Treasury Diversification #2

I think selling some LDO for cash is a smart move and reduces risk of running out of money or needing to sell at worse prices later. But, it does feel like no lockup may be a mistake.

I’m not so concerned about buyers immediately dumping on market, more so that the deal may not close if the price shifts lower while governance is voting on the terms; in this case some investors (particularly smaller investors alongside dragonfly) might just decide to market buy instead of funding the sale contract. I think a short vesting period (maybe between 3 months linear vesting with no lockup/cliff) plus small discount (10-20%?) vs proposed twap price would have better assurance of the deal closing.

4 Likes

We may consider other alternatives like streaming auctions, other than selling 2% LDO supply urgently. I know that the Locke protocol will enable such functions, which is still on developing.

2 Likes

Disclosure: I previously worked for Lido. I don’t work on Lido anymore but I am an LDO holder and remain very invested in Lido’s success.

Quick thoughts:

  • Extending runway seems sensible given current calculations of runway. Ideally, the DAO should be able to operate comfortable for the next 5 years. Securing runway is high priority so am supportive of this abstractly.

  • It would be good if this diversification event was available to everyone, rather than gatekept to VCs. It should be still limited on total size. Maybe theres some KYC stuff that makes this unattractive?

  • It doesn’t make much sense to me for there to be no lockup on tokens. I believe there should be a lockup of at least 1 year. If people/funds/entities/VCs would like to buy LDO directly from Lido, at spot, with best-possible execution price (likely 10-20% cheaper than they’d be able to execute otherwise) the minimum commitment should be to supporting Lido for at least one year. Since governance rights are granted while locked, this should be fine for any investor that is long-term minded enough.

  • If you try to buy $10m of LDO now OTC, the best execution prices you’ll be given as a buyer is ~$1.85 per LDO (current spot price is $1.55). This means Lido will be selling cheaper than any buyer eg. Dragonfly would meaningfully be able to execute otherwise. However, as a seller, best execution price for $10m is ~$1.25. So, peer-to-peer execution at spot is clearly favourable for both parties.

  • Because of the above effective “market” or “slippage” discount (and because crypto VCs basically do absolutely nothing and this is exclusively a financial transaction rather than a “working relationship”) I don’t think a further discount to spot can be justified.

  • Since there is no discount to spot beyond slippage discount, any conversation about “do they add value???” or “does cobie think they are top 5???” are a distraction. It’s a financial transaction because Lido needs the runway and investors would like better execution on their entries.

  • All the ideas in this thread about “selling 16 LDO a minute on Binance” are totally stupid.

  • Finally – the annual runway seems extremely high. I know blockchain people are very expensive – especially good ones – but does seem like some exercise to check whether this runway is the minimum viable runway. What TVL would be needed such that revenue would sustain the DAO alone? Think these questions are worth considering given market conditions and having someone to lead treasury/finance is a good idea.

TLDR: support extending runway, very important for lack of distruption. Think there should be lockups on tokens and no spot discount. Should probably hire a CFO asap.

Thx, C

16 Likes

hahaha this is great

yes the lido team leaders have proven themselves to be really lousy business people

1 Like

oh look a cobie sighting, welcome back. wonder why you did not advise the lido team to sell any of the 70mm usd in eth in 2021, but u think lomashuk is so great and u would follow vasily backwards into a defi project, nice job buddy.

to start, why the fuck does lido need 75 fucking employees? most of the non technical jobs can be collapsed into 5 positions maximum, probably just 2-3.

whoever is in charge of creating these positions and paying them is clearly not capable of making proper decisions.

vasily cant stop making shitty economic decisions and its clear that this is just another job to jbeezy. they cant tell people no but instead rape the dao with 3ac, jump, defiance selling every chance they get ← these are scumbag organizations that u guys welcomed into the dao. true low lifes

cobie - please answer why the runway was not secured previously when 70 mm usd of eth was raised in spring 2021? why was 0.00% of this converted to stable coin?

my favorite one of how stupid the lido dao leadership is, is that their goal that everyone cheered them on was to get $100 b TVL by the end of 2022 ! the lido dao leadership is the worst group of crypto traders to ever exist.

75 employees. set $50 mm usd on fire. incapable of securing a runway without diluting the entire community and they want to do it without a lock up. hey hosseeb of dragon fly - ur a pussy ass bitch

1 Like

The DAO leadership is not made up of crypto traders. It’s made of software engineers and builders. Lido is not some type of on-chain hedge fund. They have successfully built the biggest staking service in existence. I think that’s pretty good.

Why didn’t I advise them? 1) I haven’t worked for Lido for over a year and 2) I don’t advise any DAO what to do with their treasury because I don’t trade for other people ever.

What if I am wrong? Why would they sell just because I said so – I am just a guy? Then, plus, even if they entertained the idea, it would have to go through governance too, and then it needs quorum/majority to decide that selling is a good idea.

Alameda is an investor in Lido – they are much better at crypto markets than I am. Why didn’t they advise them? What if Cobie says buy but Alameda says sell? Actually – why didn’t you advise them? If you wanted Lido to sell so badly, where is the governance post from you suggesting to do so at the time?

It’s a silly line of questioning. These weird hindsight anger sessions are unproductive and pointless, in my opinion.

The 3AC, Defiance and Jump rounds were in April 2021 and priced around $0.7. They are only 2-3 months unlocked, so there is hardly much unlocked for them to dump and they’re only at a 1x profit anyway.

I think it’s also hindsight analysis to say Lido should’ve rejected 3AC and Jump from being investors in April 2021. How could anyone in Lido DAO predict their future actions?

Lets be real – many crypto lenders let 3AC borrow multiple billions of dollars – that’s how trusted they were in the ecosystem. Accepting them as an investor when, at the time, they were one of the most active and reputable crypto funds was not unreasonable. If you thought differently at the time, and somehow knew they were doing fraudulent borrowing schemes, why didn’t you sound the alarm on the diversification thread?

There are two types of mistake: ones that could be avoided, and ones that could not be avoided. Lido should look at the past mistakes, see where weaknesses are, and use that to make better decisions for the future.

Not selling ETH to USD was an avoidable mistake. Lido should’ve sold ETH to USD gradually when ETH was higher. It was an avoidable mistake. Now they have to sell 2% of LDO to compensate for that mistake. They should learn from that and hire a good CFO to avoid these mistakes in the future.

It was an avoidable mistake – but it is not a fatal mistake. Lido will be fine and it will have 2% less of the supply in it’s treasury. Selling 2% of the treasury to secure runway is not the end of the world. It’s fine. It doesn’t need to print new tokens and dilute people. It’s just a treasury sale, maybe at a slightly lower price than Lido would’ve desired otherwise.

Having 3AC and Jump as investors was not an avoidable mistake. It’s pure hindsight analysis to claim that you could know, in April 2021, that 3AC would eventually start doing fraudulent borrowing chains and implode. It’s not an event you can learn from and getting angry about it and making stuff up like “they’re selling at every opportunity” is just silly. They only have 20% of their tokens unlocked, and 3AC hasn’t sold a single one.

I mean, even getting angry at investors for selling after they’ve held through a cliff and vesting is stupid IMO. Look at the markets, everyone is selling stuff. It’s a financial instrument; an investment. Sometimes people sell them!

I agree that there should be a lockup on these tokens, and I agree that there should be a review into whether headcount is at optimal levels – but claiming that all non-technical roles can be collapsed into 2-3 people is just not credible.

All things considered, Lido is doing pretty good. It needs to have better treasury management and needs to figure out if it can optimise burn rate anywhere, but it’s got a good treasury to endure its mistake and is a category-defining protocol.

Selling 2% of tokens, from the treasury, at a slightly lower price and slightly earlier than would’ve been optimal is not a huge deal in the bigger picture.

Hey – at least Lido didn’t let 3AC trade the treasury to “make sure we sell the top” :slight_smile:

13 Likes

It would be good if this diversification event was available to everyone, rather than gatekept to VCs. It should be still limited on total size. Maybe theres some KYC stuff that makes this unattractive?

I would also be interested in the teams answer to this

believe there should be a lockup of at least 1 year.

Lido should be able to call the shots on the lockup length. Traditional venture backed startups take about 7 years to reach IPO. Monopoly protocol. Future deals should have longer lockups imo

1 Like

None of the hyperbole is productive here. The fact of the matter is that Lido is underfunded if we are in fact in an extended bear market. It doesn’t matter how we got here. We are here now.

At 1K ETH Lido has a 8 M / year burn rate which needs plugged. At 500 ETH Lido a 12.5M / year burn rate.

Its easy to rely on ETH mooning as our saving grace but its financially and strategically incompetent.

Should Lido ask for a lockup: probably
Should Lido evaluate how to reduce our burn rate: certainly
Do we have some other options: at 1500 ETH, yes. At 500 ETH, no.

At face value, this is not a bad deal.

6 Likes

disagree. protocol wont go under, can always market sell LDO if every thing collapses to pay the bills. most bullish event for this protocol likely happens in a couple months, i think theres room to negotiate a great deal for lido.

1 Like

Regarding the lockup, really the dynamics of the negotiation looks like this:

Investor: We want tokens.
Lido: OK market price but lock for 4 years
Investor: No thanks, we’ll just buy on the market then…
Lido: Wait, no, we need the money for runway! 2 years?
Investor: …
Lido: One year??

If buying at market price, the investor has a lot of power in dictating the lockup terms. Lido can’t say “4 year lockup or no deal!” because the investor can get basically the same deal (-10%) on the market, so it’s not a great ultimatum to issue.

If the price was discounted to spot, Lido can enforce a greater lockup or “no deal”.

But since a discount is worse for Lido here and the investor would buy virtually at market price, the trade-off for the investor is a very good/clean execution price in exchange for a short lockup.

For Lido, they get the money that they need at also a good/clean execution price.

So, I think there should be a lockup – but I don’t think a long-term lockup can be enforced at spot prices. The investors could easily just say “no” and buy OTC for similar prices and better terms with no lockup, leaving Lido still in need of an investor for runway extension.

7 Likes

im totally fine with dragonfly buying 20mm ldo on the open market and lido slowly selling the ldo in the treasury at the same speed as their burn, and shutting that off when the protocol is self sufficient.

That would be a net positive for the existing holders imo. And would yield the same result (maybe even better, so we dont think “we have 30mm how do we use this” but rather “how quickly can we get our shit together and stop selling our treasury on the market”

1 Like

but im also fucking retarded

2 Likes

Just remind everyone that DAO treasury has about 750 stETH monthly income and it won’t decrease before the withdraw is available. Not quite sure whether that is enough to cover the expenses, but it is clearly an alternative.

2 Likes

that is more than enough. wtf why do we need more money??? we burn over 750eth a month???

1 Like

Burn is currently very similar to revenues from my quick back-of-envelope math. So, at current ETH prices and without increasing headcount, Lido could be sustainable.

But Lido revenue is stETH not ETH. And I don’t think it’s a great idea for Lido to be a seller of stETH pre-redemptions.

Lido TVL growth slows to a halt when stETH price fud starts, so Lido as a protocol using up stETH:ETH liquidity and potentially damaging it’s own growth seems counter-productive.

Also, if ETH price goes down (eg to $500) then obviously this is not sustainable anymore, because 750 ETH pre month is less dollars and burn/expenses are priced in dollars.

7 Likes

makes sense

sounds like the deal we should be doing is locked stETH to a fund at a slight discount to the market price

but like i said, im a fucking retard so idk

2 Likes

IMO the reason this does not work is that it introduces a failure case.

If you raise money now, you secure the runway, and there is no failure case.

If you don’t and rely on perma-selling on public markets, during a bear market, then you have a chance of actual disaster. If ETH goes down a lot, and LDO goes down a lot, Lido has to sell even more LDO to pay for operations, while it’s revenues are depleted, and there is much less interest in buying crypto generally.

IMO, you must take the path where there is no possible failure. Sure, by doing things differently you may be able to maximise or optimise upside a little more. But in the big picture, if you sell 50% higher, it doesn’t really mean that much. It doesn’t change the long-term outcome.

However, if you take the path that does rely on markets, and the markets go against you, you could end up in a position where runway does become a problem and there is no fix, or the fix is also equally destructive.

I guess what I am saying is: it’s better to eliminate the possibility of real disaster rather and sacrifice the chance to try to make an extra $10m by selling higher than it is to risk disaster but maybe have a bit more money.

Lido has plenty of LDO in treasury, and good revenues that should only get better post-merge. All it needs to do is make sure that it is in a healthy position to comfortably keep operating for a few years in case of extended market turbulence. No need to take big risks here for a bit extra money.

6 Likes

Yup, it’s just an alternative and I just want to remind everyone here that we may not be so in the hurry of this 20mm $LDO deal.

We may also provide ETH as liquidity on Curve stETH-ETH pool with about 5% APR, or even provide liquidity on Balancer LDO-WETH pool with about 15~20% APR to cover the expenses. These are all alternatives we may consider, and I fully agree that we need a CFO asap.

2 Likes

Supportive of the general premise of the sale and agree that 1-year lock would be appropriate. A few points:

Providing an opportunity for LIDO supporters to buy concurrently with VCs (especially when such VCs add limited value according to Cobie) would be a positive for the community. The key challenge would be how do you prevent this from being botted (i.e. Alameda “we did indeed buy all of the tokens” for Stargate Finance).

Given price is ~15-20 cents above $1.45 , would the calculated price be adjusted depending on when the proposal is passed? If the tokens are unlocked, this is a key issue.

1% of the total tokens is significant and as such, if these “strategic participants” are known, they should be revealed to the community so that their previous track-record related to such token sales can be transparently evaluated and examined.

1 Like

Today, operations are profitable, excluding LDO dilution. After (if?) the recent budget proposal, Lido will be in the red by several hundred K USD / month, until ETH pushes north of ~2k.

You can reference the financial dashboards for historical reference. The proposed budget is not factored in here and should increase spend by 3-4x / month.

3 Likes