BIP 002 - oBUNNI System Activation

Summary

This proposal seeks to activate the oBUNNI options system and establish a revenue distribution framework for proceeds from oBUNNI exercises. The distribution allocates revenues between the Bunni DAO Treasury, Protocol-Owned Liquidity, and veBUNNI holders according to specified percentages. For the next rewards period starting April 1st, rewards will be distributed in the form of oBUNNI tokens with a 50% discount.

Background

The Bunni DAO Treasury faces critical funding challenges that threaten the sustainability of the project. Current treasury liquidity is insufficient to sustain the Bunni Engineering Unit (BEU) and Growth Unit (BGU) for the next six months without significant revenue increases.

The oBUNNI system represents a strategic opportunity to generate additional revenue through a token options mechanism offering discounted execution opportunities. Based on projections, this system can provide a significant income stream for the ecosystem while creating enhanced utility for BUNNI token holders.

Understanding oBUNNI

oBUNNI is a call option token for BUNNI that lets its holder purchase BUNNI at a discount to the market price. Unlike regular options, oBUNNI does not expire.

Initially, the discount will be set to 50%, but this value can be modified by governance in the future.

How to get oBUNNI

oBUNNI is given to Bunni liquidity providers as an incentive. Provide liquidity on Bunni and stake it to receive oBUNNI incentives. Starting April 1st, rewards will be distributed in oBUNNI.

How to use oBUNNI

You can use oBUNNI to buy BUNNI at a discount. A dedicated page will be launched on Bunni.xyz to facilitate this process, making it easy for users to exercise their options.

Why oBUNNI?

Instead of using BUNNI as the reward token, Bunni uses call option tokens for BUNNI as the reward token. This has the benefit of enabling the protocol to accumulate a large cash reserve regardless of market conditions, as well as letting loyal holders buy BUNNI at a discount.

To illustrate this mechanism with an example: Let's say the price of BUNNI is $0.016, and there is a call option token oBUNNI that gives its holder a perpetual right to buy BUNNI at 50% of the market price. The protocol issues 1000 oBUNNI to a farmer Alice, who immediately exercises the option to buy 1000 BUNNI for $8 and sell it on a DEX for $16. The tally of gains & losses are as follows:

• The protocol: -1000 BUNNI, +$8

• The farmer Alice: +$8

• The DEX LPs: +1000 BUNNI, -$16

Compare this to regular liquidity mining where the farmer doesn't pay anything to the protocol:

• The protocol: -1000 BUNNI

• The farmer Alice: +$16

• The DEX LPs: +1000 BUNNI, -$16

We have the following observations:

• Reallocation of cash: Using oBUNNI instead of BUNNI as the reward token effectively transfers cash gains from the farmers to the protocol, and the LPs for the token are not affected.

• Trading off incentivization efficiency for protocol cashflow: In our example, for each BUNNI token issued by the protocol, the farmer Alice only gets $0.008 of rewards instead of $0.016 in the case of regular liquidity mining, which is less efficient. The higher the discount is, the more efficient the incentivization is, but the less cash the protocol gets.

• Effectively a continuous token sale: Instead of giving away tokens for free in regular liquidity mining, we effectively turn incentivization into a continuous token sale at the current market price, which enables the protocol to potentially capture a lot more cash compared to a one-off token sale since the protocol would be selling tokens at a higher price when the market price goes up.

Current Treasury Status and Challenges

The current treasury reserves are projected to be depleted within six months at current burn rates. To achieve sustainability, the DAO must:

• Secure funding for third-party audits of new features

• Support development of new hooks for ecosystem partners

• Create enhanced features for LPs on the Bunni UI

• Position the protocol as a leader in the Uniswap v4 ecosystem

These initiatives require close collaboration between the BEU and BGU and necessitate a sustainable Monthly Recurring Revenue (MRR) stream to fund operations.

Proposal

This proposal outlines the following key actions:

1. Activate the oBUNNI System

• Set the oBUNNI execution discount at 50%

• Launch a dedicated page for exercising oBUNNI

2. Establish Revenue Distribution Framework

• From oBUNNI Exercises:

• Treasury: 60%

• Protocol-Owned Liquidity: 10%

• veBUNNI Holders: 30%

3. Implementation Timeline

• Next rewards period (starting April 1st) will use oBUNNI with 50% discount

• Deployment on Ethereum mainnet, Arbitrum, Base.

• Revenue splitter's L2 implementation will follow within days after mainnet activation.

Projected Revenue Impact*

Current Market Context and Assumption:

• BUNNI Token Price: $0.016

• ETH Token Price: $1,900

Revenue Projections:

• oBUNNI Annual Revenue: $675,000

• Treasury: $405,000

• Protocol-Owned Liquidity: $67,500

• veBUNNI Holders: $202,500

veBUNNI Holder Yield:

• Total annual distribution to veBUNNI holders: $202,500 from oBUNNI

• For veBUNNI holders with maximum boost, projected annual yield based on current veBUNNI TVL would be approximately 11.2% APR

• Monthly distribution: ~$16,875 from oBUNNI

*Note: These figures are projections intended to help readers understand the potential impact. Actual results may vary significantly depending on market conditions, trading volume, adoption rates, and other factors. For comparison, in Bunni v1, oLIT — the option token discontinued after the launch of Bunni v2 — generated approximately 1,700 ETH of inflow to the DAO treasury during its lifetime.

Implementation

The implementation will proceed in the following phases:

1. Configuration of revenue distribution parameters

2. Launch of dedicated UI for exercising oBUNNI

3. Revenues splitter's L2 deployment to follow shortly after mainnet implementation

The Protocol-Owned Liquidity portion (10%) will be used to improve the liquidity of the BUNNI-ETH and BUNNI-USDC pools on mainnet.

The technical team has completed development and is ready to active it immediately upon governance approval. The revenue splitting on L2 networks will not be live immediately, only mainnet splitting will be activated first, followed by L2 implementations within days, giving the engineering unit time to handle the required contract changes across all L2 networks.

Timeline

The proposed changes will be implemented immediately upon successful governance approval, approximately 8 days after publication of this proposal.

Budget

No additional funding is required for this proposal implementation.

Conclusion

The activation of the oBUNNI system represents a critical step to ensure the Bunni DAO's sustainability. By implementing the oBUNNI system with the specified revenue distribution, we can generate sufficient recurring revenue to fund continued development and growth:

1. Monthly Revenue Projections:

• oBUNNI: $56,250/month

2. Annual Revenue Distribution:

• Protocol-Owned Liquidity: $67,500

• veBUNNI holders: $202,500

• Treasury Revenue: $405,000

• This revenue will fund:

• Third-party audits

• Development of custom LDFs and features

• Business development initiatives

• Ongoing operations of BEU and BGU

This proposal directly addresses the pressing treasury funding challenges while creating a pathway to position Bunni as a leader in the Uniswap v4 ecosystem. With the projected revenue streams, the DAO can fund essential development, audits, and business development initiatives, ensuring long-term viability and competitive positioning.

Without these changes, the project faces significant funding challenges within the next six months. The proposal presents a balanced approach to increasing revenue while maintaining incentives for ecosystem participants.