Spent some more time thinking about this.
Lido needs the cash, but not desperately. There are some alternatives, but it’s not clear if the alternatives are worse decisions. I’m supportive of the idea of raising now.
I do wonder if the raise should be staggered (fill 10m LDO now, fill 10m LDO in 3-6 months). Of course, there is significant price risk by holding for 3-6 months.
If the DAO decided to sell, then I think selling too late is much worse than selling too early.
If Lido sells too early, and LDO continutes to go up, then it could’ve got an extra $10m USD. However, the remaining LDO in treasury will also go up. So really, it’s a constrained to missing out on 10-or-so million dollars.
If Lido sells too late, and LDO turns around and goes down, then Lido could have to sell a lot more LDO to cover runway. Holding much less equity over time puts Lido in a worse position.
So, I would perhaps sell some now for comfort and some a little later. But I do recognise that being “risk on” led to this situation to begin with.
Lido should try to maximise financial returns from this sale. The best execution that Lido can get will be p2p direct trade. Selling on market or OTC will be selling at a discount to current spot prices, maybe of 10-20% due to market liquidity.
So, getting maximum $ from this sale seems like a good idea.
Crypto VCs effectively do nothing, so a “long-term-relationship” is basically a meme (and most crypto VCs are useless such that doing nothing is actually the preferred state).
If you have two main levers in terms: lockup and price then it makes sense for Lido to reduce the lockup lever to increase the price lever.
That said, I don’t think buying below spot price with no lockup makes sense. There is a clear extractive arbitrage opportunity. Dragonfly should either buy a) with a short lockup to eliminate the arbitrage opportunity or b) buy slightly above spot price to eliminate this arbitrage opportunity.
You could model this such that:
deal price = spot price * (f)lockup
Lockup multiplier decreases by 10% for every increasing value of f up to 3.
- if f=0 (no lockup) then lockup multiplier is 1.05 or 1.10 → deal price = spotprice * 1.05
- Or, if f=3 (3 year lockup) then lockup multiplier is 0.7 → deal price = spotprice * 0.7
Right now, extremely long lockups are unattractive to Lido, because Lido wants to maximise $ returns from this sale rather than find long-term partners.
But, zero lockup below spot seems bad too. So, for sales with zero lockup, a small premium to spot price is added.
This premium to spot price eliminates any arb or “free money” extractive opportunities, but remains the best execution price that you could currently get on the market since the slippage/liquidity premium is much larger than the lockup multiplier.
So, it protects Lido, while remaining the best deal for any VC such that they cannot find better terms on market.
The deals that can make sense for Lido here might look like:
- 0 lockup with 5-10% price premium
- 6 months lockup at spot price
- 1 year lockup with 5-10% price discount
Any further lockup and discount would make the sale unattractive, since the goal of the sale is USD runway.
I think it’s a bit fucking stupid that Dragonfly is >95% of the “yes” votes for this deal in the snapshot vote.
Dragonfly voting to give themselves below market price tokens in a contentious vote that obviously does not have alignment on this forum seems like mercenary behaviour, against the best interest of the DAO, and exactly the thing that people on this forum seem to be worried about.
I’m not sure that this self-dealing is a great look. I would’ve expected Dragonfly to abstain from this vote since they have extremely clear conflicts of interest. This is a vote to sell themselves tokens below market price with zero lockup – there are obvious reasons why this would be in Dragonfly’s interest but against the interest of the DAO.
This makes me think a lockup or premium is even more important.
The process for this is horrendous, Lido needs better processes around decisions like this.
The worst case scenario is that no sale is executed and all crypto markets dump hard, Lido struggles with runway and has to deplete treasury hugely to survive, retaining little LDO ownership for the future.
We should avoid that at all costs, pass that risk to others, and secure a sale. But, the sale should be sensible and avoid extractive games at the cost of Lido DAO or LDO holders.