Turning off the DAO bonds emissions
May 30, 2022

The current DAO setup with offering bonds to meet USDC spend has some cons and potential exploits that have negative impacts in the FOX price, the LP pools of FOX and are being executed by a few individuals for profit at the expense of the DAO and FOX tokens.
These conversations have been happening in the #markets channel for some time, you can see some of the most recent conversations here: Discord
I believe that the issue is big enough and serious enough that the potential for us stopping the program all together be brought to a vote to the committee ASAP.

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GiantkinJun 5, 2022

I prefer the BOND setup, might just be optics. but it doesnt seem like ‘we’ are selling fox. I worry about the ramifications.

hunt_shapeshiftdemoJun 1, 2022

I agree with this and think that having a definitive plan in place prior to ending current efforts especially with emissions being lower as compared to previous months makes sense.

PTTJun 1, 2022

I will be abstaining from voting for this as a member of the committee until we have a plan in place of how we will be replacing this diversification effort and stable coin raising. I do not think we should be rushing to action after two days of discussions without plans in place, and approval by the larger community of how to replace these actions.

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jonisjonJun 1, 2022

That could be a potential way to implement such a strategy but it would come with a number of downsides/questions such as:
(1) needing to coordinate synchronous actions from the treasury signers every 3 days is far harder than it would seem, most treasury actions are done with async signing today and synchronous transactions like swaps are the most difficult to coordinate.
(2) if we solve (1) then consistent timing and knowing the treasury will swap X amount every 3 days or so makes this very easy to frontrun, that frontrunning could even be done weeks in advance in some cases with such an obvious and transparent treasury selling schedule, it also could influence a larger % of the existing liquidity to pull out knowing this will be happening in this way (these would take away some of the value in similar ways we hope to “regain” from the bonding method).
(3) this doesn’t solve for the question of how much (and do we sell X usd amount of FOX or a certain amount of FOX every # of days)? Liquidity changing daily could also change this analysis.
(4) should these amounts really just be set ahead of time or should the DAO have some sort of mechanism to not sell on days FOX is down x% or sell more on days it is up% or at certain targets (we could do targets better with uniswapv3 tho).
(5) is there thresholds of liquidity/slippage where we should alter these params how?
(6) what do we do if a large amount of liquidity exits because this is happening on chain so regularly?
(7) do we do work to automate any of this with bots/smart contracts to run some of this for us to help with (1)? How much engineering effort do we spend on such a thing if so?
All of this doesn’t take into account the potential optics issues mentions which should also be thought through and transparently addressed with the community in the right ways if we choose to go this way as well.
None of this is to say such a strategy couldn’t work or be implemented, but that inevitably there are many considerations and potential implications that we should consider before we go down this route IMO. This is a case where if we just move to what seems like the “simple/obvious” solution we may do more damage than good and I would personally prefer we consider our options more fully before just moving to market selling direct from the treasury.

0xdef1cafeJun 1, 2022

Why can’t it be as simple as DCA FOX to ETH every 3 days and swap to USDC?

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jonisjonMay 31, 2022

While I understand this sentiment I think it over simplifies the problem at hand.
Selling to the market cannot be done in one fell swoop every month without having even worse impact on FOX markets and liquidity than what we already see with bonds which does an automated job of distributing that pressure over time based on set params. While I have similar concerns here to what expresses and also think we should not downplay the potential optics problem without fully understanding the implications/consequences that could have, importantly there is also an execution problem with selling FOX directly to the market.
How often do we sell? What amounts? Do we sell regardless of price or only under certain market conditions? Coordinating the execution of that is also not automated and requires synchronous efforts on the part of the treasury signers above and beyond what we are doing with the bonds which is effectively an automated process managed by the smart contract with occasional adjustments. Asking the treasury signers and TMDC to manage these things creates unseen execution challenges and risks on top of the potential optics issues which I think are very real.
Overall I support the drastic reduction of the bonds (which TMDC and the bond committee both voted on today) and potentially pausing them entirely in the short term, but I am not convinced and thus don’t support yet the selling of fox directly from the treasury to the market.
I think we can go ahead with the bond reduction and be thoughtful and creative with our approach towards this over the coming weeks (such as ’s uniswapv3 singled sided deployment idea) to find ways to continue to diversify or if the community really wants to see direct sales from the treasury we can work on what is going to be needed to execute that appropriately.

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willyMay 31, 2022
It’s the bottom line that counts - we’re letting fancy financial engineering obfuscate the fact the treasury and DAO as a whole is worse off than if we just sold FOX on the market.

I hear you and agree that it’s the bottom line that ultimately counts, but I’m not convinced that the bond program objectively results in the DAO being worse off than if we just sold FOX on the market. If doing so damages our reputation or alienates some members of the community, the impact to the bottom line could potentially be far worse.
At the TMDC call today, we discussed how if we are going to be the first to do this, we could do it in a way where we clearly justify why this option is better than the others, and how even if other DAOs aren’t doing this yet, they are effectively doing the same thing via bonds or paying contributors in native tokens and should actually consider direct selling despite the negative connotations. This made me feel more comfortable with this approach, but there were also others who shared the reservations re: optics.
For now, TMDC is voting to stop the ETH bonds entirely and reduce the USDC bonds an additional 54%, which should result in just enough USDC each month to cover our burn. I think this is a good next step for now, but anyone in the community is still welcome to make the case for ending bonds entirely.

0xdef1cafeMay 31, 2022

I’m in full favor of just turning off the bond program entirely.
It’s the bottom line that counts - we’re letting fancy financial engineering obfuscate the fact the treasury and DAO as a whole is worse off than if we just sold FOX on the market.
I don’t care about the optics of being the first to do this or whatever they may be. The optics of seeing a handful of addresses arbs the bonds to the treasury’s detriment is categorically worse than a more primitive and prudent transaction.

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Tex_shapeshiftdemoMay 31, 2022

Just to add some commentary from the Olympus side, I think that the drawbacks identified with the current bond programs touch on some very real pain points in their current implementation. We’ve been working with the bond committee to explore ways to create longer-term lockups for $FOX bonds. Unfortunately, longer vesting terms generally translate to larger discounts which still run into the issues mentioned with large holders.
We’ve been working on a revamp of Olympus Pro’s bond mechanisms to address these issues and provide better tools for Treasury Diversification. For some context, I still whole-heartedly believe that bonds are a better mechanism than Pool 2 incentives specifically for Liquidity. The incentives to dump/compound farming rewards are the same incentives that exist for bonds, except that with bonds ShapeShift receives permanent liquidity in return.
As discussed in Discord, I generally agree that there are some pain points with the current implementation of bonds for incentivizing long-term holders at this scale. If ShapeShift decides to market sell $FOX for better price execution than bonds, I would recommend splitting sell orders over time rather than selling a large amount at one point in time. Order Splitting should smooth execution price and reduce price impact, which are positive side effects of a bond program.
For future discussions on bonds for Treasury Diversification, we hope to have some solutions to the issues raised here. Specifically I would like to keep discussions going on longer-dated bonds in the range of 3-6 months once we have better mechanisms in place to facilitate bond buyers with longer time horizons.

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willyMay 31, 2022

Appreciate your thoughts on this . I am still not in favor of the DAO directly selling FOX on the market, but I hear your arguments and ultimately support whatever the community decides.

For those who are concerned about the optics of selling FOX directly - can you give more detail about exactly who/what you are concerned about. Bonds sell FOX, this is just a matter of how we sell FOX, and how much it costs us to sell FOX.
  1. Bonds sell FOX to individuals. While quick analysis shows the majority of those individuals have sold the FOX they bought on the market, this is still an important distinction vs. the DAO selling FOX directly on the market. Anyone can buy these bonds, and some % of bonds have been purchased by longer-term hodlers and don’t hit the market at all.
  2. Bond parameters are transparent and can be viewed on chain, offering more predictability to the market on how much FOX will be emitted from bonds.

In total, the DAO has conservatively spent ~15% more FOX purchasing USDC and ETH via bonds than if we had taken the direct sale route. However, because <100% of bond proceeds have hit the market, the increased amount of FOX that has hit the market is probably closer to 5 or 10%.
While these nuances alone may not warrant the extra discount the DAO is “spending” by taking the bond route vs. direct sell route, I still think there is a significant difference in how the broader market would perceive direct FOX sales from the DAO compared to bond programs. I’m not aware of any well known DAOs who have directly sold their tokens on the market (would welcome any examples of this if anyone has any), and I don’t think it’s a space that ShapeShift DAO should pioneer. We are incentivizing community members to provide FOX liquidity, and it just feels wrong to sell FOX directly into this liquidity. If the DAO is selling FOX via Olympus bonds, we are selling to a purchaser, and if that purchaser decides to sell the FOX that is their choice. Providing one-sided FOX liquidity on Uniswap v3 feels much better to me as we can avoid causing any negative price impact on FOX.
It’s quite possible that I’m overemphasizing the negative optics and that neither our core community nor the broader market would care, but IMO the benefits of saving ~15% more FOX do not outweigh the potential damage to our reputation.
It’s also possible that the bond program could result in the same or more reputational damage in the future, but so far the only pushback on bonds has been from a small # of community members. I am curious if these community members would be satisfied by replacing bonds with direct fox sales (it sounds like is on board with that), and hope they understand that the difference in FOX emissions would likely only be around 10%. Also curious what the broader community feels about this. We can do some quick polling at tokenomics office hours this afternoon.

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