an average of 345,000 USDC/month. In the first half of the year our monthly expenses frequently topped $450,000/month. Most contributors would likely immediately have dumped those funds, were they paid in FOX, in order to pay living expenses. This in turn would have led to sustained heavy sell pressure on the token’s price.
One absolute certainty is that in the FOX-only scenario, the DAO would have much less FOX than it currently does; as the price of FOX declines, it takes more FOX to make payments in the native token. Therein lies the potential death spiral that can happen when a treasury has no diversification; as the price declines, more tokens much be issued for payments, which in turn applies more price pressure. Meanwhile, token holders view the situation as untenable, believe the DAO can’t survive as a going concern, and sell their holdings–leading to even more sell pressure.
This isn’t just a hypothetical. This happened repeatedly during the ICO bubble, and has happened to various DAO’s in the current bear market.
To put it differently, history is replete with many examples of project treasures being decimated (to the point of financial insolvency) due to a lack of asset diversification. Since the inception of the Tokenomics Workstream, my number-one goal has been to encourage the community to take steps to ensure this does not happen to ShapeShift. (This is also one of the stated objectives of the TMDC).
In an alternate reality where there was a total degen heading Tokenomics–someone who did not encourage the community to diversify the treasury–where would the DAO be right now? As I outlined above, I think it’s very likely that it would be headed toward financial insolvency and failure, rather than having nearly a year to build a successful product.
5.) Yieldies 20k investment was a waste of money
I have to respectfully disagree here; the investment in Yieldies is likely to reap significant benefits for the DAO in the months and years ahead. In this bear market where yields are depressed across the board, the Product and Engineering teams have (wisely) deprioritized integrating this functionality into the platform. Yet its core value proposition of frictionless yield aggregation remains as powerful as ever. When yields bounce back and DeFi begins to thaw out, ShapeShift DAO will be in an excellent position to benefit from the recovery.
Even if Yieldies turned out to be a complete failure and never benefited the DAO (again, I think that scenario is highly unlikely), $20,000 is an acceptable cost to pay for a failed experiment. In this uncertain DAO world (as with business in general), not everything will go according to plan, and not everything will work out. A key to success in this environment is to make well-reasoned investments of capital and resources towards projects that have strong future potential–all while making sure that if that bet doesn’t pay off, you live to fight another day.
6) Was spending so much time and effort on raising stables an adequate measure?
If “adequate” is defined as ensuring the DAO’s ongoing financial solvency, then yes–100% these efforts were adequate. (As outlined by my thoughts above).
Has there been thoughtful consideration about success metrics of Tokenomics Workstream?
Each tokenomics proposal has a set of stated goals that can be considered success metrics. The number-one goal from the prior proposal was “to preserve and extend the runway.” While the Tokenomics Workstream does not have the unilateral ability to make that happen, my hope is always that these discussions can encourage the community (and the TMDC) to take a cautious approach with respect to treasury management.
As I outlined in my new proposal, this goal was an unequivocal success.
In terms of more quantifiable, numbers-based metrics, I’m not sure what that would look like. Certainly I would argue that the price of FOX should never be one of those metrics; the job of Tokenomics is not to make number go up. It’s to encourage the community to take the necessary steps to preserve its financial solvency until a lasting product-market fit can be found. Additionally, another important role is to focus on value-accrual mechanisms. Hence the focus on Yieldies in the prior half-year, as well as the stated goal around this piece in Q1/Q2.
To bounce the question back to you–do you have any suggested success metrics? We’re literally making this shit up as we go along (we’re writing the DAO/Tokenomics Playbook, not following it), and I love the idea of continuous improvement and evolution.
Has successful tokenomics been created in the past year?
I would argue we’ve certainly been successful; the DAO has managed to slightly extend its runway in a brutal bear market. And success has been achieved on other fronts, such as helping to get Yieldies created, and ensuring that the DAO is well-informed around future scalability solutions.
Can it be really justified a new funding period with same salaries and same members?
The monthly salary (USD value) is commensurate with other Workstream Leaders. As I’m taking the salary in time-locked FOX, these tokens will be effectively locked for a year. And given the fact that the Workstream accomplished its paramount, number-one goal, in my (obviously biased) opinion, that justifies an unchanged salary and continued leadership of this one-person Workstream.
So to summarize a few points…
Yes, the Rari loans cost us some substantial interest (356,456 FEI). If anyone thinks that the tacit support of the Tokemomics Workstream for these loans (circa Q1/Q2 2022) is a disqualifier, I encourage you to vote “No” on this proposal. Yet I would argue that despite having to pay that interest, the DAO is in a strong position; thanks to its stablecoin diversification strategy, it has overcome this mistake, cast off those chains of high-APY debt, and now has 11 months (at the very minimum) to find its feet. Contrast this to other crypto projects (both centralized and decentralized…but especially centralized) which were utterly destroyed due to a lack of risk management. I also would say that, especially in the past half-year, the work of Tokenomics reflects a doubled-down dedication to risk management in the Tokenomics community; the lessons of Rari and Ichi have been internalized.
There was undoubtedly some price pressure created by the discounted bond offerings. Is it possible that FOX might be trading a few cents higher if those offerings hadn’t taken place? Absolutely. On the other hand, the non-stablecoin scenario also would have led to heavier sell pressure on FOX. And in this alternate-reality scenario, the DAO would not be able to count on a stack of stablecoins to see it through the ongoing bear market. Instead, it would be hoping and praying to Lord Satoshi that the market would turn around. Or, perhaps it would not even be financially viable at this point.
I understand how one might eye the Tokenomics Workstream with a high amount of skepticism, given the fact that the token itself has dropped so significantly. But as I outlined above, I believe it’s highly likely FOX would have dropped significantly no matter what actions we took. The important thing is that despite all this turmoil, the DAO can count on its stablecoin reserves to make it through the bearish abyss. If and when the DAO finds a product-market fit and sustainable business model, the price of FOX will recover and eventually reach new heights…I’m very confident in that. But first we need to survive, and a stablecoin runway is one of the best tools to help ensure that happens.