VDP-54.2 Expression of Interest: L1 Digital

Proposals Archived Proposals
1

Summary

As part of the VDP-54 governance process, we have requested that each strategic contributor provide a memo outlining their interest in VitaDAO and how they see their participation both financial and otherwise.

Below please find the submission from L1 Digital.

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Who are you? What is the size of your proposed capital contribution?

L1D is a crypto asset manager based in Zurich, Switzerland with approximately $500m in assets under management. The company was founded in 2018 by an experienced team and invests globally in the cryptoasset sector through funds, co-investments and direct investment.

Alex Miloski, a computer scientist by training, who has 5+ years of experience working in finance and crypto will be representing L1D, serving as the main point of contact.

In exchange for VITA governance tokens, L1 Digital proposes to contribute $500,000 as well as contribute in tokenomics and governance support activities.

Mission
Please describe for us, your view of the longevity and healthspan field, and how you perceive VitaDAO’s role in it.

Longevity research has the ability to positively impact the lives of many. The use of crypto based networks to facilitate and elevate the research process is an inevitability as it draws upon the expertise of the underutilized or overlooked global talent pool and rewards them properly. Here, crypto’s core ethos of democratized access and decentralized, borderless communities play a unique role in asserting an equitable outcome.

We see VitaDAO as a materialization of our thesis around the unique value propositions of DAOs in respect to organizing and coordinating humans and capital.

Your Context

Why does your organization have an interest in this field? How does your organization see itself participating to advance the field?

L1D’s mission is to advance human development by directing capital towards the most promising projects leveraging blockchain technology to improve the way the world operates.

Your Thesis

What is your interest in VitaDAO? How do we fit into your operational thesis?

Through the implementation of a unique tokenized incentive structure, we perceive VitaDAO as playing a unique role in advancing the longevity field. VitaDAO is pioneering a brand-new funding model for researchers and biotech companies, bringing more efficiency to the IP discovery process, and democratizing access to and governance over the resulting IP.

As experienced investors with an extensive network in the Web3 sphere, we believe L1D can help the DAO advance these novel frameworks and extend the community’s reach. Since L1D’s inception in 2018, the investment team has conducted significant research on and played material roles in DAO governance for DAOs at various stages (e.g., bootstrapping, diversification, growth). We intend to leverage this experience to help VitaDAO tackle challenging DeGov obstacles, such as liquidity provision, accountability, and resource management.

How do you plan to support VitaDAO, beyond your capital contribution?

L1D plans to contribute in the following ways:

  1. Introduction to on-chain and off-chain Market Makers to help improve liquidity of VITA.

  2. Access to our extensive network of LPs (mostly comprised of Family Offices and High Net Worth Individuals), through which VitaDAO can organically grow its community.

  3. Governance & Tokenomics working groups: aside from actively participating in governance, we plan to share insights around new developments/best practices on crypto governance & token economic design. We believe we’re uniquely positioned to do so given our bird’s-eye view of the entire Web3 space.

  4. Deal structure/review (possibly as a member of the Dealflow working group): as an asset manager, L1D has come across multiple deal structures. The team is well seasoned with decades of experience working in finance. Being investors ourselves, we believe our expertise conducting due diligence on deals can be valuable to the Dealflow working group when structuring or analyzing new opportunities.

  5. Support inner initiatives for Vita’s success. E.g.: Decentralize Tech Transfer (DTT): we can try to connect VitaDAO with existing CROs operating in Switzerland; we’re also working with LabDAO to be the first independent node of their network of dry labs.

Participation plan

Explain how you plan to participate in VitaDAO. Will you participate in governance (token-based voting)? Do you plan to allocate resources to working inside our working groups? Do you have your own initiatives that you feel would bring value to VitaDAO?

Together with other key stakeholders, we position ourselves as being the Web3 arm of VitaDAO, helping with crypto-related matters such as token mechanisms and governance, or advancing DeSci more broadly given the relationships we’ve been building in this field over the last two years.

L1D plans to allocate human capital towards governance, voting on every major proposal and engaging with the broader community on the forum whenever we feel we can add value to the discussion.

In summary, we plan to participate in the Governance, Tokenomics and Dealflow working groups.

8 Likes
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Looks like deal flow is one strength of this proposal. I’m on the fence about tokenomics and governance without seeing a tokenomics/governance plan, some idea of how they hope to steer tokenomics/governance, and the track record of other tokens they’ve advised on.

Since other people bill themselves as tokenomics experts despite zero experience running a protocol or launching a successful token, I am wary of tokenomics experts. For some other hedge funds, tokenomics is code for insider trading and pump and dump.

I think it is critical to ensure that views on governance and tokenomics are aligned with the community prior to this deal. To get better clarity on these concerns, I have the following questions:

I see that L1 Digital already lists Molecule on their website. Does VitaCORE have a pre-existing relationship with them?

I also see that Terra is listed. How much money did L1D lose in the Terra blowup, and have all positions in Luna or UST or leveraged with those assets been unwound? Similarly, since the Deribit investment is a co-investment with 3AC, what is the status of that investment? When was that investment made in cooperation with 3AC?

How large is the stake in the Solana ecosystem relative to the stake in the Eth ecosystem?

For what protocols has L1D provided governance support? What were the contributions of L1D in those circumstances, and how did those contributions improve the protocols? Did it contibute governance or tokenomics to Terra?

At a high level, what would be L1D’s top priorities for assisting with tokenomics or governance in VitaDAO? (ie where does it think VitaDAO needs the most improvement?) Conversely, what does L1D like best about VitaDAO’s current structure?

What familiarity does L1D have with US securities law, and how does it plan to vet its suggestions with an eye to failing the Howey test, taking recent decisions in SEC vs Telegram and SEC vs Kik into account? Both generally, and specifically in terms of trying to increase liquidity of the token, and other tokenomics suggestions.

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+1. I don’t think anyone is a tokenomic expert. The web3 space is writing out the playbook for tokenomics and governance as it progresses. I think a more detailed attack plan would put the DAOs mind at ease.

On the other hand, I did also see Molecule as partners listed in their website. So I assumed they’d be viable partners? Although I’d like to see this addressed too.

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Hi @bowtiedshrike, @consigli3re,

Thank you for taking the time to review the proposal and for the thoughtful replies!

We’d like to address your concerns:

You’ll note that we intentionally do not tout ourselves as token economics/mechanism experts for this exact reason. We do, however, actively research this area. We believe we can contribute the most by sharing what we see working in the ever-developing crypto economics/governance space. As stated in the EOI, I believe we’re uniquely positioned to do so given our bird’s-eye view of the entire Web3 space.

The fund we are using to contribute to VitaDAO is not subject to the redemption and liquidity requirements that a hedge funds need to satisfy. Our contribution horizon is 8-10 year and our tokens will be subject to a 4-year vesting schedule.

Paul was first introduced to us last year by a member of the team who knew Paul from University. We met Tyler soon thereafter as we started to consider an investment in Molecule. We’ve recently met other members of VitaCORE throughout our diligence process and/or during IRL DeSci events.

The Luna loss was in the low single digits as a percentage of the portfolio: our exposure to the ecosystem was solely through LUNA tokens, which we bought via an OTC deal with the Terraform Labs. We had no leverage whatsoever (i.e., there was no unwinding, just a markdown) and no direct exposure to UST or Anchor. We did not participate in Terra governance, except in one instance, when it was clear that Anchor’s mechanism was flawed, we opposed Polychain and Arca’s proposal under the rationale that it was intellectually dishonest. [Proposal] Polychain Capital & Arca Anchor Tokenomics Governance Proposal - #82 by jc69 - Mechanism - Anchor Protocol

We invested in Deribit in 2020 via a bankruptcy remote SPV managed by a crypto asset trading firm, alongside 3AC and other third-party investors. We can’t comment on the status of the SPV as it’s not public information but suffice to say we still own equity in the company through the vehicle.

While we don’t see the relevance of this question, we are chain agnostic and don’t have an oversized exposure to any specific chain.

Token Mechanisms:

What we like about the current structure:

  1. The simplicity of VITA’s current token design and the work done by the Legal and Ops WGs to create a legal wrapper around the token protecting stakeholders’ interests.

What could be improved:

  1. Going forward, we’d love to see VITA tokens having a more direct role managing the treasury (e.g., not relying on a small set of signers to trigger a transaction from a Multisig and having direct claim on the treasury’s assets through SC function calls, etc).

  2. However, given where we are on the regulatory front, we don’t think now is the right time to implement these changes. As regulation catches up, the DAO should start having such discussions.

  3. The attribution process when distributing VITA as rewards for contribution: members acting like founders should have a “founders-sized” stake on the DAO. Human capital is VitaDAO’s greatest asset, and it should be valued accordingly.

  4. Implementation of a carry system, where members are incentivized to approve top quality deals only.

Governance:

L1D fully embrace crypto’s ethoses of democratized access and decentralization. Seeing proposals dominated by a handful of big institutions in the long run and/or the DAO starting to censor new members would make us reevaluate the investment thesis.

What we like about the current structure:

  1. The system is inclusive and straight forward. Vita’s governance is with gasless voting and the 3-step process is effectively in place and well communicated.

What could be improved:

We have reservations about the 1-token-1-vote mechanism and would love to see a stronger quorum from the broader community. Pathways the DAO could explore:

  1. The concept of liquid democracies. Although we haven’t seen successful implementations in crypto, that’s one area I believe the governance WG should explore. Human society have experimented with many forms of decision-making systems in the course of its history. The DAO doesn’t necessarily have to innovate here, but study what has worked in the past and the tradeoffs of each such systems.

  2. Implementation of an incentive mechanism encompassing the entire governance process, systematically rewarding constructive participation on discourse.

  3. A clear separation between proposals that must achieve on-chain consensus to be executed vs when it’s ok to have rough consensus on discourse. This could bring efficiency gains to the DAO as proposals could be standardized.

Threshold DAO

Boston DAO

You can see some of the governance and token mechanics work Jake has proposed here on slides 8-9: The Boston DAO - June 16 2022 - Google Slides

Spearbit DAO

You can read about some insights Jake provides on how to do qualitative and meritocratic reward systems: Welcome to proposals Discussions! · spearbit/proposals · Discussion #1 · GitHub

As a Luxembourg-based fund and a Swiss-based investment adviser, we do not have any comments regarding SEC guidelines, nor do we wish to offer any legal advice.

3 Likes
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I appreciate the thoughtful replies and the concrete examples. In general, the governance and tokenomics ideas seem reasonable to explore.

The only two minor issues for me are the SEC/regulatory awareness and Solana/Ethereum question.

On one hand, you acknowledge the current regulatory environment, and the need to wait for some innovations for regulatory clarity to avoid the risk of running afoul of them in the event they are interpreted in a regressive manner. On the other, no comment on SEC guidelines. To push further on this, and perhaps rephrase: what is your approach to regulatory risk for a protocol or DAO, especially from US entities? Is it timid, aggressive, cooperative? If the SEC were to initiate action against VitaDAO, what is L1D’s plan for any $Vita they hold?

This worries me for two reasons. First, different chains have different fundamental premises. Solana is centralized and has upgradeable smart contracts that can be done with little fanfare, which is contrary to most web3 principles. Ethereum is more decentralized, and smart contracts can be immutable, which allows them to be permissionless. If you’re agnostic to these differences in the chains, it means you’re agnostic to the principles embodied in these chains.

Second, your exposure to each chain indicates your conviction that a given chain will provide a positive ROI on your timescale. If you’re 33-33-33 Eth-Near-Sol for example, it means you think Near and Sol will vastly outperform Eth (since fdv is 184B vs 4B vs 15By). If you’re 91-2-7 Eth-Near-Sol, you agree with current market valuations of those 3. The Sol and Near plays here seem more hedge than major bet, and your returns will come mostly from Eth. VitaDAO is on Eth. Based on the diligence you’ve shown so far, I think your conviction reflects your views about what a token needs to do to succeed. That gives us insight into your tokenomics biases and approaches. From what I can tell, you’ve gone for infrastructure (eg The Graph, Nansen), but avoided openly promoting others (Link)

There are also other chains doing different things that you don’t even list on your website. Stacks and Algorand being two I like (which is why I have exposure to both, and I’m helping with Theopetra’s flywheel: Real Equality for America Today (REAT), which will launch on Stacks later) because it’s built on Bitcoin and the Proof of Transfer mechanism (Stacks) and the privacy/zero knowledge approaches, (Algorand). And I have the bowtied excitement for Synapse’s layer 0 chain.

So this question is both a philosophical one about principles, plus a practical one about which chains/token organizational approaches you think will succeed in your time horizon.