Should we redeem the treasury or change our structure?

As a team, we have been discussing the future of Magnet. We’re proud of what we’ve created, but are unsure about the viability of the project.

We’ve accomplished a lot over the time: creating our own custom launch mechanisms, building a thriving community, working with partners on Invest-a-thon, and launching a completely new protocol, Vector Finance.

That said, there have been some major roadblocks for Magnet and what we envisioned doing.

Roadblocks

1. The legal framework for DAO lead investments is still in its infancy. Many of the initiatives we would like to make have been blocked by uncertainty around regulatory requirements. We knew this would be difficult as we built the protocol, but after investigating and working with various consultants, we realized it may be insurmountable.

2. We’ve had difficulty lining up incentives between the core team and the community. The structure and terms we put forward for Vector were constantly met with pushback, and we’re not sure how as a team to support the work we put in while also meeting expectations around allocations for the community.

3. Should the team ever desire to incorporate a company and raise funds in the future, Magnet could pose issues. Potential investors may fear a misalignment of interests between themselves and the DAO that the core team is still managing.

Learnings

We all loved the idea of Magnet and what it could mean for tokenholders. However, we learned a few things along the way.

• Decentralized VC investing is a nightmare in the legal realm.

• Delivering multiple projects with a limited budget is not easy: We expected the treasury to increase via bonds which would have helped us grow our team and support our runway, but that didn’t happen given the state of the OHM / OHM fork market.

• Misalignment of interests between the core team and tokenholders was an issue.

• The core team is dev-heavy and loves being heads down and building cool projects. A DAO requires a significant amount of attention to the community. We think we did a good job of this early on, but as new projects rolled out and other responsibilities took over - token design, medium articles, BD calls, partnerships, new community management, etc., it quickly became overwhelming for our team to handle - particularly when there were elaborate discussions about the direction of the DAO, all the while we were in the process of building an entirely new project from scratch

• Token distribution - how many tokens should be given to MAG from each project? This is a completely arbitrary analysis that no one really can answer. We felt half of the team tokens were more than fair, but much of the community was upset by this. Further, many in the community wanted tokens immediately, instead of being vested over time. Whether it is being a builder or an investor, tokens from sales like this are always vested. Some in the community did not seem to understand this and were upset with the distribution mechanism.

• Other funding sources - it’s no secret that private markets in crypto have been extremely frothy. Crypto VCs have raised billions of dollars in the last few months alone. If our team wanted to raise $ from VCs, we could do so easily, and it would be a lot less demanding of us. Projects with minimal founding/dev. experience are raising millions of dollars at high valuations, and after the check is written, the VC stops asking questions. Meanwhile, we are working hard answering to the community non-stop. There is no clear path to a sustainable runway for our team in the current system. The bottom line is that VCs have large balance sheets and long-term investment horizons, while community members are smaller, less willing to give favorable terms, and demand answers/returns immediately.

What are our options?

All this said, we have also had many community members request a redemption. During previous discussions/requests, our team was generally unsupportive, as we wanted to see our vision play out. However, as time has gone on, it has been proven extremely difficult to align incentives in a way that makes sense for everyone. Thus, we believe that either (1) we should redeem the treasury or (2) a systemic change to how Magnet operates is needed.

Option 1 - Redemption

At the time of writing, the treasury assets are worth $7,754,187.10 (this value will vary depending on market conditions as we have exposure to JOE, xPTP, and zJOE).

Treasury addresses

The treasury consists of the following wallets/contracts:

• Magnet Deployer/LP Owner: 0xd5310653bf047503d30178cf4732bffe3f2a4cd0
• Treasury multisig: 0x6d6f953290df38a1538191dd8fd2ec3d7cd9f0f3
• DAO fund: 0x17c6ba510a99f53e7923ba66a6731f64cf367c43
• Innovation fund: 0x0e369f58fefa2275a7a8eba18e9f4cf5ca7c4086

RFV and total supply

There is a total MAG supply of 24,040,988.58 (at the time of writing). After burning MAG from buybacks, the LP, and the DAO fund, the total will be 19,596,579.32. This means the base RFV is currently ~$0.396.

Magnet was allocated a total of 8% of VTX token supply. After adding in the VTX that was farmed from xPTP, zJOE, and stables, the total VTX owned by the treasury is 8,516,838. These VTX begin vesting on May 27th. That means the RFV is $0.396 + ~0.438 VTX (vested over 18 months).

The base RFV includes the following assets: MIM, USDC.e, JOE, xPTP, zJOE along with LPs for xPTP and zJOE. For the sake of simplicity, upon redemption, the team will sell the following assets for USDC: USDC.e, MIM, and JOE. This would mean the redemption of MAG would result in receiving USDC, xPTP, and zJOE.

Redemption and buyback

The team believes some community members would like to redeem their MAG and still receive their vested VTX over the next 18 months. At the same time, we believe there will be those that want to redeem and receive assets immediately.

The core team would like to offer to buy back of VTX, at a discount, from community members that do not want to wait for vesting. The team offers to buy each VTX at $0.08 bringing the total RFV for this option to ~ $0.431. (This discount price represents an immediate payout on an asset that would normally vest for 18 months total, and is very typical for buyout deals like this).

Thus, the redemption proposal would offer two options:

• MAG RFV + VTX allocation with an 18-month vest
• MAG RFV + VTX payout at $0.08 per VTX

How would redemption work?

The team proposes that redemption be done in the following manner.

1. Remove the LP so no arbitrage can be made.
2. Burn the remaining MAG in the marketing and DAO wallet, along with MAG from the LP.
3. MAG holders can redeem their tokens for their portion of the treasury. Those that choose to do so can have their VTX bought out at this time.
4. Redemption would be live for 30 days. After those 30 days, any remaining treasury assets will be clawed back.

Options 2 - Changes to Magnet structure

It’s recognized that some community members may want Magnet to continue, and do not want to redeem. The team believes several things need to change for Magnet to proceed.

• Given the unlikelihood of seed investments proceeding, we propose shifting our focus towards being a build-guild supported by a DAO. This would mean that only internal builds, or partnerships to incubate projects, would be considered for work. The projects would be identified and built by the core team.

• The concept of Risk-Free Value (RFV) would no longer apply to MAG. The treasury funds would be treated as if they were VC-raised funds and would be used similarly. Holders of MAG would stake to receive veMAG over time, and returns from what the team builds, along with any farming done using treasury funds. Returns from the project would depend on the tokenomics of the project: these might include a token allocation of the total supply or access to pre-sale rounds based on veMAG allocation

• The work of the DAO would shift from decision-making to support. The core decisions around projects, business plans, etc. would be in the hands of the building team. We will of course keep listening to the community for ideas on projects, but ultimately the decision would rest on the team on what work to do. The DAO would then concentrate on activities to support the build team: forming up bounties, marketing, community management, etc.

• The treasury will be utilized for many things: team salaries, hiring additional teammates, paying for audits, legal costs, bootstrapping liquidity, rewarding DAO contributors, etc. We would require $1.5m per year for all of this.

This is a major change away from the Magnet model as originally laid out, but it does reduce the number of problems the team has identified. It allows us to continue what we love doing – building – without fear of further economic downturn or having to raise funds outside of Magnet.

Conclusion

8 months ago, we sought to build an ambitious project with Magnet DAO. While in some aspects we failed, we are proud of what we were able to accomplish in our short time. Very few DAOs, if any, can say that they successfully launched a protocol and distributed tokens to their community in doing so. We are proud of what we built and are happy to have been able to deliver on our vision of building projects out of our DAO.

Please vote on one of the three options below.

Option 1 - Redemption Option 2 - Change to structure Abstain