UPDATE: This has already achieved its goal, which is to kickstart a public discussion and brainstorming of proposals from ANT holders. Don’t take this proposal as final. I plan to still draft more proposals myself and iterate on this one, and I encourage other ANT holders to do the same.
Disclaimer: This is purely my personal take. I’m not involved in the day to day of Aragon. I’m in the Aragon Association’s committee, and I plan to stay until most of the token sale proceeds have been safely transferred to the Aragon DAO. Not investment advise.
Aragon is still the leader in the DAO space, with >$6bn AUM and >5k DAOs. Heavyweights like Curve, Lido or Decentraland rely on Aragon.
However, the risk of a 51% attack has been keeping the Aragon Association from transferring all funds to the Aragon DAO.
We have seen that over the last week. Aragon attempted to decentralize with a huge book value gap on the treasury, and no incentives to combat it. The Aragon Association has been trying to solve the side effects of this problem but, in my opinion, not the core issue itself.
This proposal is a work-in-progress attempt to solve the core issue. This proposal aims to kickstart discussion and brainstorming in an open forum, instead of behind closed doors. Things are subject to change, numbers might be wrong, needs legal review.
- Book value higher than price incentivizes short-term treasury capture.
- Treasury higher than market cap means market values the guilds contribution as a liability/net negative.
- Core contributors have low ANT packages and high compensation in other assets, resulting in lack of skin-in-the-game.
- “Infinite money” problem encourages non-sustainable team growth (Aragon guilds now employ 50 people) and discourages core contributors from breaking status quo (since funding won’t stop anyway).
In a sentence
Buy ANT back, launch veANT, invest and vest the treasury.
In a paragraph
Transparently perform an ANT buyback. Aragon DAO can use that ANT to incentivize core contributors, partners and users. Invest the treasury and generate yield. Transition from wANT to veANT and incentivize veANT holders to govern the Aragon DAO. Vest the treasury, disincentivize 51% attacks and solve the infinite money problem.
- A $30m ANT buyback, using YFI’s buyback smart contracts (or similar), and done fully transparently.
- That would effectively set a price floor for ANT; the contract will buy ANT at any price higher than 30-day moving average e.g. today it is $3.09 (this will change day to day). The buyback will adjust to the 30-day moving average each day it is active.
- The predicted amount of ANT purchased back if bought at book value is between 5m-6.6m tokens which are 11% to 14.6% of the supply.
- Set a smart contract as the minter of ANT, being able to mint up to a maximum of 5% per year. The DAO can later decide to make ANT deflationary. But it capping the amount that can be minted per year is a must.
- Engage a firm (or multiple ones) to generate yield on-chain and provide LP in ANT pools (example). This firm would be restricted to only doing a subset of actions on-chain (e.g. cannot run away with funds).
- Lock most of the treasury away for four years, whatever shape that might take (e.g. LP tokens).
- This could be done with a smart contract that sits between the firm’s fund management smart contracts and the DAO, ensuring that the DAO is the ultimate recipient of the principal but can only withdraw 25% per year.
- The DAO is the ultimate recipient of the yield, which is sent whole (without vesting).
- Every year 25% of the treasury would unlock to the Aragon DAO.
- All yield generated is set aside for veANT rewards. veANT holders are the governors of the DAO and they have quite an important job steering the wheel. They need to be rewarded.
- Perform more token swaps with loyal Aragon users and other top-notch partners.
- Keep Guardians and the Aragon Shield Foundation as protectors of the mission of the DAO, making sure of the legality of the proposals and also of their legitimacy towards the project’s mission and vision.
- Incorporate a court system to replace them ASAP.
The treasury currently consists of ~$172 million in liquid assets and 8.1m ANT.
With the move to the DAO there are tax, legal and other liabilities (like previous grant commitments), which are ~$40m. The Aragon Association, which currently holds the treasury, negotiated a tax agreement with the Canton of Zug (Switzerland) to legally transition funds to the Aragon DAO, but it requires the payment of taxes.
After 5 years, the leftover funds (after tax payments and liabilities) will be transferred to the DAO. In the meantime, some of them can be used to generate yield that can go into the DAO’s yield pool.
That means liquid treasury other than ANT after buyback =
172 (liquid) - 40 (tax and liabilities) - 30 (buyback) = $102m. If including existing ANT and ANT bought back (let’s say at $4.5 per ANT) =
102 + (8.1 + 6) * 4.5 = $165m.
Example treasury scenarios
As mentioned before, we are proposing that we run it all through an Enzyme fund (or similar) to allow for the active management of the pools and reduce the risk of upgrades to smart contracts.
Locked LP tokens
- $65m in ETH, stETH, WBTC, USDC, ANT to Uniswap and Balancer LPs. Mainly ANT in 80/20 pools, to put the ANT to work.
Yield generating tokens
Aragon’s current position of ETH is 57,521.75 ETH (~$105m at current USD value, according to Zapper). According to our analysis, staking this amount could generate ~$5m per year, based on a 5% APY.
- $100m to generate yield.
- At 5% annually, that’s $5m.
- Yield to be distributed to veANT holders that vote.
- If 20% of ANT is veANT and ANT = $4.5, that’s $4m to distribute to $40m worth of tokens, or 12% yield.
- Again, the principal is locked in a 5 year vesting contract, the DAO is the recipient.
We should use Lido, as they have $11bn AUM and it’s one of the largest DAOs powered by Aragon, and one of the case studies to highlight.
- 4 year treasury vesting discounts book value because of risks of:
- Long-term treasury assets depreciation.
- Long-term ANT depreciation.
- Yearly veANT rewards incentivize holders to hold long-term to capture yield, instead of doing short-term attacks to capture the treasury.
- veANT holders are incentivized to vote for funding proposals that increase the treasury’s value or ANT’s value (up to 4 years). If they vote to fund proposals that wouldn’t, they would lose on yield. This incentivizes staying lean until a flywheel is kickstarted, but then investing in such flywheel.
- Guilds would be more productive because:
- Contributors have higher ANT packages.
- There’s vesting, so there’s no “infinite money” problem making contributors too comfortable or unfocused.
There are a number of risks that need to be addressed including slashing risks, smart contract risks, liquidity risks and regulatory risks. All of these will have to be assessed and managed over time.
Aragon Association’s role in this
The Aragon Association’s mandate is to spend its treasury on Aragon’s mission. That mandate also applies for transferring the funds to the DAO. So whichever proposal the AA decides to go with, it will need to be reviewed by the legal team. This is usually slow, painful, and requires a lot of back and forth.
I am just posting this draft here, but it will need to get picked up, worked on and ultimately agreed upon by the AA.
Tokenholders keep holding, core contributors keep building, and the >5,000 DAOs using Aragon keep getting a great product.