VIP #1: Token Buyback Mechanism

[jake]

Proposal Overview

This proposal suggests creating a buyback mechanism to periodically repurchase $VDO tokens on the open market, in line with the revenue and profitability of validator operations across active networks. It also aims to establish an initial framework for the DAO to manage treasury assets more broadly, including the ongoing management of accrued network token rewards within a robust treasury management framework.

As of this writing, the DAO manages over $40 million in Total Value Delegated (TVD) across five active validators, with the majority of this TVD coming from operations on the Dymension and Celestia networks. These operations continuously accrue validator rewards in native $DYM and $TIA tokens respectively, allowing ValiDAO to benefit from the growth of these networks. These rewards amount to approximately $400,000 per annum when converted to US dollars. The split of TVD by network at the time of writing is as follows:

Additionally, the DAO supports a native ValiDAO token, $VDO, which represents a governance share in ValiDAO. Currently, $VDO token holders do not directly benefit economically from this validator revenue.

To incentivize $VDO token holders to participate actively in governance, support the growth of the DAO, onboard additional networks, and expand the DAO’s validator offering, we propose directing a fixed percentage of revenue from validator operations into open-market $VDO token buybacks. Initially, we propose using 25% of monthly validator revenue for this purpose, with the percentage configurable through future governance votes.

All tokens repurchased through this scheme would initially be transferred to the ValiDAO treasury multi-sig wallet at 0x2574aC3027EdF0a16660AF176f1E92E8762cE7eb, for use in further incentivization schemes aimed at bolstering TVD on networks. In the future, these repurchased tokens could be transferred to a burn address by a future governance vote, ensuring that the $VDO supply is deflationary.

The benefits of directing tokens to the treasury multi-sig wallet include the ability to use these $VDO tokens for:

• Incentivizing participation on new networks via airdrop programs (such as Dymension).
• Incentivizing community members to make introductions and manage relationships with new networks.

Proposal

On a monthly basis, on or near the first day of each month:

• Use 25% of accrued validator rewards on all networks to repurchase $VDO tokens on the open market, sending the repurchased tokens to the DAO treasury multi-sig.

[SirJoseph]

Hey Jake and VDO Community,

Jake - thank you for your clear and comprehensive proposal. I have a few thoughts and suggestions that may enhance the proposal’s clarity and effectiveness:

1. Enhance the Buyback Mechanism Details
2. Wallet Multi-Sig Details
3. ETH Buyback Strategy
4. Benefits of Directing Tokens to the Treasury
5. Stakeholder Communication Plan
6. Utilization of Remaining Revenue

+++

1. Enhance the Buyback Mechanism Details:
o Pre-share the schedule for repurchasing $VDO tokens on the open market.
o Clarify whether the buybacks will be automated via smart contracts or conducted manually; I presume the latter.
o Specify the frequency of the buybacks.
o Identify the party responsible for executing the buybacks.

2. Wallet Multi-Sig Details:
o Provide information on who manages the team’s wallets.
o Identify potential points of failure.
o Discuss security measures and protocols in place to safeguard the wallets.

3. ETH Buyback Strategy:
o Explain the timing for when ETH will be purchased, considering market sentiment and other relevant factors.
o Clarify if this will be conducted on a monthly basis.
o Specify the address where the ETH will be held.
o Detail the intended use of the ETH, whether for day-to-day management or to build the buyback treasury.

4. Benefits of Directing Tokens to the Treasury:
o Include potential benefits such as ecosystem grants to incentivize builders and developers within the ecosystem.

5. Stakeholder Communication Plan:
o Develop a communication plan to keep $VDO token holders and other stakeholders informed about the progress of the activities outlined in the proposal.
o Address the issue of missed deadlines and how regular updates and transparency can improve accountability and trust.
o Emphasize the importance of frequent buyback announcements to attract attention to the platform.

6. Utilization of Remaining Revenue:
o Explain how the remaining 50% of the accrued validator rewards will be utilized.

Other Considerations:
• Explain the rationale behind the 25% allocation for buybacks. Why not allocate a higher percentage?
• Clarify the text regarding revenue reallocation rather than rebalancing. Consider using a pie chart to visually represent the allocation of resources for better clarity.

Happy to eat my own dinner here and help to re-write this so just let me know

[jake]

Hi @SirJoseph, thanks for the reply!

1. Enhance the Buyback Mechanism Details:
o Pre-share the schedule for repurchasing $VDO tokens on the open market.
o Clarify whether the buybacks will be automated via smart contracts or conducted manually; I presume the latter.
o Specify the frequency of the buybacks.
o Identify the party responsible for executing the buybacks.

The cadence for these treasury operations would be monthly, on the first day of the month (subject to signer availability). The party responsible for executing the buybacks is The Validator Foundation (the DAO), and the buybacks are executed by community multi-sig signers manually at the behest of the DAO.

2. Wallet Multi-Sig Details:
o Provide information on who manages the team’s wallets.
o Identify potential points of failure.
o Discuss security measures and protocols in place to safeguard the wallets.

The team hot wallets are currently held by @Murakamikaze, but the treasury is a multi-sig wallet comprised of 5 community signers. These have not been disclosed for privacy purposes, but a consensus of 3 signers is required to execute transactions currently.

3. ETH Buyback Strategy:
o Explain the timing for when ETH will be purchased, considering market sentiment and other relevant factors.
o Clarify if this will be conducted on a monthly basis.
o Specify the address where the ETH will be held.
o Detail the intended use of the ETH, whether for day-to-day management or to build the buyback treasury.

This will take place at roughly the same time as the $VDO token buyback for efficiency. The intention is not to “time the market”, more to sweep profit into Ether which holds a more stable value than the underlying accrued rewards.

The Ether accrued will also be held by the treasury multi-sig at the same address as noted in the proposal (this is already specified in the proposal itself during the final bullet).

The intended use of the Ether is to be held on balance to finance the foundation’s operations.

4. Benefits of Directing Tokens to the Treasury:
o Include potential benefits such as ecosystem grants to incentivize builders and developers within the ecosystem.

This is out of scope for this proposal, but could be a great proposal once the DAO has more structure!

5. Stakeholder Communication Plan:
o Develop a communication plan to keep $VDO token holders and other stakeholders informed about the progress of the activities outlined in the proposal.
o Address the issue of missed deadlines and how regular updates and transparency can improve accountability and trust.
o Emphasize the importance of frequent buyback announcements to attract attention to the platform.

This is also partially out of scope for this proposal - the purpose of the proposal is to outline the mechanism and allow token holders to enact it into being. These points regarding announcements are separate.

6. Utilization of Remaining Revenue:
o Explain how the remaining 50% of the accrued validator rewards will be utilized.

They will be held on balance and potentially swept into more stable assets manually. The purpose of this proposal is to set in stone a fixed operational buyback and revenue sweep, and allow the treasury to manage the remainder of accrued assets as they see fit (with the security of knowing that a fixed amount has already been sold).

Other Considerations:
• Explain the rationale behind the 25% allocation for buybacks. Why not allocate a higher percentage?

The proposal is designed to allow token holders upside in electing for higher numbers as the DAO progresses. The reason the initial number is not higher is to ensure that there is adequate value accrual to the foundation first and foremost, and secondly to token holders during this initial DAO bootstrap phase.

• Clarify the text regarding revenue reallocation rather than rebalancing. Consider using a pie chart to visually represent the allocation of resources for better clarity.

I’ve added some visuals to assist with this now, thanks for the note!

[Miguel]

Hi all,

I’d like to expand upon the buyback strategy. I completely agree with buybacks going to treasury to expand growth initially, however I would propose a small amount initially (even as low as 1%) to be burnt so that the supply can labelled as deflationary.

While this may seem trivial initially, I think it will greatly benefit any marketing strategies that we undertake.

Cheers

[SirJoseph]

Hi Miguel, while I get this sentiment, it may have to be >1%, so the deflationary nature is meaningful. That said, I don’t think burning it at this moment is top of mind. Are there any other tokens/platforms that have done this successfully? Thanks!

[SirJoseph]

Thanks for the thoughtful response, jake and for the great updates to the proposal. I’ll firstly respond to your points and then add a few more thoughts I had to the new proposal.

1. Enhance the Buyback Mechanism Details:

The cadence for these treasury operations would be monthly, on the first day of the month (subject to signer availability). The party responsible for executing the buybacks is The Validator Foundation (the DAO), and the buybacks are executed by community multi-sig signers manually at the behest of the DAO.

Thanks for the clarity. Monthly buybacks ~1st of the month makes sense. Would be great to set up posts on socials that announces when this is done (doesn’t have to be immediately in each instance)

2. Wallet Multi-Sig Details:

The team hot wallets are currently held by @Murakamikaze, but the treasury is a multi-sig wallet comprised of 5 community signers. These have not been disclosed for privacy purposes, but a consensus of 3 signers is required to execute transactions currently.

Fair, I like this.

3. ETH Buyback Strategy:

This will take place at roughly the same time as the $VDO token buyback for efficiency. The intention is not to “time the market”, more to sweep profit into Ether which holds a more stable value than the underlying accrued rewards.
The Ether accrued will also be held by the treasury multi-sig at the same address as noted in the proposal (this is already specified in the proposal itself during the final bullet).
The intended use of the Ether is to be held on balance to finance the foundation’s operations

This makes sense; in short - at the start of each month.

Fair enough regarding points 4 and 5 - I look forward to discussing at an appropriate time - I have a lot of thoughts!

6. Utilization of Remaining Revenue:

They will be held on balance and potentially swept into more stable assets manually. The purpose of this proposal is to set in stone a fixed operational buyback and revenue sweep, and allow the treasury to manage the remainder of accrued assets as they see fit (with the security of knowing that a fixed amount has already been sold).

This feels unsatisfactory - if its the case, we should just say this clearly in the proposal - effectively sounds like they can do what they want (which isn’t a problem) but we should make it clear otherwise people can point the finger at us asking wtf is going on. Hopefully I’m making sense here.

Other Considerations:

The proposal is designed to allow token holders upside in electing for higher numbers as the DAO progresses. The reason the initial number is not higher is to ensure that there is adequate value accrual to the foundation first and foremost, and secondly to token holders during this initial DAO bootstrap phase.

Fair.

Thanks for adding the pies!

Feed Back on updated proposal

• Sell 15% of accrued validator rewards for ETH, accruing the ETH rewards in the DAO treasury multi-sig.

Are you saying that all the ETH will be used for operational costs? Would this sit in the treasury, and build up, or would it be regularly spent? Please could you make this clearer? As in the pie it says its operations and doesn’t add a note on ETH.

** Other**
Can you please add some more context towards if the 60% is free reign to be used or will simply build up?

Thanks - SirJoseph

[jake]

Following up to the outstanding questions, please let me know if I missed any:

Are you saying that all the ETH will be used for operational costs? Would this sit in the treasury, and build up, or would it be regularly spent? Please could you make this clearer?

Yes, currently the DAO collects Ether from a % fee on swap volumes. This Ether is held in the treasury multi-sig and used to finance DAO operations from there. This proposal would seek to add a fixed percentage of Ether from DAO revenue there also for the same purpose (additional hiring, marketing, etc.)

Can you please add some more context towards if the 60% is free reign to be used or will simply build up?

The 60% will “build up” and be held on balance as a DAO treasury asset. Referencing the AUD page for the DAO, currently these are labelled pending commission but would now either be held in account balance or self-stake, the latter would accrue rewards in-line with network inflation:

I could edit the proposal to indicate this intention if that works? I do think that there needs to be more clarity around which wallets hold and stake these assets, particularly as their value grows also.

---

Edit: Regarding identification of DAO treasury hot wallets, I’ve just been informed that we can identify the wallets (manually for now) which hold these assets by navigating to a validator page for the DAO, and clicking on the relevant account address field on Mintscan:

[jake]

Hey @Miguel, thanks for the reply.

This is something that I’ve considered heavily, and my conclusion was that the revenue just isn’t significant enough yet for this to be interesting or a meaningful dynamic change.

Given the project is so young, I think the best thing to do would be to focus on growing the revenue pie and traction first. That being said, I think the end goal I have in mind is for the entire buyback to be burned eventually, just not at the moment.

Let me know what you think!

[Miguel]

I see where everyone is coming from. I just think we need a selling point. Growing revenue etc is all great (obviously the goal) but we need something to market. We need something to sell that Normies can understand. Being deflationary will add to this imo. The sales tax is another thing (I am privy to the discussions around this).

Currently we have a utility token that is solid in its fundamentals and robust in its growth to date and the potential moving forward…but unfortunately it’s just bloody boring! If we want to get some price appreciation (of course we do), we need to find some ways to make it more exciting and enticing for new investors. It seems we onboard a project, get a big bump, and that’s it. Even the growth doesn’t really continue. Unfortunately the crypto investment landscape is very short-sighted. It’s very likely the delay in the airdrop has severely hampered any momentum we had going as well.

In summary, I appreciate the amount of effort you guys are putting in, many of the core investors do too. Let’s try and get some things we can use to bring people in. Let’s get some buzz going again.
No tax
Delegate with us for an airdrop.
Hold the deflationary tokens, growth is programmed.

It needs to move faster, because unfortunately it just does. That’s the space we’re in.

[Murakamikaze]

Great proposal @Jake, thank you! Implementing a structured buyback scheme like the one proposed makes perfect sense. We’ve been buying VDO off the market ad-hoc for a while, but it needs to be formalized and integrated into our tokenomic model, which this proposal achieves.

This proposal was discussed during the most recent council meeting, and these were the generally shared thoughts, mostly related to the 15% allocation towards ETH:

• The council will manage our treasury and assets regardless of this proposal, and may for example choose to sell (more of) our pent up commission at certain points in time. I think it’s better not to be constrained by the need to sell 15% every month. Sometimes we may want to refrain, and take calculated bets on directionality, and sometimes we may wish to sell
• The more we commit to continuously selling our commissions, the more we detract from our ability to be a bet on the alt L1 space / an “index”.
• Since this was initially posted, we now also have a proposal (VIP
  2) which may well pass and be implemented in the near term: getting rid of taxes. Up until this point we’ve been drawing from taxes entirely, and I think we need some breathing room to manage our treasury more freely in this transition period

TLDR I think this proposal is great and needed for our tokenomics, but would prefer it amended to only implementing the 25% VDO buyback to start with, letting the council manage the rest as needed.

[jake]

Thanks for the reply @Murakamikaze, I will integrate this proposed modification now.