This is a bad and risky proposal. The problems are manifold.
"A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury" is a famous saying for a reason.
1st Issue
This is bad treasury management. Aragon’s Treasury is already highly allocated to a very risky asset, ETH. And it holds an evern riskier and less liquid asset in the form of ANT. There is very little “diversity” gained by adding a highly correlated and far riskier asset, which is also illiquid and unlaunched. This pushes Aragon’s treasury in a dangerous direction.
There’s an argument for Aragon’s treasury to be a mix of ETH and BTC, as the only digital assets that have real traction and are money so far.
Personally, I’d rather Aragon’s treasury be managed with a higher mix of USD & EUR, maybe gold (DGX) and maybe onchain synthetic equity market trackers, rather than its current mix. If the allocation to crypto mix is changing, I’d rather ETH and ANT be sold for BTC.
2nd Issue
Conditional on Aragon and ANT holders wanting to change the mix of crypto assets held by Aragon’s treasury, I would not rank DOTS highly.
DOTS are extremely highly risk, illiquid, and come at an aggressive entry valuation. The recent valuations I have seen people pay have ranged from 4-8x ICO price in value over a timespan since ICO in which BTC has fallen and ETH has fallen by 50%. The most important trait of of both treasury management and investment management is discipline and prudence. Paying a multiple of DOTS ICO price when everything else is lower for something unlaunched is not disciplined and not prudent.
DOTS also do not have the characteristics required to be money and extract the kind of premium that could justify risk adjusted valuations where they are. This is a separate an extensive conversation beyond the purview of this forum.
A quick list of digital assets I would prioritize over DOTS for Aragon’s Treasury: DGX, synthetic equity markets exposure, BTC, ATOMS, MKR, REP, XTZ, MANA some of which are more stable, some less risky and live, others less correlated and tied to different end markets and drivers. This is how one would build a portfolio of digital assets whose portfolio has some diversification. As one example, you can find online several breakdowns as to why ATOMS, a direct comp to DOTS are superior for instance and how Cosmos makes much less risky tradeoffs. Cosmos is also – importantly – actually live.
To be clear though, I don’t think Aragon’s treasury should be allocating into other risky illiquid venture bets because it’s imprudent, undisciplined treasury management. Also, fwiw no real world manager of treasury assets I know would see this as substantively “diversifying.”
3rd Issue
This is a bad deal for Aragon on just a valuation basis. The publicly floated valuation numbers for Polkadot recently were $1 billion but in reality recent participants have been buying in at $500 million (the prices vary based on what participants were able to negotiate and other factors). For the Web 3 Foundation, who have been aggressively selling DOTS to anyone who will buy them, to move DOTS to Aragon, they should be offering a substantial discount and this discount should have to be made public to ANT holders or it should be a non-starter. Aragon’s treasury has scare resources. At my day job we would say, this seems like an attempt to rip the face off Aragon’s treasury. It would invite many more. The fact that this sales pitch was brought up by someone who was a banker at a token hedge fund until recently should give ANT and Aragon decision makers pause.
4th Issue
It’s especially important for Aragon and ANT holders to establish a precedent of not just accepting market deals from token brokers like the Web3 Foundation/Polkadot because of the asymmetry between a centralized negotiator (Web3 Foundations a broker of DOTS) on one side and a decentralized but capturable negotiator on the other side (Aragon insiders and ANT holders like us). To just take offers that show up that are not substantially better than market will lead to many other bad token operations soliciting Aragon’s treasury for token sales like this. It will lead to adverse selection where Aragon token treasury management hinges just on which brokers think they can pick off Aragon’s treasury, not on what’s good in principle for Aragon’s treasury or good in general from an entry valuation/investment POV. At the very least, brokers should have to wow Aragon and ANT holders with discounts to get us to even pay attention, which would mean DOTS sold here at ICO price or lower.
5th Issue
This type of control of the purse opens up pretty huge agency issues and conflict of interest issues. Before making any financial allocation to extremely risky digital assets and blockchain projects beyond which Aragon’s treasury is already exposed to, I would hope that Aragon would have in place a process for insiders to declare their conflicts and recuse themselves from voting their ANT or participating in the direction of centrally controlled ANT or ETH for this purpose. Without such structure in place, on behalf of all ANT holders I’d want to know if any Aragon insiders have participated in recent DOTS rounds and to what extent and at what valuation. This is basic stuff because directing treasury allocations is so vulnerable to agency issues. These are core governance and transparency issues and the standard should be higher than what public and normal companies allow. In my normal company, when I am positions where my personal investments or interests overlap with work decisions I am restricted from participating (fwiw I am also restricting from participating in prospective investments that would cause ongoing agency issues/conflict of interest issues). Aragon should lead by example when it comes to transparency and reducing agency issues, even the optics of agency issues, because it’s core to Aragon’s brand and mission both.
Thanks for your attention.
Fundraising efforts have been quite successful. As you know, we’ve seen a massive uptick of interest in DOTs as of late. Even before this intense inflow, there has been a substantial number of parties that have purchased DOTs. I’m very optimistic about moving forward and these additional funds will support our accelerated research, grants and community outreach.
