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

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

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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.

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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.

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

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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.

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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

This text will be hidden

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

Summary


This Method seems a Lot Better to me :thinking:

Any Drawbacks ?

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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.

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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.

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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.

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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.

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

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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.

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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:

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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.

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I respect your stance and agree that this is a sort of blunt metric to base a permanent solution on. I’ve see this TA vs fixed-price debate go on here, and on Discord, and want to add my views to this thread:


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.

30-day moving average is a short-term technical analysis (TA) metric – I think it is virtually useless information when it comes to making longterm investment decisions (its efficacy is still hotly debated).

If these are 1INCH tokens that the treasury plans to hold for years, why does it matter if we buy them on a downward or upward 30-day price swing? I could see that maybe being valuable information if we were trying to do a lump-sum purchase of 1INCH and wanted to buy near the bottom, but this proposal is calling for a revenue allocation so we’ll be dollar cost averaging (DCAing) by default.

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?

With regards to this proposal, the ±$0.20 band around the $1.50 mark should provide some protection against traders. Instead of buys chattering around the $1.50 mark, the DAO would be waiting for the price to fall from $1.70 all the way to $1.30 before it started buying again – this seems less game-able than a buying scheme that could rapidly switch back and forth between buying 1INCH and buying USDC.

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.

@Natalia can chime in if I misrepresent her thoughts, but from our discussions I understood that this proposal would be a temporary solution. We currently hold 0 1INCH in our DAO’s treasury and 1INCH is very cheap compared to historical price, so it seems like a good time to at least start filling up our coffers with 1INCH until we figure out a permanent strategy.

If the discussion has changed direction, has the summary or summary described at the top of the topic been updated?

No changes have been made to the body of the proposal to my knowledge, the only edits to the post that I can see are changing the title from 1IP to 1RC, and adding a temperature check poll (I did that one).

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Indeed, it may not be valid to use a 30-day average to determine the trading price when considering a long-term span of months or years.
However, when it comes to such discussions, my understanding of the basis for specific prices such as 1.3$ or 1.7$ is also not up to par.
If the terms of 1.3$ or 1.7$ were valid only for a limited period of time, say, six months from today, I might be a little inclined to agree with you.
Or, if the proposal is more abstract, such as “buy when the price is low and sell when the price is high,” I would be in favor of the proposal for the time being.
Perhaps my discomfort with the fact that a yes vote is being cast on this proposal is because only the price is specific, but there is no mention of the time frame or timing of when it would be applied.

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Temperature-check vote was a success. 6 votes in favor, 2 votes against.


1IP-09 Phase-4 snapshot vote is now live!

Please hop over there and give this proposal a vote!

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

Final results were 10.46M votes in favor of the proposal, and 0 votes against the proposal.


I will update this thread once the treasury starts adding 1INCH to its coffers.

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whitelisted tokens from # 1IP-08 will also be used to buy 1inch?

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Excellent question!

The answer, in short, is “no”.


1IP-08 will work in parallel to 1IP-09. So, if the historical breakdown of treasury revenue sources that @Belac outlined here continues, then roughly 70% of treasury revenue will be used to purchase 1INCH, 15% will be in ETH or wETH, 1% in wBTC, and the remaining ~15% in the DAI and USDT stable coins.

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