[1IP-09] Collect 1inch DAO Treasury Revenue in 1INCH Token in Addition to USDC

1inch DAO
#6

hey @ScaleWeb3 thanks for the comment,

I’d say the conflict between the proposals is intentional. I am personally a big fan of the [1RC] Simple diversification mechanism for 1inch DAO Treasury . Overall posting [1RC] Collect 1inch DAO Treasury Revenue in 1INCH Token in Addition to USDC allows to gather more feedback on community’s expectation and their vision for the treasury’s future development.

In more detail, both strategies if pass can easily co-exist, the @zumzoom’s idea is not to swap spread surplus assets into USDC if they are in those top currencies ETH, WETH, WBTC, DAI, USDT, instead to accumulate them in the treasury.
Swinging between 1INCH and USDC mechanics can still be applied to the rest of the spread surplus assets. That way, I clearly see how both can be pretty much complementary.

I’d allow myself a few remarks:

Currently, the 1inch Treasury is collected in USDC only.

Great point, I assure you many things have being cooked right now, stay tuned! :wink:

7 Likes
#8

Thanks for the explanation.

After considering your reply, we agree that the 2 proposals could co-exist but would add that we are not yet fully convinced of the long-term value-add of this second proposal in its current shape :slight_smile:

We took a look at the treasury and the overall token distribution and saw that 1inch core + community sit on a lot more 1inch tokens:

  • Are those tokens in specific baskets untouchable or is there flexibility in using them for different purposes?
  • Do you have an up-to-date overview of the different budgets and links to the Eth accounts?

We would really appreciate it to build a quality 1inch profile for DeFi-Reporting.com, engage in this governance process with the same up-to-date knowledge you have and consequently provide the best possible input. Thank you!

5 Likes
#9

The Community Allocation is totally in the Hands of 1inch Foundation that has nothing to do with DAO although it sounded like Dao has direct control over those community incentives but i think they are reserved for farming , gas refunds etc .

I doubt that DAO can signal foundation to invest 1inch in DAO treasury if voted .

IT"S Really not that diffcult actually to calculate the 30 D averages price of 1inch & trigger 1inch buybacks .

My simple view was that instead of taking current price of 1.5$ for buybacks we should take atleast 30D Average price to get rid of price manipulations .

Querying 30D Avg Price is not that difficult via Oracles

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3 Likes
#10

GM @Natalia, this is a long-due proposal, and I was also thinking about Strategies for the treasury to accumulate 1INCH tokens, So we have a positive exposure as the network grows. Implementing the swap surplus conversion will give systemic buy pressure and might be enough to offset the selling pressure on the token price.

Before going further, let me add my concerns to this proposal.

  • The Ultimate intention of the proposal.
    . From reading the proposal, I’m unsure if I get the proposal’s actual intent. Is it about treasury diversification, a buyback campaign for 1INCH or if it is a way for the DAO to have exposure to the 1inch network development. your 1RC is giving a missed impression, which would even be bad for the token in the long run.

  • the Arbitrary price range of 1.5$.
    The price range between 1.30$ and 1.70$ seems to be arbitrary. It would be great if we could know the reasoning behind choosing those limits.

The proposal is signalling that the fare price of the 1INCH token is around 1.5 dollars, and anything below will be under price and DAO should buy back those tokens and support the price, and signals that anything over 1.70$ makes 1INCH over prised. This would, in my opinion, affect the token in the long run and suppress the token as we move. The best approach, in my opinion, is to convert 1inch tokens at arbitrary time points, which are not influenced by the price or Dollar-cost averaging.

Dollar-cost averaging. ensures that the treasury has 1INCH tokens regardless of the token price and will act as the real buying pressure for the 1INCH token rather than someone’s bag holders.

3 Likes
#14

I helped brainstorm this proposal so I think I am qualified to answer some of these questions.

From reading the proposal, I’m unsure if I get the proposal’s actual intent. Is it about treasury diversification, a buyback campaign for 1INCH or if it is a way for the DAO to have exposure to the 1inch network development. your 1RC is giving a missed impression, which would even be bad for the token in the long run.

I don’t think any of these motivations are mutually exclusive. I think my response to the rest of your comment my clear up the line of thinking.

The proposal is signalling that the fare price of the 1INCH token is around 1.5 dollars, and anything below will be under price and DAO should buy back those tokens and support the price, and signals that anything over 1.70$ makes 1INCH over prised. This would, in my opinion, affect the token in the long run and suppress the token as we move. The best approach, in my opinion, is to convert 1inch tokens at arbitrary time points, which are not influenced by the price or Dollar-cost averaging.

I viewed this proposal as a temporary treasury management strategy that is designed to take advantage of the depressed token prices that this bear market has left us with. I expect this to be modified in coming months, but I can see your point as, in its current form, it could almost be seen as if the DAO is saying “1INCH is worth no more than ~$1.50” – this was not the intention.

Potential solution for this proposal

I think, in the long run, it makes a lot of sense to collect some treasury funds in stable-coins (we’ve all seen how our treasury is basically the only one in all of DeFi that is larger now than it was 6 months ago). We have plenty of USDC reserves right now in the treasury ($14.6M), so, I think we can afford to be a little riskier with the revenue stream for the time being.

What if, instead of using the market price of 1INCH to determine if we’re collecting revenue in 1INCH, we just set a time period that we’ll collect the revenue in 1INCH instead of USDC? Let’s say we do this for one annual quarter (three months)? I won’t edit the whole proposal before getting feedback, but the Simple Summary would read as follows:

Simple Summary

This proposal seeks to modify the 1inch Network DAO Treasury’s revenue collection strategy by enacting the following changes:

  • Switch from buying USDC with Swap Surplus revenue to buying 1INCH.
  • Unless renewed or modified by 0:00 CET on the 1st of October, 2022, the treasury will revert back to collecting revenue in USDC on that date.
  • This proposal can be renewed, modified, or repealed at any time via the normal 1inch DAO governance process…

Thoughts on this modification? I like it because it forces us to re-evaluate in the next 3-months and does not depend on market conditions.

4 Likes
#15

Longterm, we might not even run into the issue of when to start, or stop, buying back 1INCH…

Hypothetically, if the DAO voted to implement some sort of staking return with a set % of the treasury’s revenue, the DAO would always be buying 1INCH and distributing to stakers (probably best to structure it this way as stakers would be receiving increase governance power ). For the fraction of revenue that doesn’t go towards stakers, we could continue to collect that in whatever makes the most sense (like USDC + that simple diversification method being proposed.

Yes, we’d still run into the issue of the 1inch DAO holding very little of its own governance token (if that is even to be considered an issue seeing as most DeFi projects are in the opposite boat and it is quite the predicament). However, there would at least be a sustained buying presence of 1INCH that scales with protocol usage.

1 Like
#16

How much amount of treasury supposed to be spent on buyback ?
Doing Daily Conversions to 1inch will cost gas fee on eth chain ?

1 Like
#17

How much amount of treasury supposed to be spent on buyback ?

The total amount currently used to purchase USDC (unless the other diversification strategy is already live, then we wouldn’t be swapping the ETH, wETH, wBTC, DAI, and USDT).

Doing Daily Conversions to 1inch will cost gas fee on eth chain ?

Yes, but we already do this when we swap the collected revenue to USDC. So that cost should be the same.

1 Like
#19

Hey @ScaleWeb3 it took me a while to get back to you. Thanks for getting into detail of the distribution scheme and thinking over the long-term value of the proposal.
I am happy to answer your questions:

The Community Funds (remains ~225M 1INCH) are under 4 year vesting and getting spent gradually for different purposes.
The Growth Funds (remains ~ 52.8M 1INCH) have a different vesting schedule due the Round B token sales.
Do you have an up-to-date overview of the different budgets and links to the Eth accounts?

I don’t have the overview you are asking for consolidated in one place, all transfers are pretty much readable from the main 1inch Foundation Multisig.

4 Likes
#20

Does DAO has direct/indirect ability to control or suggest the spending of these funds or not ?

2 Likes
#21

My understanding it that no, only Treasury funds are under DAO’s control

Those Community Funds are for marketing and pr campaigns, event sponsorships, farming, gas refunds, charity etc.

4 Likes
#22

Can we do this -

  • Switch from buying USDC with Swap Surplus revenue to buying 1INCH when the 30D Avg. Price of 1INCH is GREATER than Current Price

  • Switch from buying 1INCH with Swap Surplus revenue to buying USDC when the 30D Avg. price of 1INCH is LOWER than or equal to Current Price

Explaination -

If 30D avg Price is greater than current price = 1inch in bear area

Summary

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If 30D avg Price is lower than current price = 1inch in bull area

Summary

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This Method seems a Lot Better to me :thinking:

Any Drawbacks ?

4 Likes
[1IP-08] Simple diversification mechanism for 1inch DAO Treasury
#23

The 30D Avg. or DCA is a solid approach and I agree a better method. I just think that in current market condition, we have to react fast (well even discussing this proposal takes a long while haha). The method implies implementing of more complex logic which takes more time and cooperation with the 1inch Labs.

But yeah I see this being implemented in the nearest future as a more defined strategy.
Thanks for the comment.

3 Likes
#24

FYI – this proposal is live on Snapshot:

[1IP-13] Collect 1inch DAO Treasury Revenue in 1INCH Token in Addition to USDC
(see edit)

I know this is unorthodox as we didn’t have a Phase-3 temperature check. I posted my thoughts on the matter here: [1RC] Simple diversification mechanism for 1inch DAO Treasury - #18 by RoundElephant

Edit – The phase-4 vote has been cancelled and won’t resume until the proper phase-3 temperature check vote has run its course.

3 Likes
#25

We believe that highlighting the risks this proposal presents in its current state is important:

  1. Market Risk. The DAO earned ~800k USDC last month, which is about average according to Zerion. Forgoing USDC revenue for a quarter will come at an opportunity cost of ~2.4m USDC in favour of the equivalent amount of 1INCH. It’s possible that we stay in a bear market for another 12-24 months and that 1inch and the broader market drops another 50-90% from here. If the DAO treasury’s purpose is to help fund innovation and growth of the protocol, USDC is likely to be able to facilitate that in this environment and this loss of purchasing power seems like a more serious risk than has been discussed here.
  2. Risk of Losing a Competitive Edge. 1Inch DAO’s USDC-denominated treasury is a competitive advantage that sets the protocol apart from its competitors. It’s not clear what advantage is gained by changing the fee collection strategy, so it’s difficult to assess what the risks are here.
  3. Possible Conflict RIsk. Similarly, there may be conflicts of interest between the 1Inch Foundation and the DAO that are not straightforward or outwardly knowable such as expiration of vesting contracts.

For each of these risks, we’d suggest a method to mitigate:

  1. Use War Chest to Build in Bear Market. Fast-track the creation of the grants committee which seems to have stalled. Start backing projects at opportunistic lower valuations in the bear market. This is the best time to build, and building will help to shed light on how exactly much good 2.4m USDC might do for the protocol’s development.
  2. Limit 1inch Purchase to Keep Competitive Advantage. If token holders do want to proceed with this proposal, we suggest capping the amount of 1INCH the DAO can buy in USDC terms at 1,000,000 and once that number is hit, immediately switch back to swapping fees for USDC (and potentially implementing the Simple Treasury Diversification Plan). This puts an approximate time frame and an exact dollar value on the opportunity cost of this proposal, as well as guaranteeing that the competitive advantage of a USDC-denominated treasury remains intact.
  3. Alignment Stakeholder Interest. Align interests between the DAO and the foundation. Would the foundation be willing to buy back 1INCH tokens with their treasury 1:1 with the DAO? If not, visibility into the foundation’s balance sheet, runway, token vesting schedules etc would be helpful in evaluating the risk of a conflict of interest here.

1Inch DAO is in the enviable position of having a stable treasury from which to fund projects that grow the protocol. Arguably the protocol is in a better place than every single one of its competitors in this regard. This change should only be made with a full understanding of the risks it entails.

3 Likes
#26

We’ve heard your feedback and have canceled this Snapshot vote so that the proper phase-3 temperature check vote can take place.

I have edited this post to include the temperature check poll and moved it to phase-3.

3 Likes
#27

I appreciate you so closely following our processes. Thanks @RoundElephant for reacting quick on that

2 Likes
#28

Risks

1. Market Risk

You make fair points. I just want to stress the fact that nothing in this proposal changes the composition of existing treasury funds. $14.7M in USDC has been collected since November 2021 and $0 have been spent, let alone invested, so far. If your $2.4M estimate is correct, it would come out to ~16% of the existing treasury.

1INCH is already 90% off its peak so a further 90% drop from here would put the price of one token at ~$0.07 and the fully diluted valuation of 1INCH at ~$100M. Wouldn’t we want to be purchasing the token at that price? Almost all of the financially successful people in this space had to have the stomach to purchase tokens during bear markets.

2. Risk of Losing a Competitive Edge

I think the potential advantages are outlined sufficiently in the Motivations section of this proposal.

But I want to again add a) this strategy can be changed at anytime via governance vote if we don’t like the impacts on the treasury, and b) this proposal doesn’t touch the ~$14.7M in stables already held by the DAO.

3. Possible Conflict Risk

Vesting contracts are all on-chain and fully accessible to anyone that wants to dig through them. True, I don’t think it have been broken down individually anywhere (though they are certainly included in the token unlock schedule).

Let’s break down the 1inch Foundation StepVesting Contract (the largest holder of v1INCH) for example:

  • started = 1606824000 (Tue Dec 01 2020 05:00:00 UTC-0700)
  • cliffDuration = 365 days
  • stepDuration = 182.5 days
  • numOfSteps = 6

So, the cliff ended December 2021 and all of the Foundation’s v1INCH will be fully claimable come December 2024.

Proposed Mitigation

1. Use War Chest to Build in Bear Market

I agree with your path forward here and really like that particular proposal. Currently we’re doing an analysis to see what formal legal structures are required of the DAO if it is to write grants.

2. Limit 1inch Purchase to Keep Competitive Advantage

I like this idea and would support its implementation. I think this proposal should be viewed as a temporary solution, and this idea would force us to acknowledge that by requiring a vote at the $1M mark.

3. Alignment Stakeholder Interest

I haven’t seen the Foundation’s balance sheets but I think it’s safe to assume they’re in the opposite position of the DAO – they likely have far more 1INCH than stables seeing as they were the initial distributors of 1INCH. I posted their vesting contract above.

I agree with your closing paragraph, too. I hope this comment has addressed some of the concerns you raised.

2 Likes
#29

I think It’s fine to say that 20% [btc,eth] + 10%[1inch] + 70% stables is a correct Composition .

  • Keeping 5 - 10% of Treasury in 1inch as per this Poll
  • Apply Better Accural Mechanics in V2 FROM 1INCH labs
  • Limit the Treasury exposure to 1inch to make up for future buys

In Favor :white_check_mark:

1 Like
#30

I voted no.
The reason is that the price for purchasing 1inch from the treasury is fixed.
I cannot speak to the pros and cons of calculating the price that triggers the purchase from a 30-day average, but I think it is at least more reasonable than a fixed value.
My only concern is that if even the strategy of using the 30-day average to determine the buy/sell price were fixed, wouldn’t there be traders who would try to take advantage of this strategy and profit from it?

Also, and this may be due to my not understanding this voting system correctly, but this time I was against the price being fixed at 1.3$ or 1.7$, but looking at the discussion, it seems that Natalia is not against making it variable either.
I am not sure if the fixed price, which is the reason I objected, is still in effect today or if it has been modified.
If the discussion has changed direction, has the summary or summary described at the top of the topic been updated?
If not, I thought it would be easier to understand if you could update the content to include the results of the discussion.

2 Likes