Abstract
DAOs are in a unique position where shareholders with equity can quickly decide to generate more equity and use it as a mechanism to grow their organizations. With DeFi, DAO organizations can utilize their equity in a non-harmful way to help boost funding. If a DAO has extensive legitimacy, DAOs should actualize that capital to finance operations. Otherwise they miss out on the opportunity cost of that capital.
I propose VitaDAO utilize it’s recent auction funding and realize new capital in a UMA Range Token. VitaDAO should mint new shares, issuing them as range tokens for cash, then mint new shares and create a Uniswap V3 position offering liquidity using the cash.
Motivation
DAOs have historically underutilized capital. Many DAOs sit on extensive capital after sales, simply holding stablecoins existing equity in pre-defined cap tables. This underutilization comes at an opportunity cost of stabilizing their treasury, or cash flow.
While this may be good for some DAOs, it’s clear other options for capital should be considered.
Some examples that come to mind are:
- If MakerDAO rates are low, DAOs could mint new tokens to borrow against for working capital.
- If the DAO has stablecoins in the treasury, minting new tokens to match them and market make on Uniswap to generate income and dampen price volatility.
- If borrowing rates are high, DAOS could mint tokens to deposit into CREAM to generate interest rate, or utilize stablecoins in the treasury to invest in yield aggregators or lending.
- If demand for tokens is high, DAOs could utilize UMA Range Tokens to issue convertible debt for cash now.
In short, VitaDAO should utilize available treasury funds, and possibly mint tokens exclusively to run DeFi operations.
Given the high demand for VITA in the latest auction round, I think a Range Token offering would be a good option. Range Tokens allow convertible debt offerings. Issuers like VitaDAO would receive capital now in exchange for minted tokens, that will be locked for a predetermined time. At expiry, the DAO could offer to return the capital plus interest, or distribute the tokens.
Specification
The DAO should do three things:
- Mint 5M new VITA tokens.
- Offer 1M VITA in a Range Token offering for DAI, RAI, or USDC (some stablecoin).
- Market make using Uniswap V3. The liquidity pool should be slightly unbalanced to offer more downside protection. 4M VITA for liquidity paired with the DAI would put the 80% VITA and 20% stablecoin.
Considerations
The main consideration is full downside hit on liquidity. All stablecoins could be lost if VITA is dumped by VITA token holders. The DAO and all purchasers should be aware of this position, but if VITA proceeds to do well, holders will reasonably be compensated.
We have already had a large hit to LP providers, but if we reduce the downside risk by only allowing a certain amount of stablecoin liquidity, we can allow strong upside without cash-grab behaviors of people who bought into into the auction, but want to do a fast arbitrage. Consideration should be taken to utilize the given capital, but allow only enough for a small amount of exit liquidity. This can be engineered with the right token range bounds on the Uniswap Position.
We may also utilize other technologies like Charm Finance to actively manage the liquidity and automate the range to give an optimal amount of range. Possible synergies can be had with yield automations to adjust downside risk in real time.
Another consideration for everyone is not to lose legitimacy. Dfinity has already shown what team dumping does. The Range Token is a good way to mint new tokens but allow a natural diffusion of tokens into the real world. If you team pre-mints tokens, but dumps them on buyers, the team will lose legitimacy and trust. It is important to mint new tokens under the condition that they are locked for some time. We don’t want VITA holders to turn against us and become marketers against the DAO, and respecting their capital investment is important, while also allowing some amount of risk. Signaling for a good bottom range bound would be the optimal solution.
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