We’ll be talking about this proposal at Governance Workshop today, Wednesday March 8th at 2PM ET. Iconium have agreed to join us to discuss their thinking and the proposal in general, so please bring your questions and comments to the DAO Calls channel this afternoon.
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Rook team is really close to the end of their 2nd long dev cycle. They delivered the original coordination game so I trust them to deliver on this redesign/expansion tbh. Rook has had a problem communicating product priorities and timelines for a while. This could be a legal or competitive advantage problem, idk but its still a problem. @rhizobtc
We do not want to question either the quality of the developers’ work or the technical releases that the team deems necessary in the coming months. At this stage, we only want to encourage discussion about a possible revision of the token model, which currently seems to be limited to the role of a governance token.
I don’t see how this isn’t just treasury drain? Shouldn’t this treasury be 100% focused on adoption and not ROOK price at 17M fdv? @rhizobtc
Our proposal does not aim to redistribute the treasury: it is essential to ensure that there are sufficient resources to continue supporting the development and growth of the protocol, and the treasury must be ample enough to ensure this growth.
By showing that ROOK cares about its token holders, the valuation of ROOK should rise from a discount of treasury value to a premium. @skatensurf
we are trading WAY below treasury backing for starters this produces no confidence for new entrants and also the biggest losers here are the ones holding the tokens @Cmande3
We share the concerns of other users about the current evaluation of Rook, which has been trading at a significant discount for many months compared to the treasury value alone. Whether this is due to broken tokenomics, weak product/market fit, or a combination of the two, is difficult to say, but we believe it is a strong signal that a change is needed.
Two things I see as marketable:
- MEV protected RPC.
- Complete MEV protected Trading Terminal
@rhizobtc
Any changes to the product/market fit are not part of the scope of our proposal; at this stage, we only want to discuss the tokenomics model.
I do not believe the author is advocating for an all-out buyback program that drains the treasury, but a modest one that can put some idle capital to better use. So consider the buyback one of the many routes ROOK can take to creating value for token holders. @skatensurf
It is true that the Book-to-Value can be interpreted as a valid opportunity for deploying excess capital, given the current 50% discount applied. However, our proposal does not aim to focus on a one-off deployment of a portion of the treasury for a similar initiative. Instead, it aims to build a more sustainable tokenomics model that ensures that the value produced by the protocol is “captured” by the token holders (in the case of burn) or by the stakers (in the case of staking reward).
We are aware that sentiment regarding buybacks is mixed. There are several examples on the market of how it can be technically implemented. Probably, a similar example to what we want to propose is the process undertaken by the 1INCH DAO last summer. The revenues generated from swaps were used for token buybacks, which the DAO considered undervalued by the market. In the case of $ROOK, this is even more evident due to the Book-To-Value ratio. A similar process allows for capturing the market discount and benefiting from it through Protocol Owned Liquidity, which can scale in correlation with the token’s performance.
Staking program is very appealing if returns are good enough. Our staking program failed because of lack of volume.
I think a staking program where 5% (percentage can vary) of the treasury is distributed monthly is something that should be considered. If treasury grows, APY for token holders grows as well. @PonsTJ
Our proposal aims to modify the tokenomics model in order to ensure a stable and organic transfer of value to the token holders. To achieve this, we focus on utilizing revenue flows to perform a buyback. However, at this stage, we acknowledge that the protocol’s revenue is limited, and cannot provide an attractive APY for the stakers. Therefore, it may be useful to temporarily allocate a portion of the treasury (<5%) to a temporary incentive program that supports the APY through an additional buyback with redistribution to stakers (with a variable APY based on timelocks). While we believe that incentivization is not a long-term solution and should be treated as a marketing expense to attract users, an incentivized staking mechanism could result in lower token volatility and be a first step in redistributing a portion of the protocol’s value to the stakers.
When has marketing ever worked out as a good investment to create value even in demand for a major project. That is bull market talk, there is no one to market to. 50k active users of on chain products, the ones using RPCs already know of Rook.
Given that treasury usage is bound to the treasury charter, can OP explain how using the treasury like this will help further the project’s mission? (See KIP-28 for an outline of acceptable uses of the treasury)
Also, I read that IBV is an early contributor to the project. Can you outline what those contributions are/were?
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Given that treasury usage is bound to the treasury charter, can OP explain how using the treasury like this will help further the project’s mission? (See KIP-28 for an outline of acceptable uses of the treasury) @tommy
Regarding the Rook DAO Treasury Charter, our proposal could fall under the use of the Treasury in section 4: Making targeted and risk-controlled strategic investments.
For example, buyback is a mechanism already common in tradfi and can be strategically used when the market heavily discounts the value and the project is interested in safeguarding the volatility and robustness of the token itself.
Also, I read that IBV is an early contributor to the project. Can you outline what those contributions are/were? @tommy
We have been in contact with TT and Amber for a long time and were one of the largest LPs, providing several million USD worth of renBTC, WETH, and DAI during the initial liquidity bootstrap in 2020.
Ah so you were one of the OG liquidity providers, gotcha.
Regarding the buybacks, are there any examples of early stage startups performing buybacks in tradfi? (Really in our case it’s almost pre-product, or at least pre PMF). I can’t really think of any, but maybe I’m missing some?
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Agree that buyback and keep is preferable to buyback and burn.
Why marketcap / treasury matters → ROOK currently only has two paths for raising capital: 1) generate protocol revenue and 2) selling ROOK in its treasury to external capital. Because protocol revenue is trivial right now, the latter action is the only viable option if ROOK would like to bolster its treasury.
This issue is not urgent as ROOK’s treasury currently looks healthy. But if this problem persists when ROOK needs capital, it may be forced to sell an undervalued currency.
Buybacks do not benefit whales → I believe most here believe ROOK to be undervalued. At the minimum, ROOK should be worth its book value. But it should probably trade some multiple above its book value to express the positive optionality of what ROOK is building. So contrary to the argument above, ROOK would benefit at the expense of whales selling at the current price (i.e. ROOK is buying $1 for 50 cents)
Buybacks make sense from a treasury management perspective. Instead of earning mid single digit yields on stablecoins, ROOK can earn orders of magnitude more by repurchasing its token.
I can’t really think of any publicly traded, early stage startup that trades below its book value (unless we look at microcaps in emerging markets). Or a pre-PMF startup raising capital at a valuation below its book value.
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whats an example of something trading below book?
I do not see why, what I am proposing, does not achieve the same objective. In fact, I think aligns much better all stakeholders (team and token holders) by focusing on growing the treasury. Higher the treasury, higher rewards for stakers and healthier the treasury for further investments.
You are considering just as temporary, I think should be considered as an option to compete with your proposal.
Here’s a recording and transcript of yesterday’s Governance Workshop where we discussed this proposal: Governance Workshop - March 8, 2023.
There have been many publicly traded companies trading below book value. For example:
Sprint Corporation was a publicly traded telecommunications company that was acquired by T-Mobile in 2020. Before the acquisition, Sprint was trading at a significant discount to its book value.
As of March 9, 2023, some examples of publicly traded companies that are trading below book value include:
- Carnival Corporation (CCL), a cruise line operator that has been heavily impacted by the COVID-19 pandemic and is trading at a price-to-book ratio of 0.68.
- ExxonMobil Corporation (XOM), an oil and gas company that has also faced challenges in recent years and is trading at a price-to-book ratio of 0.86.
- General Electric Company (GE), a multinational conglomerate that has undergone significant restructuring and is trading at a price-to-book ratio of 1.17.
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I disagree pretty strongly with this proposal
Adopting a similar solution that redistributes the 10% revenue generated by Keepers would be an organic KPI, connecting the two main actors of the ROOK ecosystem: the keepers and the token holders.
The two main actors of the ROOK ecosystem are not keepers and token holders, they are keepers and users. Legal questions aside, the biggest problem with the old staking model was not low APY or burn rate, it was the fact that staking did nothing to drive protocol usage, while parasitically drawing value away from actual users.
While we believe that incentivization is not a long-term solution and should be treated as a marketing expense to attract users, an incentivized staking mechanism could result in lower token volatility and be a first step in redistributing a portion of the protocol’s value to the stakers.
For the first several months of after the Coordination Game launch, we did basically exactly this. At the time we had a large position in CVX from KIP-5. For a long time, all the yield from the CVX position was used for ROOK buybacks, and the ROOK was distributed to the staking pool to boost APY. This again did basically nothing to drive actual protocol usage.
Orderflow/transaction flow through the coordinator is by far the most important KPI, everything else comes secondary. Any change to tokenomics which does not directly incentivize usage of the protocol makes no sense. Any staking model which distributes value to stakers should do so in a way which requires usage of the protocol. For example, the idea of increasing your own percentage of the bid distribution based on how much you’ve staked has been thrown around in the past.
As a sophon, I will not recommend any proposal to implement a buyback or staking model which results in tokenholders passively drawing value from protocol usage without necessarily participating themselves
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The two main actors of the ROOK ecosystem are not keepers and token holders, they are keepers and users
As a sophon, I will not recommend any proposal to implement a buyback or staking model which results in tokenholders passively drawing value from protocol usage without necessarily participating themselves @Pai-Sho
Given that Rook is a DAO-based project, the token and its holders should be central to the architecture of the protocol. As you have pointed out, neither keepers nor users need to interact with ROOK throughout their entire user journey after the implementation of KIP-35. This suggests that Rook could easily transition from a token-based project to an equity-based one.
We acknowledge your concerns, however, as a sophon, we were hoping that you could offer potential solutions to address the main issues raised by us and other community members surrounding the flawed token model and the prevalent negative sentiment among token holders.
After reading the comments, responding to questions, and participating in last week’s Governance call, it seems evident to us that there are clear misalignments between ROOK token holders and management. As reiterated several times, the purpose of our proposal was to shed light on the token’s poor utility after the implementation of KIP-35 and to accelerate any possible discussions regarding future implementations aimed at fixing the current situation.
We understand the need to preserve the treasury, which is essential to ensure the project’s long-term survival. However, it is also true that the current treasury stands at 40 USDM, well beyond the actual needs of the foreseeable future. This presents an opportunity problem, where there’s a need for a clear indication on how capital can be efficiently employed. The tokenomics problems are now evident to us: results are certainly unsatisfactory for the vast majority of token holders and we believe that not using the capital to address these problems is a suboptimal decision. As token holders ourselves, we feel that such a choice, which promotes an ultra-conservative management of capital and does not address a current problem with strong repercussions on the project’s reputation, as demonstrated by the market, which has certainly not rewarded the token in the last year, highlights a significant gap between the interests of the development team and the token holders.
Unless the management demonstrates a genuine commitment to moving towards a model in which the token is pivotal, current token holders won’t be incentivized to hold onto their tokens, and the market won’t have a clear reason to show any interest in the token. In such a situation, we don’t feel there is any further scope to continue our efforts to promote this discussion.
I’m not disagreeing that we’re currently in an awkward situation with the token, it’s been acknowledged repeatedly over the past year. The team members are also down bad on ROOK. But as I said before, securing orderflow should be our primary goal right now. That is not necessarily incompatible with attractive tokenomics in the future, but I don’t think it makes sense to pursue both in parallel, especially not at this stage
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Hey id love to get your feedback on this proposal as it accomplishes some aspects of your draft while being better aligned to the DAOs interests and avoids regulatory uncertainty
I really like this idea!
Definitely the most important part of all of this in my opinion as something sustainable needs to be built first and then the tokenomics can be figured out even if it takes some time. Draining the treasury at all without consistent replenishing of it makes no sense. If the community is just patient, I’m confident the tokenomics will get figured out but these things take time to be done well and making sure ROOK is around for a long, long time by acquiring order flow and continuing to innovate really is the most important part at this point.
Yes sure, the treasury is here to support the development of ROOK and compensate contributors who bring value-accrual skills to the DAO. But this doesn’t mean the tokenomics of ROOK doesn’t need to be addressed, especially given its current state and the total lack of attention from the DAO. It sounds ambivalent that DAO members are all trying to protect the treasury that compensates them while the true supporters of the protocol, aka ROOK token holders, have to eat gravel for them.
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while the true supporters of the protocol, aka ROOK token holders
please elaborate