BIP-18: $BIT Purchase Program, Jan 2023

Context

This proposal is authored by cateatpeanut.

This proposal is a parameter update to BIP-9: $BIT Purchase Program, and BIP-12.

Proposal

1. Set the Target Daily Purchase Amount (TDPA) at $2.0M USDT per day starting 2023 Jan 1st for 50 days (total $100M USDT).

Analysis

Key Reasons

• Recommended priorities for BitDAO capital deployment include: High = $BIT products; Low = swap and investments, yield strategies (see explanation below).

• Analogous to traditional corporations, when there are limited deployment opportunities available, excess capital may be returned to token holders via distribution or token repurchasing. Token holders have different risk appetites and opportunities that they can explore with their own capital (separate from the DAO's mandates and risk tolerances).

• Post $BIT purchase, the BitDAO Treasury will still hold $300M USDT/USDC and 270k ETH (~$345M), which should be sufficient to cover 5+ years of $BIT product development.

• The current price of $BIT is attractive, especially with the incoming Mantle project.

Recommended on Priorities (a personal opinion)

$BIT Products

When BitDAO was launched in 2021, the original strategy was to grow the treasury via direct investments, and the creation of BitDAO-like entities (sub-DAOs / autonomous entities) and investments. This strategy has had questionable impact on driving outcomes for $BIT, and there have been calls by the $BIT community and stakeholders to develop $BIT core products to drive adoption. The most performant DAOs (Lido, Aave, Uni) have been centered around underlying core products which have large addressable markets and longevity.

Mantle is envisaged to be one of these $BIT core products. Mantle is an Ethereum layer-2 network built with modular architecture delivering low fees and high security. Mantle provides a protocol to attract mass users and dApp adoption, and better outcomes for marketing and growth activities. Note: that initial development of Mantle has been bootstrapped by Bybit, with the next phase being a DAO proposal and budget cycles for expanded development and go-to-market activities.

References: twitter announcement, TheBlock media release

Swaps and Investments

It is not recommended to pursue swaps and investments that do not have additional strategic outcomes for $BIT, due to the following reasons: 1) has little impact on $BIT token holders other than passively observing investment returns; 2) DAOs have less flexibility to negotiate competitive deals compared to specialized VCs; 3) DAOs have fewer options for post-investment legal and governance involvement once funds have been transferred (see FTT swap situation).

Yield Strategies

There has not been community consensus on whether to allocate the treasury to yield generating products (onchain vaults, centralized platforms, funds, etc.). In hindsight, some products of interest did not have good outcomes, and we are fortunate BitDAO assets were not exposed. Examples of recent events include: centralized platform yield (FTX, BlockFi, Genesis, Gemini Earn); and blue-chip DeFi protocols such as AAVE v2 longtail assets risk, and Lido stETH price decoupling.

There is high systemic risk in crypto due to: 1) difficulty in calculating a fair price and slippage for altcoins (protocols rely on oracles or liquidations mechanics are vulnerable); and 2) the pressure of projects to compete on go-to-market timing and financial product innovations resulting in many novel products that have not yet been empirically battle-tested. 3) web of borrowings and collateral assets across entities and other “degen-box” type activity.

The risks scale with capital deployment size, and liquidity may be scarce when we need to unwind positions. As such, it is not recommended that BitDAO participate in yield strategies for the time being.