[DRAFT] VIP #2: Tax Removal and Migration of LP to Uniswap V3

ValiDAO Improvement Proposals (VIPs) VIP - Drafts
1

Proposal Overview

The intention of this proposal is to remove the buy/sell tax when swapping $VDO tokens (ValiDAO’s native governance token) and switch from a Uniswap V2 LP Pool to a Uniswap V3 LP pool.

Background

ValiDAO is a proof-of-concept demonstrating that bootstrapping a legitimate project via tax is a viable strategy. Since its inception in December 2023, ValiDAO has achieved significant milestones:

  • Made 1 major hire with a full-time salary (DevOps) and hired multiple contractors for research/content development.
  • Purchased back over $250k worth of supply (average entry at $0.60 as of 07/06/2024).
  • Maintained an ETH treasury worth $100k+.
  • Legally established as a DAO in the Cayman Islands.

ValiDAO has no venture capitalists, no outside funding, and has used this model to provide major opportunities for early community members to effectively become “angel investors.” Note that similar organizations like Figment have conducted funding rounds that valued them in excess of $1B.

However, tax tokens have a significant stigma within the larger crypto ecosystem. While ValiDAO is one of the few major successes from the tax model, most tax tokens are illegitimate and do not deliver anything, often used purely to farm their holders. These are commonly referred to as “Tax Farms.”

ValiDAO is clearly not a tax farm, as evidenced by the constructive use of tax revenue. Nonetheless, the stigma surrounding tax tokens negatively impacts how major actors in the space perceive ValiDAO:

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Speaking to many people privately about ValiDAO, the one drawback they all unanimously mention is the inclusion of a tax. Other community members have shared similar experiences, as per the below:

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While bootstrapping the project initially with a tax has been one of the more appealing aspects, I believe we are now at a point where, to grow our mindshare, community, and assets under management (AUM), we need to move past the tax model.

Rationale

More people willing to buy $VDO inherently leads to more people invested in the project’s success, resulting in a larger community and more overall mindshare. We already have a really good community, but to reach our goal of $1B AUM, we need to attract even more people. A militia, if you will.

ValiDAO generates $300k per year in revenue right now, which mostly covers operational costs. However, there are still growing pains that need to be addressed, which @murakamikaze will comment on in this thread. Note that we can still make use of LP fees to generate revenue from token volume, and a V3 pool would allow for a customisable fee rate in that case.

Proposal

  1. Remove the 3% Buy/Sell Tax:
  • Eliminate the current 3% tax on transactions to make $VDO more attractive for investors.
  1. Move the non-locked Uniswap V2 LP to Uniswap V3 LP:
  • 0.5% LP fee with full-range liquidity as an initial Uniswap V3 LP configuration.
  • In the future, the Unicrypt-locked LP could be migrated to the same configuration.
3 Likes
2

Reserved for later comment.

4

As a tokenholder I agree wiith this, as a matter of fact it should’ve been done early.

Tax has served the mission of bootstrapping perfectly. Since we already accured 30M in delegation and 400K revenue/year, There is no point tax still exists.

6

Thank you for this well-thought-out proposal @Manalishi.

I’d like to share some thoughts and context on feasibility. The ValiDAO project did not seek external funding as we aimed to be a grassroots validator for and by the people, leveraging true network effects to attract stake and contributors. We allowed anyone interested to take a risk, get in early, and contribute to the project’s success.

However, we did need funds for everything a validator operation entails—particularly server costs and salaries—and we did not expect to generate meaningful revenue in the immediate term.

Today, we do have a decent revenue stream from our validators. However, at current prices, that revenue is below our operating expenses. Additionally, VIP #1 will [if passed] reduce the revenue available for operating expenses by 25%.

Assuming prices remain flat, our runway would then be approximately four to five months, considering the ETH held in the treasury plus pending and future commissions. Turning off taxes removes a meaningful revenue stream and is thus a risk. I believe it’s a risk worth taking, though, as there is a stigma attached to projects whose tokens have trading taxes. Feedback has made it clear that this aspect turns potential members away.

To grow as a project, we benefit from having a larger holder and contributor base, and it’s likely that removing taxes will help us achieve that. Doing so will, however, lower our revenue, impacting our ability to ramp up growth.

That said, the council discussed this proposal during the first council meeting, and the general consensus was that it’s a risk worth taking. With the long-term sustainability of ValiDAO in mind, the council suggests a gradual rollout, for example in this format:

  • Remove buy taxes 30 days after voting ends [and the proposal passes]
  • Remove sell taxes at the latest (but potentially before) 60 days following buy tax removal
  • Renounce the contract immediately following the above tax removal

This will allow us time to adjust and ensure a smooth transition to a post-tax state

7

Hey Mura,

Happy to incorporate those changes into the proposal myself, will leave room for other people to voice their feedback for a little bit beforehand.

Just to confirm - I’m presuming we would want an additional proposal for the v3 LP? Don’t want to include in this one?

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Yeah, I think we will most likely migrate all non-locked liquidity to a v3 pool as soon as taxes are removed unless we come across a good reason not to — so feel free to leave it out of the proposal imo. With fewer items in the proposal there’d also be less room for disagreement for voters