DEPARTMENT or DAO: Treasury management
WHY: We have to get our market price back to backing price. Too many things are at stake for us to just patiently wait for the market to realize how undervalued we are. The longer our market price stays far below backing the more we erode our credibility and look like an unsafe investment to outsiders. Furthermore, going back to backing is CRITICAL for Lobis for several reasons:
It allows us to resume selling bonds at a profit instead of at a if we allow bonding right now
Selling bonds above backing means we increase the number of votes per Lobi token which is our primary goal
Showing our commitment to defend backing price makes investing in Lobis safer therefore more attractive to new investors
It allows us to perform D2D swaps at fair value instead of current discount
It allows Lobis to save on operating costs as salaries are paid in sLOBI
Showing our commitment to defend the backing price should create more trading volume around the backing price and therefore more LP fees collected by the protocol
WHAT: There are several possible strategies to force our market price up:
Option 1 - Big-bang buy back to backing price: This is probably the worst cost efficient option. This will likely trigger a dump of Lobi tokens back to a new level somewhere between pre-buyback price and backing price forcing us to perform a series of buyback until all investors waiting to exit Lobis at backing price are out.
Option 2 - Stealth mini buy backs: This option would have the advantage of limiting the sell off and also would give the possibility of smart investors to help raise the price. This should be more cost efficient than option 1 but may still result in more sell off than new investors.
Option 3 - Operation back to backing: Loudly advertise our upcoming price increase to bet on the psychological effect this may have on the market and let investors pump the price for us. Here are the full details of Operation back to backing :
Set a deadline at which we guarantee the market price will be at backing no matter the potential sell offs and we advertise the shit out of this date, then we commit to defend this price with treasury buybacks as needed so that the market knows our backing price is a rock solid reference point and once this is established, we should no longer have to defend the price ourselves, the market will take care of it. Based on the current state of the LP, in order to reach this target we would need to dedicate a budget of ~300k$ for market buys of LOBI tokens. In order to avoid a “Snowdog-like” scenario, we won’t perform a big-bang buyback at the deadline but instead execute small incremental daily buybacks as needed. This will both give time to spread the word while starting the momentum and also should be progressive enough to reduce the temptation for investors to sell off.
Obviously the real objective of this operation is to heavily be on marketing to trigger market buys so the market itself pumps our price up to backing instead of us having to use too much of the 300k$ budget.
- Potential criticism 1: This will mostly trigger market buys from people looking for a quick profit who will dump as soon as we reach backing price so the price will just go back to where it was before
- Counter-argument 1: Even if that was the case, we would be back to square 1 while having collected LP fees and created action around our token so it would still be a net positive
- Counter-argument 2: In this situation, instead of going back to pre-buyback price, it seems more likely the price would oscillate while getting closer and closer to backing:
Potential criticism 2: Why waste 300k$ of precious governance tokens when our goal is to accumulate governance token?
- Counter-argument 1: This is a very short sighted argument that doesn’t take into account the value of our token. On a regular basis we do tokens swaps between 500k$ to 1MM$ in value. Example: 500k$ token swap with StakeDAO. If we trade at 50$ we would send them 10,000 tokens. However if we trade at 100$ we send them only 5,000 tokens. Assuming the back to backing operation has cost us 300k$ that’s as if we had paid 300k$ for 5,000 of our tokens: average cost 60$/token, pretty good deal! Now let’s assume we do another 250k$ swap with Angle, we save 2,500 tokens for free.
- Counter-argument 2: Because we trade below backing we had to turn off bonding, how fast would we recoup the 300k$ if we turn on bonds again ? Probably in less than a month so we would replenish the treasury in no time anyway
- Counter-argument 3: When we trade below backing, any buyback from the protocol increases the backing per token so even if the total value of the treasury would decrease, the relative share of the treasury per token holder would actually increase so it’s a win-win for current investors in all cases. This is a critical point to understand, whenever a protocol buys its own tokens below backing it is always beneficial from the perspective of each individual investors.
- Counter-argument 4: We currently farm around 75k$ per week of staking rewards so we could use exactly 1 month of farming rewards for this operation which would leave the treasury untouched, with this in mind the risk/reward ratio seems very favorable.
Potential criticism 3: Buybacks are a sign of weakness and we should focus on delivering value and use cases to attract new investors instead of focusing on buybacks
Potential criticism 4: Buybacks don’t work, others have tried and it never works
Counter-argument: There is no 100% guarantee this operation will succeed the same way there is no 100% guarantee it will fail, but we believe the benefits outweigh the risks. What is the absolute worst that can happen ? We spend 500k$ to buy out all fake lobbyists below fair value and we resume building with only real lobbyists and a treasury that’s still looking hella strong at 13MM$.
Let’s look at potential scenarios:
Scenario 1 (Ideal): The psychological effect of guaranteed return within a clearly stated time frame is enough to convince investors to pump the price up to backing before the deadline without us using the treasury. When we reach backing some investors will sell to take profits and others will enter under backing raising the price up again etc… until the market reaches an equilibrium around backing before our deadline. Mission accomplished at no cost. Scenario probability : 20%
Scenario 2 (Good): Market doesn’t bite right away so we need to execute daily market buys for a few days. Market responds favorably to the price action that shows the commitment from the protocol and starts picking up the upward price action allowing us to stop market buys from the treasury. When we reach backing some investors will sell to take profits and others will enter under backing raising the price up again etc… until the market reaches an equilibrium around backing before our deadline. Mission accomplished under budget. Scenario probability : 30%
Scenario 3 (Acceptable): Market doesn’t bite and investors never participate in pushing price up. When we reach backing, some investors sell to take profits and no other enter to compensate so we need to spend extra to go back to backing after sellers exited. Mission accomplished slightly over budget. Scenario probability : 20%
Scenario 4 (Bad): Market doesn’t bite but instead the upward price action shakes paper hand investors who progressively exit their position as we get closer to backing. Once we reach backing, all paper hands have exited and price stabilizes. Mission accomplished at significantly higher cost. Scenario probability : 20%
Scenario 5 (Worst): Market doesn’t bite but instead the upward price action shakes paper hand investors who progressively exit their position as we get closer to backing. Once we reach backing, we see a massive sell off from investors previously waiting for an opportunity to exit the project at backing price. Necessity to continue market buys to defend backing price and once back to backing, new round of sell offs for those who missed the previous window. Rinse and repeat until all fake lobbyists are out. Mission accomplished at the expense of a significant fraction of Lobis treasury but only loyal diamond handed lobbyists remain. Scenario probability : 10%
Risk Assessment: The main and probably only risk of this proposal is to see an unexpectedly large proportion of Lobis investors taking this opportunity to exit their position causing us to drain the treasury more than expected. That would be equivalent to reverse bonds below backing value meaning even though the size of the treasury in absolute value would decrease, the relative share of treasury per token holder would increase. This makes this proposal a win-win for diamond hand token holders: either the dollar value of your bag increases while your share of the treasury stays constant or your share of the treasury increases while your bag remains at the same level.
Allocate ~$300k of assets for this operation (mostly farming rewards as possible)
Set a target date of 30 days after this proposal is approved
Define daily targets based on day 1 price and target backing price and only execute market buys if the current market price is lower than the daily target
Only market buy the required quantity of LOBI to reach the daily target
Once deadline is passed, continue daily market buys as needed whenever market price drops by more than 3% under backing
WHEN: Standard governance process: draft 3 days, formal 1 day, snapshot 2 days