HIP-4: But where does the money go?!

Relevant Background:

After the initial auction, the Treasury held approximately ~$312,000 worth of liquid assets (~$302,000 of USDC and ~$10,000 of ETH) and an undefined value of illiquid assets, namely our intellectual property (our provisional patent for topical T3 and T4 and our HairDAO brand trademarks). Amidst the run on Silicon Valley Bank, the HairDAO core team realized that the dollars backing our USDC holdings may be at risk. Given that all other stablecoins presented as alternatives to USDC have even more flaws and that storing assets in a traditional bank is not possible (no banks want to give us an account yet), the HairDAO core team made the decision to convert all of HairDAO’s liquid assets into ETH. The subsequent rise in the price of ETH means that HairDAO now has ~$380,000 worth of liquid assets at its disposal (as of 3/21/23). While some HAIR holders have called for diversification out of ETH, the next section will outline why I believe HairDAO should hold its liquid reserves exclusively in ETH.

Why HairDAO should hold its treasury entirely in ETH:

As mentioned above, holding HairDAO’s treasury in ETH has been a great decision thus far - we’ve made ~$70,000. However, ETH is a volatile asset and as such, it is possible that we lose spending power. So why do we believe holding ETH is HairDAO’s best option?

TLDR; every other store of value represents significantly more risk and volatility for HairDAO:

USDC/Other Stablecoins: Despite the Federal Government stepping in to guarantee customer deposits at all local banks experiencing high volumes of customer withdrawals, the SVB run on the bank scenario has highlighted the fact that USDC and other stablecoins are highly reliant on the federal banking system, which is very weak given their large holdings of US treasuries, which have been rapidly devalued due to the Fed raising interest rates. Now you might say that the Federal government has demonstrated that it will bail out depositors at banks and you’d be right. However, that assumption implicitly implies that you are betting on the federal government printing more money to pay back depositors (i.e. devaluing the dollar). Hence, I would prefer to not hold US dollars under those assumptions.

$USD in a traditional bank account: I am against holding USD in a traditional bank account for all the reasons listed above in regards to USD likely being a poor store of value over the coming months and/or year. Additionally, personal experience has made it very clear that larger US banks (like JP Morgan) will not allow HairDAO to have a bank account. Even a HairDAO associated LLC would likely not be approved. Finally, HAIR holders would not have the ability to audit HairDAO’s assets in live-time as they currently can on Ethereum (view our treasury here). The ability to audit HairDAO’s assets in live-time drastically reduces the probability of corruption or malpractice. To the contrary, it builds trust in the HAIR token.

Holding other cryptocurrencies to diversify out of ETH: While this option sounds prudent at first, it’s actually not for the following reason: HairDAO operates on Ethereum. The only variable that could irreversibly crush the value of ETH is if the Ethereum network was somehow broken or hacked. If that happened, HairDAO would also be dead. As a result, while there is a risk to holding ETH, there is no additional long-term risk because we’ve already taken the risk by choosing to operate on the Ethereum network. The Bitcoin network lacks the functionality for HairDAO’s operations (no smart contracts, i.e. no HAIR token + additional contracts to incentivize our community) and every other blockchain besides Bitcoin is far less secure than Ethereum.

Networks like Bitcoin, Cardano, Solana, etc. could fail and HairDAO could succeed. Hence, by holding alternative crypto assets, we would only take on additional treasury risk not associated with our mission of solving hair loss. Any alternative crypto assets we held in our Multisig would be synthetic versions of that asset on Ethereum (hence if Ethereum failed, those assets would still be rendered valueless).

While ETH’s volatility may cause our treasury to lose value in the short-term, I believe that is a worthy tradeoff given the irreversible value destruction that HairDAO may experience by holding USD-based assets or the unnecessary added risk that HairDAO would take on by diversifying our treasury into other crypto assets.

Now, what do we spend the treasury on?

The following plan assumes our treasury is ~$300,000 to account for ETH’s short-term volatility.

Uniswap LP Pool ($30,000 of ETH + Equal Value of HAIR):

I propose that we use 10% (~$30,000) of the treasury to set up a Uniswap ETH/HAIR liquidity pool to allow community members to buy more HAIR on the open market or sell it if they want. We can set the ETH/HAIR ratio at whatever price HAIR holders decide is fair. Additionally, creating an LP pool will help with HAIR token price discovery ahead of additional fundraising rounds which we may or may not pursue.

HairDAO Customized Compounding ($5,000-$15,000):

For approximately $5-15k, we can offer members customized topicals (i.e. liposomal dutasteride; foam finasteride or dutasteride with 10-15% minoxidil; etc.). If HairDAO takes a profit on top of the cost of goods sold and shipping, members will receive HAIR tokens equivalent to our profit margin on the products they buy. The backend (i.e. manufacturing and distribution) would be handled by one of several partners we are currently in discussions with. Costs are largely based on creating our own front-end and onboarding our own Medical Director to write prescriptions.

HairDAO Patient Portal ($5,000-$20,000):

Our patient portal is literally days away from exiting beta and being available to the broader community. That said, there will be several improvements which I believe we can make over the course of the next year, including adding complexity to the algorithms processing our data submissions and automating HAIR distributions. Budgeting $5,000-$20,000 allows us to continue paying the necessary developers and data scientists to continue improving this product.

HairDAO Research Portal ($0-$10,000):

Based on conversations with various service providers, I believe that we can launch the research portal with a freemium model, requiring no cost initially. I believe that Research Portal submissions should be entirely incentivized with HAIR token payments to our researchers. The goal of the Research Portal is to select our favorite targets, for which we then design studies to test our belief.

HairDAO Study Design Template ($0 - 5,000):

It has been my experience that the overwhelming majority of hair-related research design can be simplified to:

Which genes in a specific niche of the hair follicle do we want to up/downregulate? Is there a compound/treatment that can accomplish our goal? Do we want to apply topically, orally, or via mesotherapy (micro-injections)? Which dosage will be most effective and safe for humans? Which study model do we want to use? There are approximately four viable options - ex vivo hair follicle, hair follicle in human scalp skin organ culture, on a mouse, or on a mouse with human scalp skin transplanted on its back. This could be simplified to multiple choice and would likely drive the projected cost of the study. What is your supporting evidence? I.e., please link relevant studies

Once we collect the required information, we can then generate cost estimates for the study and continuously populate our investment pipeline. I believe this product would be an essential tool to convert our researcher’s work into actionable study designs that the community could then vote on and decide whether or not to fund. As a result, our research pipeline would grow rapidly and HairDAO would start realizing the vision of becoming an IP-generating factory. The Research Design Template product could likely be integrated as a basic form initially, with future builds including integrating into laboratories to get real-time price quotes and time estimates.

Educational Materials ($10,000 - $20,000):

HairDAO is doing incredible work, yet much of our work is not understood by the broader public because we’re dealing with novel concepts. I believe HairDAO would do well to create high-quality video content explaining how to join HairDAO, do work for HairDAO, use our various products like the patient portal, the benefits of purchasing products from our D2C business, and more. Due to the HAIR token, I believe that we can rely on word-of-mouth marketing far more than most organizations as our users also have financial incentives to promote our organization. That said, I believe that it’s on the core team to create easily digestible content that can then be shared broadly by our community across social media.

IP-Generating Research Studies (the rest of our treasury):

The above spend items are designed to a) improve the quality of the studies we produce; b) provide important services to our members; and c) to attract more members to HairDAO. However, the reason we are all here is to find better treatments for hair loss. Ultimately, HairDAO’s IP will be its long-term moat. As we’ve learned from the Thyroid Hormone study, there is a ton of “low hanging fruit” IP available to anybody willing to fund certain studies in hair loss right now. Accordingly, I believe that HairDAO should act as quickly as possible, to conduct as much research as we can, to ensure that the most valuable hair loss IP is owned by patients.

Based on the range of incredible investment opportunities currently available to HairDAO, we should be able to devise a list of our top 10 investment opportunities within the next month and then hold a vote on which 1-2 opportunities we should fund. Investment opportunities will include study designs ideated by our community, study designs proposed by top tier traditional researchers, top hair loss companies, and more.

Conclusion

If HairDAO can execute on this capital allocation proposal within the next three months, we will own ~3 valuable pieces of hair loss IP, have built all the necessary infrastructure to rapidly design studies, have a much larger community due to our educational content, and be able provide our members with today’s most innovative treatments. We will then be able to access more capital by selling the HAIR token on the open market (through decentralized exchanges) or via a venture capital raise. At that point, we will have all the ammunition we need to ensure that hair loss sufferers are far better off five years from now.