Treasury Diversification #2

thank you

let me know when ur work is published by elon musk

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Hey guys - it’s Ashwin from Dragonfly. Appreciate the constructive discussion, and wanted to share our team’s view on this proposal.

The primary purpose of the proposal is to ensure that the LidoDAO has adequate runaway in the case of continued market volatility. The LidoDAO currently has ~75 full-time contributors with annualized operating costs totaling $16-18MM. In our view, it’s critical for the LidoDAO to have ample stablecoin reserves to meet its payroll obligations over the next 18-24 months.

Dragonfly has been an active supporter of Lido since we participated in the first treasury diversification round last year. However, due to the constrained allocation for funds outside of Paradigm, our support has been limited to strategy calls and specific requests from core Lido contributors.

That said, we’re long-term investors and are looking forward to being more active in governance assuming this diversification proposal passes. We have never sold any of our purchased LDO from the previous round (despite unlocks), and do not intend to sell LDO purchased from this treasury sale at any point over the next few years.

We have the following additional thoughts on lockup terms/pricing:

  1. Regarding Price
    a. If the LidoDAO were to market-sell 20M of LDO, its average execution price would be far lower than the current market price due to inconsistent liquidity and advance market knowledge of the sale. This will result in high price slippage if the tokens are sold within a short timeframe.
    b. The LDO price increased by ~245% in the past 7-days. Given this volatility and the inconsistent liquidity (daily trading volume fluctuates between 50-150m a day), we believe the pricing methodology used is fair (7-day backward TWAP with a 50% premium).
    c. Thus, we are not open to changing pricing for this sale.

  2. Regarding Lockup
    a. A more traditional deal offering a discount on LDO tokens in exchange for a lockup would result in a lower sale price given interest expressed to Dragonfly/Lido by other potential sale participants. This would result in far less operating capital for the LidoDAO unless the LDO sale amount is increased.
    b. The entity we’re using to purchase LDO tokens from the DAO has liquidity restrictions. This means it’s difficult for us to invest in illiquid token deals, hence the no-lockup structure of this deal.

We’re committed to honoring the result of a vote. However, since we cannot guarantee the participation of additional parties, we recommend splitting the vote into two parts. Part One will be a sale of 10m LDO to Dragonfly at the posted price + premium. Part Two will be a separate sale of 10m LDO to additional participants with different terms.

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respect. but its well within your right to sell unlocked tokens. if theres no intention to sell for a few years, i dont think a 3 year lockup is unreasonable as it will yield the same result for dragonfly but garner more trust from the community.

eth is going back over 2k shortly

there should be a 3rd vote to sell a bunch of eth coinage there to at least get thru the end of the year (likely bottoming)

also, get the head count down from 75 lol … 75 people !

dragonfly aint the only game in town

Two thoughts:

  1. This seems like a fair deal. Putting on the tradfi hat, the clear parallel here is to equity secondary offerings and PIPEs. Typically secondary offerings are priced at a discount to the current price (LSD% discount most common) with no lockup. PIPEs are at a greater discount but come with lockup provisions and typically operational involvement. The need here is purely financial, so its more like the former (a secondary).

  2. I don’t think LDO needs to do this. Granted, I’m a mega-bull, but assuming Sept merge and using reasonable assumptions around what staking yields will jump to (let alone the potential for step function increase in ETH staked), one can come to the conclusion that LDO will become highly profitable on a run-rate basis. My model suggests LDO could still be breakeven at $750 ETH (on a cash basis excluding token emission dilution). Also valid pushback would be that stETH has risk and maybe shouldn’t be sold prior to withdrawals being enabled.

My 2’ cents:

  1. I don’t agree Lido selling $LDO into stables in the secondary market. Not sure who can handle this stuff now in Lido and don’t want Lido to be a TradFi in this case. From this point, I agree to settle a new deal directly.
  2. It makes perfect sense to have multi Votes for different investors. Lido dao internally got enough information about them (bg and others) but the community
    as LDO holders needs to know more as well.
  3. About the revenue, Lido revenue is pretty clear now. However, plz go through this . We need to hold some revenue for the slashing insurance fund especially before the success of the Merge2.0. Also, Lido is still at the early period (18 mths) and needs more liquid funds for development (admittedly, $LDO is illiquid).
  4. As @jbeezy said, Lido made some mistakes before but learnt a lot as well. We need more encouragements and construstive participations and suggestions.

Had a similar pov on a $5m run rate for operating expenses, $15m pushes it to 2000 ETH breakeven

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The DAO should start by cutting expenses and headcount, if that’s not enough, make a call for VCs, funds, accredited investors, retail. Why was all of this done behind closed doors?
If Dragonfly plans to hold for many years, they shouldn’t have any issue agreeing to a lockup. They were in the first treasury diversification and couldn’t list a single thing they helped with, except “strategic calls and specific requests”, which was the whole point of the first round. Now all of a sudden they are looking forward to being more active if this passes…

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:ballot_box: Snapshot vote ‘Treasury Diversification #2 - DragonFly’ has been created!
Please, cast your votes!
Ends on: 25 Jul 22 19:00 UTC
https://snapshot.org/#/lido-snapshot.eth/proposal/0xede83acfa2d3afd2a0109bb437073c5424bcc576bbe32e51a5cdee9ecd6cebee

Here is an alternative for the fund raise.

  1. Create a series of NFT with 100 items. Each item represents 100K $LDO that can be claimed from treasury 3 months after the item was sold.

  2. Quarterly sold 25 items on OpenSea via dutch auction mechanism.

  3. The NFT sales can be paused before each round if the income can fully cover the expenses, or we have other better alternatives.

Pros:

  1. Give everyone a fair chance to participate in the fund raise event.

  2. Somehow create a future for $LDO price discovery.

  3. More flexible than sale 10MM $LDO in a single deal.

3 Likes

This has not been decided yet. The reason for not having a fully open public and premissionless sale has been addressed in my earlier response. Speed and uncertainty of the market. If we wait for 100% buy in from everyone, and a full public sale process and ETH or LDO drop significantly the whole thing is moot.

Who is the penultimate person or entity that is best in class and can buy $10M relatively quickly? I have been fielding meetings non-stop to try to find the local best I can in a very short window.

If the community votes for a lock up there will be a mandatory lock up. If the complaint is current LDO holder distribution, again what is your suggestion? One voice, one vote? Use stETH? That takes more time.

To reiterate, we are not perfect, but at the same time, we have built the best liquid staking protocol on the market. Hindsight is 20/20 when self reflecting and we can either continue to improve and get better or give up.

3 Likes

This snapshot is focused only on the 1% allocation to DragonFly and whether to add a lock up, keep the deal as it is or hold and work on a better solution.

The other 1% of the sale will be determined after this vote for simplicity, focus and speed of execution.

https://snapshot.org/#/lido-snapshot.eth/proposal/0xede83acfa2d3afd2a0109bb437073c5424bcc576bbe32e51a5cdee9ecd6cebee

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who the fuck writes these. the options should be “keep as listed, no lockup” or “no to dragonfly”.

they said they cant physically do a deal with lockup bc of they way their entity is structured, so lets honor that.

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dragonfly said they cant do a lockup.

“its not possible, even thought its a totally normal thing in this industry” dragonfly said.

ok well great, its a 2 option snapshot then. “deal as listed, no lockup” or “no to dragonfly, good riddance”.

where are you coming up with this 1 year bullshit if they cant even do that deal?

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secondaries cant be dumped on the public markets if the company is still private. so it really is not similar imo

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I wrote those and Snapshot has a hard character limit. I didn’t have LDO on my wallet while mobile so Zuzu helped with the actual proposal launch.

DragonFly said, highlighted for ease:

This means it is not impossible, many funds have multiple structures. I cannot transcribe every word of every conversation on the forum.

So if the community thinks this is a non-starter without a lock up, we add a lock up. If Dragon walks then so be it. We now have more data to improve the proposal from the feedback.

we’re splitting hairs… it doesnt reasonably seem like theyre open to a lockup deal from the quote you sent.

the 3 option vote appears to be a way to push the no lockup through, as people not wanting the proposed deal would be split between no deal and 1yr lockup.

seems sketchy tbh.

I would recommend revising the vote.

And the third option should not be “no needs more work”. its “no to dragonfly”. or else we keep voting over and over again.

tldr, because dragonfly pushed for their own vote and was granted it, the options need to be “yes to proposed deal with dragonfly” and “no to proposed deal with dragonfly, and we move on from them”

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b. The entity we’re using to purchase LDO tokens from the DAO has liquidity restrictions. This means it’s difficult for us to invest in illiquid token deals, hence the no-lockup structure of this deal.

I’m scratching my head trying to figure out why this would be. . .asked a lawyer who’s better at fund work and they couldn’t figure it out either

private VC funds (what Dragonfly is registered as) don’t have hard liquidity requirements, and typically don’t self-impose them either. . .it would kill the VC investment model

how do you do all your other token investments, which doubtless did require lockups?

…can you explain?
image
https://www.sec.gov/Archives/edgar/data/1900344/000190034422000001/xslFormDX01/primary_doc.xml

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imo, the vc has already shorted on perps and fully structured the trade, so they need to cover the short if theres a large price movement upwards by selling the ldo. they think they have the votes so they probably already locked in their price.

what makes this worse is that the head dude from dragonfly apparently said on a podcast that protocols should not accept no lockup deals from vcs.

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the entity is Dragonfly Liquid here. Not sure if it is the same entity as Dragonfly Ventures III, L.P. shown in the doc.