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.
To be clear on the current state of things, bond emissions have been reduced to their lowest levels since they started. So reduction has been steadily happening, especially as macro markets put pressure on everything.
I am of two minds on the current bond emissions (1) they have been the most reliable and steady source of stable coin diversification for the treasury which has been crucial but (2) they have diminishing returns as markets and fox price moves lower in current macro conditions.
I think at this point I am for either reducing them significantly further (like another 50-75%) or turning them off entirely for a while if the community supports that.
I do want to point out that if we do this the treasury will need a way to alternatively raise stables to continue to pay DAO expenses without hitting our stable stack too hard (which would cause a number of other problems). Perhaps we endorse TMDC strategically selling some fox directly to market at certain levels/amounts to make up for that lost stable coin revenue as one thought that has been brought up (something we have historically been reticent to do ).
Another option of course is for the DAO to vote/push for significantly reducing its spend across the board, basically we either need another way to consistently raise stables and/or we need to further reduce spend while in the bear.
None of these decisions are made in a vacuum, so while I would support reducing/turning off bonds we should be cognizant of the other downstream consequences of this and other decisions we may need to make to compensate.
Overall I am curious to hear more community thoughts on this, I could be swayed either way and right now personally lean towards reducing the bonds another 50%+ in the interim.
I don’t see a point in the future where just selling FOX on the open market ever seems worse than this current set up. Creating the loopholes for individuals and OHM to syphon value out of FOX and the DAO seems like a very ugly “don’t pay attention to the man behind the curtain” way of us obscuring others stealing value from the DAO, FOX and what we are building here.
If selling FOX on the open market requires some gameplan before closing this option, I would suggest the committee and the tokenomics workstream make other solutions a heavily prioritized item.
The current bond solution while benefiting the DAO, benefits rich individuals outside of the DAO moreso than the DAO itself. The optics and logistics of this are not good and should be addressed post haste.
Creating the loopholes for individuals and OHM to syphon value out of FOX and the DAO seems like a very ugly “don’t pay attention to the man behind the curtain” way of us obscuring others stealing value from the DAO, FOX and what we are building here.
Well to be fair I don’t think this is a ”loophole” and the bonds are also fully transparent. Similarly we are paying ohm for a service, it’s fine to say we don’t want to pay that anymore or at the moment (and I support that sentiment) but I think this language isn’t really representative of the situation.
Tyler:
If selling FOX on the open market requires some gameplan before closing this option, I would suggest the committee and the tokenomics workstream make other solutions a heavily prioritized item.
Stablecoin diversification is a huge priority and has been for the TMDC and the treasury. When the idea of selling fox directly to market has come up in the past the community has been resistant/against it. It would be good for the community to speak up and show they are now open to that if we want the TMDC to take this path in the future instead.
Tyler:
The current bond solution while benefiting the DAO, benefits rich individuals outside of the DAO moreso than the DAO itself. The optics and logistics of this are not good and should be addressed post haste.
I see this more as a trade of the DAO willingly giving up some of the value for the consistent and predictable bonding regardless of fox price at the time. Fine to say (and I think I agree) it’s time to further slow or stop this, but it’s not clear to me who “benefits” most, all parties involved seem to be benefiting reasonable amounts from my perspective given the params involved.
First, I am in favor of reducing or even turning off the bond program entirely as long as we have an alternate plan to continue covering the DAO’s monthly expenses.
Second, I think it’s important to acknowledge the tradeoffs of the bonds and I appreciate ’s well-rounded take. thanks to the bond programs, the DAO now holds over 5.3M USDC and ~950 ETH and is accumulating enough USDC each month to cover our operating expenses. there are important differences between the bong program and directly selling FOX on the market. on the flip side, it’s easy to see on-chain that the majority of bond sales have been “recycled” and arguable that the DAO could have more efficiently diversified the treasury with other methods.
re: bonds vs selling FOX - Even though the impact has been very similar, I think the optics around selling FOX would have been significantly worse. I would not have supported that as a community member and can imagine many others in the community would feel the same.
While I still wouldn’t support selling FOX directly on the market, one option we can consider is providing one-sided FOX liquidity on Uniswap V3. The downside of this strategy is that it is less predictable and depends on the price of FOX increasing. The upsides are that there is no direct sell pressure and no discount. I wouldn’t consider this as a viable replacement to the bond programs, but it’s at least better than nothing.
thanks for getting the forum discussion started , looking forward to hearing the community as well as bond committee’s thoughts
Thanks everyone for offering up your opinions on the matter. I can appreciate every side of the discussion offered. I understand why the bonds exist and the optics of them. I also understand the concerns voiced about the bonds. As someone that utilizes the bonds on a regular basis, I can attest to the methods of direct profit extraction at the user level.
I would like to see the bonds removed. I appreciate the attempts to curb the negative impact and added sell pressure of the bonds through reduced bond size and increased bonding duration. That being said, it only takes a few minutes to identify the “players” that are repeatedly utilizing the bonds with no incentive whatsoever to hold. As such, the profit for these whales is frontloaded as they are able to instantly extract the difference by market dumping the entire bond up front from current holdings before they mature.
There is no simple solution here. I agree the optics of the bonds may be better on face value, but it really is the same thing as the DAO dumping on the market… it just receives less of the money.
I encourage workstreams to continue to be conscious of spending and attempt to tighten the budget where possible. I agree with Willy about the utilization of Uniswap V3 single-sided liquidity (although he should really give 1inch limit orders a try) as a means to sell tokens without the need to do so at a discount and without the optics of directly dumping onto holders. I also understand this approach requires upward momentum to be successful.
I think it is important to differentiate the selling of FOX, whether it be through bonds, scFOX, or any other means, and actual revenue. The DAO already holds the FOX and it is worth what it is worth. Bonds dont actually make money. Its quite the opposite, really. We need to prioritize workstreams that will generate the most revenue to sustain our needs without dipping too hard into the treasury FOX reserves.
Im not entirely sure of the best way to replace the bond system for meeting the DAOs financial needs. It is my sincere hope that we can figure that out and that affiliate revenue or other profitable steams can quickly fill and meet those needs moving forward.
Re: 1inch limit orders - would love to leverage these if we could, but AFAIU all decentralized limit orders currently require an EOA to sign a message and unfortunately don’t work with gnosis safes or any multisigs, so the only way for us to do this would be to trust an individual. Glad you’re on board with the Univ3 approach though and would still love to explore some other ideas.
Agree that the best solution is growing DAO revenues. Was thinking about this last night and it would be awesome to put together a financial model with all the current rev streams, anticipated rev streams like CowSwap, and use whatever data we have to estimate average user volumes for each of our rev streams. That would give us a better idea of how many users we’ll need on app.shapeshift.com to achieve profitability, and we can refine the model with better data once it’s available. Planning to bring this up at the TMDC and tokenomics meeting this afternoon; hope to see you there!
I am concerned about the bond arbitrage as well. Appreciate for posting ad
for continuing to bring up the topic in Discord. We can see that lengthening the term of the bonds will not have an impact, as those arbing have large bags and are selling FOX at the same time as they are buying bonds. Unless maybe we change the length of the bond to something like one year. Possibly the large holders wouldn’t be willing to wait that long to recoup their FOX? Something to think about?
I currently think the best thing to do is to end the bond program, and make a commitment to sell FOX every month. We are selling it at a discount through the bonds, and I don’t think the optics issue of selling FOX outweigh the benefit it will have to the FOX price is we sell direct rather than sell through bonds.
I would be in favor of an experiment to this end. The experiment would be:
Turn off the bonds now
For June payroll, sell $X of FOX at the same time as we sell $Y of TOKE
Understand that this would cause our treasury to shrink
Look at market movement from doing so, and gauge sentiment about FOX
Meanwhile, we can do some modeling on how much FOX we would need to sell in order to continue operations while we are doing this, and growing revenue. Here is one example of how that could look:
I think we also could commit to lower the budget by X date, and that would extend the runway, but we could have those conversations after we end the bond program and commit to selling FOX directly every month instead.
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.
I agree with much of what you posted here Josh. I was also considering the implications of increasing the lock up dramatically… the problem is that nobody will take such an aggressive lock up without a substantial discount. I would anticipate discounts to be on the order of 30-40% before someone wanted to lock their tokens up for a year or some other long timeline. Furthermore, at the point the bond was ultimately purchased, you better believe the tokens would still be sold off instantly by the whale to frontload their profit (which would now be even steeper).
For these reasons, I am in favor of shutting down the bond program (at least temporarily) and pursuing an alternative like you have suggested. At least in this way, we are able to get some preliminary data and tweak as needed.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Tyler: