Author’s Note - For transparency, we are posting our original buyback proposal. This was written prior to the events of this week (approximately 1 month ago). Overall, we really like Luis’s proposal, but think the continuous structure of the buyback proposed here might work better for alignment and potentially cost less than the proposed $30m. We look forward to working with Luis, token holders, and the team to find a solution.
Overview
This proposal outlines a large buyback of ANT to help return value to ANT token holders and close the gap between ANT’s market cap and book value. It also outlines suggestions to further defend the book value in the future.
Current State of the DAO and Treasury
Currently, the treasury represents ~$200m mainly coming from an Early ICO and a well-managed treasury.
Arca Internal calcs, Aragon Finance Tracker, Updated: 5/12/23
Note, this is an estimate and is missing NATION tokens from the tokenswap as well as some of the venture investments made by Aragon which should likely be included in the treasury and book value per token calculation. Since these are just estimates, a full audit should be done by the team during discussions of any buyback proposal.
However, from a token standpoint the product gets very little recognition with a ~$130m market cap (coingecko).
Arca Internal calcs, Aragon Finance Tracker, Updated: 5/12/23
ANT currently trades at 0.5x-0.6x P/B and a full dissolution would result in ~$5 per ANT. These numbers are subject to change as prices of the treasury assets change. This is calculated by subtracting the ANT held by the treasury from both the treasury assets as well as the circulating supply as we have seen with other DAO dissolutions. This is a buyback proposal, not a dissolution proposal, but the math is the same. We believe this negative value stems from a few key reasons:
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No clear revenue streams while having a higher than average OPEX spend leading to continuous slow treasury bleed.
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Lack of clear tokenomics or ideas where sustainable tokenomics could be built into the current product offerings to offer more utility and retain value. It is unclear whether or not Aragon is trying to be a public good or not.
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Current DAO structures common in digital assets are using other product offerings over Aragon’s DAO offerings, using tools such as Snapshot vs Voice or other voting tools within the Aragon App. We believe this will start to change over time with the recent launch of v2.
Dune Analytics, DAO Creator Tools
- Slow shipping times leading to overall lack of excitement for the product offerings and, in turn, low community turnout. This has been showcased in the slow process to move to a new DAO scheduled to be completed last November and then pushed to February. We believe that this led to apathy by token holders to the point that when USDC depegged (a large portion of the treasury), there were no comments or discussions about it in the discord.
I list these items strictly from an outside investor’s perspective on the areas that Aragon need to address going forward to achieve their long-term goals. To be clear, this is not a dissolution proposal. It is clear that Aragon is trying to push forward DAOs and social coordination, something we see as a net positive for the space. Aragon has also supported numerous DAO hackathons which we view positively. We don’t believe those things should change nor do we think our proposal will have any impact on Aragon’s ability to continue to support the broader industry.
Proposal
Given excess capital on hand, we propose allocating up to 50% of the non-native token treasury to continuous buybacks up to book value. This buyback should set a floor price at 0.95x BV/ANT. Should this buyback be continuous we think it would significantly improve LT alignment and potentially use less capital than a short term buyback or a rage-quit. Having a continuous bid de-risks ANT as an investment while the team builds out its product offerings and adds token utility. We do not expect the whole allocation to be needed. If this proposal passes we believe a firm date of one week post governance vote should be when the buybacks start.
Justification
With the massive discount to book value, we think a significant buyback is justified for the following reasons:
- This will prevent a dissolution proposal and allow Aragon to continue to build as it closes the discount gap providing value to token holders. This has already been discussed in the Discord channel and a buyback will help prevent future dissolution efforts.
- Aragon has done buybacks in the past. Given that ANT can then be sold again in the future or distributed via grants/incentives, we see a buyback as value accretive in terms of protecting against a dissolution. Further, redistribution would be value accretive to re-develop a vibrant community.
- This proposal should not have a material impact on Aragon’s runway. Given the current spend of $10.2m for all sub-guilds/development teams there would still be nearly 9 years of runway at the current spend post-buyback.
The 9- year expected runway does not take into consideration the current treasury management plans that will yield returns to the treasury and extend the runway.
Given that a 12 to 18 month runway is typical for earlier stage projects, 9 years of runway (post buybacks) seems more than adequate for Aragon to continue to build out their product offerings as well as find ways to incorporate revenues into the product.
Conclusion
With the steep discount to book value as well as an excessively long runway, we believe that Aragon committing to a significant buyback is the best use of capital to return value to token holders while still being sufficiently capitalized to build out their product offerings. We are open to further discussions around the total allocation to the buyback and book value defense but given the treasury excess and lack of material impact to the runway, we believe this is a good starting point. We look forward to further discussions and fleshing out the next steps with the community.
