KIP-13: Empower the multisig to buy back up to $4M of ROOK

KIP-13: Empower the multisig to buy back up to $4M of ROOK

kip: 13
title: Empower the multisig to buy back up to $4M of ROOK
authors: daddymatty <matt@keeperdao.com>
status: last-call
created: 2022-01-22

Proposal

Empower the multisig to use up to $4,000,000 of DAO Treasury ETH and/or BTC to buy back circulating ROOK and deposit it in the DAO Treasury.

Background

Summary

Due to the factors outlined below, it appears as though the price of ROOK is undervalued and should be acquired now to be used strategically for future initiatives:

  • The upcoming release and launch of the Coordination Game (“CG”) should be a major catalyst for significant revenue and price growth as well increased awareness for KeeperDAO (“KD”) and ROOK
  • The upcoming option to natively stake will increase demand for ROOK
  • The reorganization of the DAO will allow us to move more nimbly and be more effective in our decision making/execution
  • The value of ROOK is near or below NAV of the treasury

To acquire this amount of ROOK, KD should use a combination of Bitcoin and Ether in our treasury to acquire up to $4,000,000 worth. Utilizing these assets is preferred to leveraging our stablecoins as it reduces the amount of directional asset risk that the DAO assumes.

Potential Strategic Uses

  • Expand, retain, and incentivize contributors that are vital to the future development of new products and infrastructure for KD
  • Allow for additional strategic partnerships, M&A activity, or other strategic token swaps
  • Allow for future fundraising initiatives

Benefits

  • Expands the balance of ROOK that can be deployed through governance to potential support future growth/retention in contributors and other strategic initiatives
  • Signals a level of confidence in the soundness and liquidity of the DAO’s treasury
  • Reduces the amount of ROOK circulating in the open market
  • Raises awareness of the ROOK token

Risks

  • Increases the percentage of a native asset which at times is less liquid
  • Reduces near-term options to acquire other assets that may better diversify KD’s portfolio or provide a higher rate of return.

Specification

Prior to the launch of the CG, a maximum of $4,000,000 of DAO Treasury ETH and/or BTC may be used to acquire ROOK from the open market at the discretion of the treasury multisig signers, with the potential to delegate all or part of the execution to an individual from among the signers. The acquired ROOK will be deposited in the DAO Treasury. Upon completion, an update will be announced on Discord and Twitter with the full transaction details.

6 Likes

In favor!

Engage operation buyback.

5 Likes

Its reasonable to think that rook is undervalued here and a good investment for the treasury. that, plus the price appreciation from timing these buybacks strategically with CG release, could make this a win win for holders and treasury.

2 Likes

Look… Everyone wants green candles. Green candle good right?

I’d rather spend this 6m acquiring some kind of cash flow stream for the treasury and thus Rook holders.

The more cash flow / value accrual we can direct towards future stakers, the more intrinsic value the Rook token has.

I’ll be voting no on this proposal. If we HAVE to do this (i hope we don’t… .it’s short sighted / a bad idea), we need to ensure we are trading directional exposure for it. This means exchanging btc/eth.

edit to add:
our treasury is our runway… given time, we can accomplish anything.
our runway is our time. let’s not blow our runway up buying our own token to appease bagholders.

  • messi
1 Like

what about if we sell a portion of this rook on a 2x or 3x to get back initial for the treasury. i think we all agree that rook is a steal at this price, with CG coming and so close to treasury backing.

So we’re going to dump on our own liquidity?

I don’t think we should be trading our own token. It’s a bad look.

I understand the spirit of this… and trust me… Ik that green dildos are the best marketing… but our new tokenomics / product will make or break this project.

If they can get orderflow for CG, it’s GG and we won’t have to do ANYTHING to get the green dildos we all crave so much.

Ik it hurts rn… but our moment is soon.

thats fair enough. i’m not particularly hurting, im bullish, we dont need buybacks. but i think rook is undervalued. the treasury can use it when its 500$ per rook for initiatives and downside is capped by RFV. Most of our treasury is unproductive anyway.

I actually would normally agree with you. A startup should typically be focusing on expanding the revenues and infrastructure of the organization. However, based on the reorg outlined and knowing that we want to expand headcount rapidly, we need to ensure that we have ROOK runway to properly pay and retain these people in an incentive-aligned way. Additionally, i see this reorg and these hires as a longer term way to better build future revenue streams and expand our ecosystem. If the CG is the smashing success we all expect it to be, the ROI by obtaining ROOK at these prices rather than down the road when needed more urgently will likely outweigh the ROI of holding ETH/BTC (mainly due to the law of large numbers). While I know you’re point is to turn these currently unproductive assets in productive ones, I feel buying more ROOK put our destiny in our hands more and gives us the ability to make a lot more moves from a partnership or M&A perspective.

To me, this is like apple buying back their stock before they released the original ipod/iphone. While they could have saved that money to develop other services/products, their stock price never looked back from that moment. That is the crossroads i think we are at now.

Love the feedback

I agree with your points, but the treasury already holds ~100k rook (current market value $15m).

That’s more than enough for incentive aligned payment of contributors, especially if the CG is able to procure orderflow.

Expending our liquid treasury (can be used for all sorts of things), to attain more illiquid rook (we already have a lot / can only spend on certain things), is a bad idea.

1 Like

Trading one directional risk for another is a great R/R in this instance. That’s 5% of the total treasury for much higher potential. Your initial comment is a little self-contradictory - if you believe ROOK to have intrinsic value, there’s even more reason to risk small fraction of treasury (and potentially re-distribute in the future) to buy back at current prices. If you believe our runway is our time, and time = appreciation of $ROOK, this strategy makes sense.

However, I do agree with the liquid vs. illiquid point. How about this:

Part of the buyback (let’s say 2M-3M) will be made productive on Bancor (single sided stake) to increase on-chain liquidity for the token and generate fees for the treasury, which will also benefit buybacks in the future. In return, I’ll try and convince Bancor to commit to an LM program (which will generate even more revenue and directional exposure - BNT - to the treasury). This generated BNT from LM can then be either re-looped back into the other side, or used on Bancor 3 to generate even further compounding fees to the treasury in other pools.

This would help alleviate the liquidity risk, make the treasury asset productive, and also maintain extremely high R/R relative to principal gain (price action).

The treasury has 100k rook already… i don’t care how you package this, ill never be in favor of using the treasury to pump rook. We have PLENTY.

From a team’s perspective, we aren’t proposing this to pump the price.

btw you bring up good points to advance this discussion, thanks for that.

Here are my (evolving) thoughts on it:

My main reason for being in favor of this buyback is to make sure we have enough ROOK to be able to pay out all contributors, even if we scale to ±100 people, for a 2-3y duration (in case of a prolonged bear market). We can’t run out of money in that scenario, because the protocol that survives is the most likely to scoop up all the market share that becomes available as other protocols die off, run out of money, etc.

Currently our contributors get paid out on average about ±50-55% in our own token iirc. We don’t expect that ratio to decrease. That ROOK is vested (currently 6mo), bought back and earmarked for them at an agreed upon price upon joining the project. (By the way, compensation packages are currently under discussion, so this may change somewhat, but it seems likely that ROOK will remain a substantial part of contributor payment for incentive alignment)

Anyway, let’s say Billy becomes a contributor here. He get’s paid 10k/mo. He wants 50% paid in ROOK. The price of ROOK is $100. That means he’ll get 50 ROOK per month for the duration of his contract. Say that contract is for 3 years. That means we’ll have to earmark 50 ROOK * 12m * 3y = 1800 ROOK for him, locked in at the price of our token around the time he started contributing. All that ROOK (as well as his USDC) is bought back, or allocated from our current reserves, at his time of joining.

Extrapolating this to the entire team using napkin math (just one scenario):

  • Say we have 90 people working on the project
  • On average they make 185k
  • On average they get paid 60% in ROOK
  • This ROOK is locked in at an average price of $160
  • This means we’ll pay them out 62.4k in ROOK annually
  • That gives us less than a 1.5 year buffer **
  • This leaves no room to use ROOK for other purposes, e.g. M&As, strategic token swaps with other protocols (which is currently being seriously considered with at least one partnering project), etc.

Obviously we’re not there yet in terms of that contributor size, and that will take quite some time to scale up to.

But imho it’s better to lock in more ROOK now that it’s relatively cheap compared to having to buy it back in 1-2 years time, where it should be substantially higher, at least we think so because we believe in the project. This could conceivably also open up the opportunity for us to give new hires a better deal, which can be an important tactical advantage in a hiring market as tough as it is currently.

An alternative plan could perhaps be to run a long-term buyback program as we scale up over the coming months/year, which can be made more in line with us onboarding new people. E.g. we hire a new team of 5 contributors, we buy back the amount of ROOK required for them. In that case I’d probably favor a single KIP that outlines this process and that gives the eventual treasury mgmt team the discretion to do so, i.o. of KIPing this for every wave of hires. This is less straining on governance, and in that case we wont get frontrun either.

In any way, bottom line is that with our current compensation method we need to have all the ROOK available for somebody when they join, for the entire duration of their contract. So frontloading this buyback seems like a good idea.

P.S. Obviously, it’s not going to be used to trade with it. We are not going to dump our own token just because it has marked up.


** Conversely, a counter argument to having a large amount of ROOK in our treasury is that during this bear market scenario, it’s likely that BTC and stables (obv) will depreciate the least, so having more of these assets will allow us to buy more ROOK when needed, possibly at a better price.

1 Like

we dont need to buy rook to support a future with 90 employees or w/e… if we ever need 90 employees, the CG was a massive success and is pushing tons of rook to the treasury…

by design, if this works , treasury has no shortage of rook.

You can sell this idea however you want, but it still seems like a bagholder attempt to use treasury funds to pump the token.

That’s saying that your interpretation = market interpretation. Yearn Finance recently did a similar buyback (interestingly also right before new tokenomics release) after months of proposals/discussions within the community, and it was definitely not perceived as such. ROOK circulating in the open market is more volatile than ROOK secured by the treasury and re-aligned with long-term holders and contributors, especially if it comes at a discount.

Not trying to convince you, as you are firm in your position, just injecting information for other readers. I echo my proposal before, where if this succeeds, let’s try and make the ROOK productive and integrate other protocols into the KIP (such as Bancor that could provide 3-6 months of LM rewards at a high APY if part of the buyback is done on their DEX).

3 Likes

In favor.
I don’t particularly think that the treasury needs more rook right now BUT it will def need some more in 1-2 years from now. Therefore, acquiring some rook when it is severely undervalued is a good idea.

id be p opposed to this. this is utter bag holder mentality. cg is coming soon and that should do all of the talking theres already a shit ton of rook in the treasury.

Can we edit this proposal to 4m$ as discussed on the discord chat and move it the vote? Sooner we buy that rook better since it’s super cheap right now. Lets not buy it after the coordination game is launched.

As rookhog said, this might be the last time we are buying any rook.

Do you need special permissions to edit the KIP? I thought anyone can edit.

As discussed in the community call, we do need marketing too together with buy back. We do need to hire influencers and write articles on high end publications about coordination game and the reason why we are doing this buy back: because we strongly feel that rook is undervalued and based on the treasury alone it is by a lot.

I am in favor of at least 6m$ worth of buy back taking into consideration we are bellow 100$ right now.

1 Like

Edited KIP to reflect recent discussion

1 Like