PEP-15: Pocket DAO Treasury Diversification Proposal

Attributes

  • Author(s): @nelson
  • Recipient(s): The DAO
  • Category: Treasury
  • Asking Amount: 6m POKT

Background

As relays on the Pocket Network have seen significant growth recently, the Pocket DAO’s treasury has grown with it to over 56,473,171 POKT, (over $56.4m at current OTC prices). As a reminder, the Pocket DAO earns 10% of every relay (0.001 POKT per relay at current rates). To date, the Pocket DAO only holds POKT.

Summary

I am proposing that the Pocket DAO begin diversifying its treasury with a sale of POKT from the DAO’s treasury, providing the opportunity to grow the Pocket community and allow the Pocket DAO to diversify some of its treasury into stablecoins.

I propose that the Pocket DAO sell up to 6m POKT (roughly 10.6% of the DAO treasury) to the community at a 10% to the 7-day TWAP to the OTC price in the days ahead of the sale. Individual allocations would be capped at 20,000 POKT each with no lock-up or vesting and would be subject to KYC/AML in accordance with Cayman Islands Law.

The DAO diversification sale could be conducted by spinning up a front end to accept USDC for POKT, with these funds going directly to a community multi-sig (e.g a Gnosis Safe) with these funds being controlled by the community members.

Motivation

To date, the DAO has funded a number of community tools and growth initiatives including the Pocket Free Tier, Pocket Block Explorers and Strategic Token Swaps to build the community and strategically align the Pocket Communities interests with those of some of the blockchain’s we support.

By conducting a DAO sale, this would allow the DAO to diversify some of its holdings, allowing the DAO to ramp up these funding efforts while ramping up adoption efforts such as hackathons to drive growth, while also decentralising the number of node operators and token holders. By diversifying the Pocket DAO, this would make the Pocket DAO more resilient for the future, while providing more options for funding community Goals.

Selling more POKT to more individual holders would also make Pocket more attractive to exchanges by expanding the number of individual POKT token holders.

Budget

For the sale itself, we would be looking to sell 6m POKT which at the current OTC prices of ~$1 would raise $6m for the DAO treasury. There may be additional costs associated with spinning up a front end if a third party is to be used to develop this for the Pocket DAO to facilitate the Pocket DAO sale and any legal costs which may arrive in determining the sale is compliant with laws and regulations.

Dissenting Opinions

A treasury sale may increase regulatory scrutiny on Pocket Network which could be mitigated through KYC/AML processes and exclusions of some jurisdictions.

Selling tokens with no lockup will increase the circulating supply of POKT, which may cause the OTC price to fall.

It will be difficult to implement a “fair” sale without incorporating KYC into the process to prevent whales from amassing a material portion of the tokens on sale.

Strategic investors - i.e. community members who have demonstrated their long-term interest in the network - should be onboarded ahead of a general “community” sale.

A DAO sale may draw attention from the wPOKT LBP, something that may be detrimental to the wPOKT project.

Deliverable(s)

  1. DAO Approval (PEP-16)
  2. Pocket DAO Sale front end establishment
  3. Legal Review

Contributor(s)

I am happy to work with the PocketDAO, Pocket Inc and community members who are interested in helping make this DAO sale happen.

Copyright

Copyright and related rights waived via CC0.

I am a newish pokt node operator, so take my opinion with perspective as I have not been here to see the network grow from the beginning. But personally I do not think the foundation or Dao should be selling any pokt before or right after lbp goes through.

The reasons outlined for raising the funds do not seem to be time pressing at least until the market has had a chance to react to the LBP and wpokt on Ethereum.

The downsides to executing the token sale so close to LBP is that it makes it look like the LBP is designed as liquidity event for the dao, and or a secret presale for community members before the wpokt launch. Many Ethereum traders are particularly sensitive to this given the events of a recent Copper Launch.

I do not see the downside of waiting until things have settled after the LBP , unless we are all concerned that price at these levels is overvalued. Myself, I believe that waiting will actually bring in more USDC for the treasury.

To be clear, I think diversifying the treasury is a good idea, but that the timing of such a move should be carefully considered in relation to the LBP and especially relevant events of recent LBPs on Copper

3 Likes

In my opinion, this is a horrible idea. Dumping such a massive amount of POKT into a healthy, expanding market (just OTC for now, but still) will likely negatively influence the current price action. Proceeding with this proposal will cause the community to have less trust in the team as well.

3 Likes

Another thing to consider is that POKT is not yet listed on an exchange and while there is some liquidity in the OTC markets this represents a very large amount of pokt relative to the otc volume.
It would be best to wait for a more robust market for pokt to form in part from the increase of exposure from the lbp, such that the market can absorb the sale more effectively…

2 Likes

Why now? Why not after major exchange/wpokt/LBP?

3 Likes

Just came from the tg talk. I think there must be some misunderstandings here.
to the OTC price in the days ahead of the sale” may could be rephrased as “to the OTC price in the days after the DAO approval
Actually the sale may not be relevant to the LBP or wpokt.
Also the term " ~$1 would raise $6m for the DAO treasury" can also be removed. Because this may remind people of selling the token right now. @JackALaing

Do this if you want a reputation hit even BEFORE pokt is listed anywhere, people talk, this will spread, no one will shop at the LBP.

And it does not matter if its only a small amount, optics matter so please reconsider this.

4 Likes

I really disagree with the timing of this potentially right ahead of the lbp. Gives off optics of team using hype into the event for exit liquidity. Unless there is an urgency to diversify the treasury this should be done once liquidity for the project has improved and broader centralized exchange listings have happened.

3 Likes

Created an account just to reply to this, I have been lurking the POKT channels for some time.

You truly couldn’t have chosen a worse time to propose this, the timing of this is abysmal.

In the leading up times to the LBP/wPokt/Bridge, this is BAD OPTICS.

3 Likes

In agreement with everyone here. The timing of this proposal, even if the date of sale is not determined or meant to be near LBP, is just bad and gives a lot of misunderstanding. As we all know, FUD spreads like wildfire in the crypto space, and false info can be easily spread to seem true. This proposal should not be passed at this time in this stage of maturity.

2 Likes

I want to make sure we as a community don’t let disagreement with one part of the proposal distract from evaluating the general idea. If there is a specific factor that people disagree with (e.g. timing), this doesn’t discredit the other ideas in the proposal. We can agree to edit the proposal, icebox it until a more appropriate time, etc. The possibilities are endless.

To that end I’m breaking my response up into sections so they can be considered in isolation.

On Timing Relative to LBP

I’ll preface by saying that I empathize with the view that we should probably let the dust settle on the LBP before doing a sale like this. If anything to potentially let the DAO get more bang for its buck.

That said, as I’m interpreting the proposal, no timing has actually been suggested. Just because it’s being proposed now does not mean it would be executed as soon as (if) the proposal is approved. In fact, if the sentiment points a certain way, the proposal can be edited to clarify dates, alternate sale volumes, and other such guard rails.

A few of us seem to be fixating on the following quote and misinterpreting that it means we should do a sale like this “in the days ahead of the [LBP]”:

sell up to 6m POKT… to the community at a 10% to the 7-day TWAP to the OTC price in the days ahead of the sale

This isn’t proposing we do a DAO sale before the wPOKT LBP, it’s just defining how we would set the price of POKT for the DAO sale (by the TWAP of the OTC price in the week prior to the [DAO] sale). While $1 was quoted elsewhere in the proposal to give an example of the DAO’s potential to raise $6M in stablecoins at the current market baseline, this doesn’t imply that the sale price would actually be $1.

I think the suggested TWAP approach to pricing is sensible since we don’t know what the price of POKT will be if/when such a sale happens and we would want to make sure that such a sale doesn’t undercut OTC/exchange prices.

I think the question of timing is something that we can align on in this thread. People have made fair points that waiting until after the LBP would allow the DAO to raise more funds for less POKT.

Before this proposal is voted on, I would suggest that it be edited to add more clarity on timing.

On Waiting for Exchange Listings / More Volume

Some people have suggested that we should wait on exchange listings before doing a sale like this.

I would suggest that this proposal is not just about diversifying the DAO’s treasury but also a vehicle to getting POKT (the native token, not wPOKT) in the hands of more people. The more people own POKT, the more confidence top-tier exchanges will have that a market with healthy volumes can be sustained on their platform.

Not enough people are paying attention to the following line IMO:

Selling more POKT to more individual holders would also make Pocket more attractive to exchanges by expanding the number of individual POKT token holders.

This is further backed up by the fact that this would exclude whales from buying up all the POKT. If a whale wants to join our community, they’d still have to go through OTC:

Individual allocations would be capped at 20,000 POKT each with no lock-up or vesting and would be subject to KYC/AML in accordance with Cayman Islands Law.

DAO Treasury & Funding the Future of Pocket

The last point I want to make is this. The DAO is not a monolith. This is not you vs the DAO. This is us all as community members making a decision together. Not everyone has earned their vote yet (myself included) but we all have equal access to this voting right as community members and you are all participating in governance by making your voice heard. I can’t express how happy I am to see this level of engagement even if it is based in controversy.

Given that we are the DAO, I’ll reiterate that this is a proposal to sell some of our POKT into stablecoins, which we can collectively invest in our community’s future.

Besides the potential for exchange listings that I mentioned above, the other benefit I see of taking this course of action (independent of timing, it could be 6 months from now), is that it secures some of the DAO’s wealth in a stable asset that will sustain through any future bear markets. In doing so this would extend the runway of the project as a whole and help guarantee that we achieve our vision in the long-term.

By diversifying the Pocket DAO, this would make the Pocket DAO more resilient for the future, while providing more options for funding community Goals.

1 Like

I oppose this proposal.

One of the biggest fears in a burgeoning crypto community is exit scamming and rug pulling from the devs or founders. It is the duty of the DAO to support and provide governance for the entire community, fully separate from the founding team, and to help insulate against those kinds of fears by demonstrating a ceaseless commitment to the users of and participants in the network.

This proposal works against that on every front.

The dissenting opinions section at this point misses the single largest reason why this should not happen: the optics of the DAO suddenly rushing to make a liquidity play given the current high OTC pricing smells like a potential rug pull. Not only would it draw attention away from the wPOKT project, it would likely kill the LBP launch with bad PR, and cause immediate downward price action in the OTC markets, defeating the very thing it’s attempting to use for valuation of the sale.

Were this proposal to pass, it’s very possible that the 6MM figure outlined in the proposal would drop to a fraction of that in actuality, as FUD percolates through out the community, and OTC buyers hold their funds in anticipation of a sale using a TWAP they have the ability to negatively influence. So, from a functional perspective, the proposal is self defeating.

The greater concern is this: as a DAO, we MUST be above all appearance of impropriety in governing the economics and distribution of the token, and this proposal flatly fails that test.

All of that being said, there IS a need for the DAO to maintain ongoing liquidity to fund projects and events as outlined in this proposal. I believe there are better options for doing so than this:

  1. Permit the DAO to make small cap sales of 100K pokt or less to the OTC markets once per month using the 3D VWAP as the price, and using a wallet whose address is published and identified. This will make for a predictable and absorbable OTC sale at current market values in a way which will treat the DAO the same as any noderunner seeking USDC liquidity, and will be verifiable through block explorers.

  2. Require all development proposals approved by the DAO to be paid in pokt, not other tokens, reducing the need for diversity in treasury holdings, and making converting the tokens to other currencies the responsibility of the proposal recipient. This is in keeping with community support, and demonstrates faith in the token by proposal recipients.

  3. After the LBP and launch of the wpokt bridge, permit the DAO to engage in predictable monthly sales of wPOKT through defi, using a similar mechanism as outlined in item 1.

There has been significant excitement about the development of wPOKT and the associated bridge, and the community call on Friday is going to be packed with noderunners looking for updates. The introduction of this proposal to the agenda is going to derail that excitement, and replace it with fear. My recommendation would be to withdraw the proposal in its current form, and review additional options for diversification of liquidity which will not disrupt the existing marketplace to the degree that this will.

4 Likes

Hi Nelson,

Thanks for the proposal. I think folks aren’t taking this well because you are:

  • Proposing this so close to the public launch which seems suspicious, however (see point 2):
  • Proposing to lower the OTC price by 10% for a large sum of POKT, which affects folks who are in the process of taking profits at the current All Time High, which probably makes Node Operators feel like they’re getting shafted a bit.

I have no issue with the DAO taking money to support community endeavors, however, if the DAO has too much POKT, it might also be a good idea to temporarily lower the percentage the DAO takes and give it back to the node operators, which have exploded in size recently.

Maybe do the token sale and swap the percentages for 30-60 days?

Just a thought.

Thanks for the proposal.

1 Like

agreed. the sum is just too large for an all at once sale at this point, and the timing will kill the lbp market. im not against diversifying the treasury but this is not the way to do it.

1 Like

I think this is an important point to consider, Jack, and perhaps the proposal itself should have been centered around that goal versus a diversification of holdings into more liquid assets. I fully support that objective.

2 Likes

Hey everyone, hearing the feedback loud and clear on timings so just wanted to reiterate a few points.

  1. In regards to timing, a date was not set for this proposal. The thinking was that given the DAO holds a considerable stake, it was worth having a conversation about how this treasury could be best leveraged for the growth of the network. I agree with the suggestion that a DAO sale should not happen before the LBP.

  2. The primary benefit of a DAO sale is that this could help grow the Pocket community and number of individual POKT holders making POKT more attractive to exchanges. I have reason to believe that increasing the number of POKT holders could help to accelerate listings.

  3. In regards to the pricing of any potential DAO sale, the thinking behind a 10% discount to a 7 day TWAP was that this would achieve something quite close to a true market price while providing a slight discount to participants in the sale with individual contributions capped at 20k POKT (just over enough to run a Pocket node).

I appreciate the community for sharing their feedback to this proposal, even if a lot of it is in disagreement with it.

3 Likes

Hearing your and Jack’s explanation on the need to get more people holding Pocket makes perfect sense to me, Nelson, and I agree with that goal. I would love to help brainstorm on ideas to help make that happen, and perhaps we can rework this proposal to account for that goal, and to clarify on timing.

1 Like

I know that a retroactive airdrop has also been floated around as an idea to the same end (more POKT holders, accelerating listings), though it’s harder to execute on since Pocket is its own isolated ecosystem (we can’t airdrop POKT to an Ethereum wallet).

Perhaps an airdrop proposal would have triggered a different reaction here since the tokens are being given away to people for free under specific conditions, which is a scenario that is less open to cynical interpretation.

A treasury sale kills two birds with one stone in that it achieves the distribution goal with the added benefit of diversifying the DAO’s assets, though I recognize that it has the potential to undermine buy pressure more than an airdrop would.

1 Like

Airdrops to pocket wallets would be possible though, no? That might be an idea worth chewing on.

That increases how much POKT existing holders have. It doesn’t increase the number of wallets that exist. :stuck_out_tongue_winking_eye:

1 Like