Just a quick follow-up here, brother–we don’t have any additional options to propose on our end. Our preference is simply to keep the status quo in place as that’s a proven, vibrant model. The assumptions that are being made in the A/B comparison are that a) $BAL has put in its pico low and it’s up-only from here, and b) selling will have a noticeable impact on price, which will harm the value of emissions. However, we’re in very choppy market conditions and likely will be for the remainder of 2023. A revenue up/price up scenario would be very nice, but it’s equally as likely that we see a revenue down/price down scenario as well. Relying on future revenue just seems to be a bit too volatile while current selling is guaranteed. If every attempt can be made to minimize aftermarket impact, such as through DAO swaps or DCA selling, it seems reasonable to lock in some cash now against an almost 700M valuation to hedge against future volatility.
I’m not trying to be difficult, but I still don’t understand the preference for option A when it doesn’t seem likely to fix the stated burn rate problem.
I don’t personally mind which proposal wins to be clear, either one will be sufficient so that when we re-assess in 6 months we can adjust as needed to avoid a funding shortfall.
It is true selling BAL is money in the bank vs betting on protocol fees which will change. It is true there’s a high amount of veBAL (locked liquidity) we can sell into with minimal price impact. However, there is a scenario where most of the BAL in the treasury never gets used - diluting the circulating supply should be viewed as last resort imo.
The reason I favor A is because it puts us on a more sustainable path in terms of DAO revenue covering costs. By going with B and not moving the fee split very much you increase the likelihood that more BAL will need to be sold in the future - or a more radical fee split to avoid that. Moving the fee split farther now helps push any required selling of BAL (or deeper fee split change) further into the future, which gives us more time to see our various growth initiatives succeed and/or the market to go bullish.
Basically, as a long term veBAL simp, I’d rather give up some short term revenues to avoid a likely permanent dilution of the circulating supply. The DAO will ramp up stable reserves that much quicker at 50/50 split when market goes bullish. veBAL can move the split back to 75/25 or even beyond that in the future when conditions support such a thing. Could even start allocating towards buying BAL off the open market. we just wouldn’t want to market sell the lows then a couple years later start a buy back program when the price is way higher.
Oh yeah - I’m not implying that you’re recommending a specific approach. I’m just wondering the bullishness expressed in these comments for proposal A when a conservative assessment shows that even if proposal A is passed and implemented, some other measure is likely going to have to be taken this year to solve the immediate problem at hand. So, I view proposal A more as an agreement to adjust the veBAL fee split to 50/50 for an indeterminate period, maybe forever (these types of changes have a tendency to not be walked back), while also forcing us to revisit the problem in 6 months. It’s not really a solution for the immediate burn rate gap so much as it’s a delay of solving that problem while hoping that revenue increases to bridge the gap (even though Balancer has recently lost its ability to collect most of the boosted yield it was earning a few weeks ago and we don’t know when that ability will be restored).
We can reassess in 6 months or whatever, but I think we all know we are just going to be having another variation of the same conversation if proposal A is passed.
It’s like shopping for a refi when you know the loan term is coming due in 6 months and a balloon payment is owed. You want to get the best rates and terms, but come the expiration of the term, there will be a balloon payment that has to be made no matter what. Yes, it’s best to get the best terms practically possible, but if those terms don’t or can’t pay off the debt, then the underlying problem still exists and you gotta keep working on it to actually solve it.
I think we’re in pretty much in sync–the perspective you provided is valuable. I think what we disagree on is essentially when/where the slippery slope begins, and perhaps which slope is more dangerous after you’ve slipped.
You believe that selling will inevitably lead to more selling, which will be more harmful long term than the alternative. We believe that the next step after 50/50 would be 72/25, then 100/0, which would be more harmful than the alternative. Between these two options, admittedly, 50/50 does seems to be a bit more “slippery” because future revenue isn’t guaranteed, while current selling is. Uncertainty forces you to be more reactive than proactive.
Going down one path doesn’t inevitably lead to continuing down that same path as well. Selling now, in our opinion, allows us to postpone this conversation for a year, guaranteed, which has value because we’ll be in a different market then, and be better able to evaluate where to go from there. That might encompass more selling, 50/50, or even new, undiscovered, revenue streams. We don’t really have the certainty of a second look a year down the road w/ 50/50, and that certainty (plus avoiding unanticipated side effects from deviating from the current model) is what makes approach B a more attractive option, in our opinion.
Then for the 6 month checkpoints (or whatever timeframe makes the most sense), maybe it is best to put rules/criteria in place (even if loose bands) around targets that would enact a change back to 75/25 or whatever future ratio seems fit. I think Solar’s spreadsheet would work fairly well for scenario testing as long as the input data was pretty good.
example: 2 years of runway secured existing 25/75, 1.5 year secured 40/60, 1 year 50/50, 6 months 75/25, something along those lines.
Seems to me that could possibly help with a fee split reversion assuming the loose bands aren’t too lose, but wouldn’t necessarily help with closing the burn rate gap this year (unless overall fees really increase even tho that seems unlikely atm).
Given that we’re still in the middle of a bear market, with reduced volumes and revenues, I think that any solution should include some further cost-cutting to be acceptable.
The DAO spends twice its revenue, Balancer is already quite “mature” and already out of the initial growth phase, so now is the time to rationalize spending.
Far too many DAOs and regular crypto companies die by lack of professional cashflow management. Balancer isn’t bankrolled by VCs, so now’s the time to act responsibly. Being able to take difficult decision collectively is a major contributor to cohesion and trust in a DAO.
For current veBal (and Bal, by extension) holders, a fee reduction or a dilution through selling is quite tough. If we ask them to do an effort to increase the DAO revenues, the DAO should try to reduce its costs to ease the pain.
Reducing the fees or selling reduces Bal’s attractiveness – doing it should be as painful as possible for the DAO and the people behind to prevent it from becoming a slippery slope and ensuring we don’t kill the golden goose.
I propose thus a 50% cost reduction, 25% veBal fee reduction for LPs, 25% $BAL selling.
Disclaimer: I am one of the co-founders at Arbor
I really appreciate the thoughtfulness the Balancer community has regarding cash flow management and runway. Although it seems like table stakes for web2 companies, the vast majority of DAOs don’t pay attention to or deploy appropriate financial management best practices. It’s refreshing to see the Balancer community prioritize a strong financial footing on which the DAO can continue to build world class products on. I’ve long been a BAL holder, general fan of the community/product, and continue to strategize how we might be able to build on top of some BAL infrastructure for our own product (Arbor)
Some framing based on the above conversations and post from @solarcurve . A few points stand out:
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Changing the veBAL revenue fee split to something from 25/75 to one more weighted towards the BAL treasury is mostly agreeable
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Selling BAL tokens at intra-year lows should be used as a very last resort
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There is some concern as to what conservative revenue expectations might look like in light of the current bear market as well as the recent shut off from collecting fees on many pools
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Reassessing the financial footing of the DAO every so often (~6 months) is a good practice the DAO should take up
With all of that noted, I’d like to propose another option for the DAO to consider - let’s call it option C.
Option C would include changing the veBAL revenue fee split to somewhere in between 25/75 and 50/50. The remaining shortfall would be covered by issuing 6-12 month non-liquidatable bonds at a fixed interest rate via Arbor Finance. For some further context, you can check out our two most recent offerings where we helped Ribbon Finance raise 3M and ShapeShift raise 100k. The exact details of Option C and the bond would need to be discussed and decided upon by the DAO but a rough overview of what the DAO could expect can be highlighted below.
Option C details:
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Change veBAL revenue split from 25/75 to 35/65
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Raise 1.5M USDC via arbor bonds using BAL the DAO holds as collateral
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6-12 month maturity
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10-15% max yield to maturity (interest rate)
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250% collateralization ratio (3.75M worth of BAL) - better rate if we increase the amount of collateral
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Include a convertibility ratio of 3-5x (If BAL 5x’s, lenders and convert into BAL)
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Bond issuance could be live within the next 4 weeks.
Option C would ensure the DAO could secure its financial future immediately without needing to put sell pressure on the BAL token while deploying a more moderate change to the veBAL fee revenue split. Upon the bonds maturing, the DAO could reissue bonds at similar or even better rates/maturity.
A disclaimer that I’m at Hedgey Finance.
I’d agree with this approach of using a x% discount for lockup over market selling. For reference, Gitcoin used our protocol to execute a $6m treasury diversification in a similar approach. Doing a discount/lockup selectively allows you to find protocol-aligned participants and could make the diversification a value add experience for Balancer.
Happy to share any insights we have if it’s helpful as you all explore.
Hi @Yakitori,
Nice to informally meet you and thanks for joining the conversation.
Well, the main takeaway of @solarcurve’s proposal IMO is that Balancer would actually put itself in a financially sustainable position at its current rate of spending if the DAO and and veBAL holders were to receive an equal distribution of protocol revenue. As long as the DAO only receives 25%, it spends significantly more than it makes.
This is an interesting and very unique take; I couldn’t disagree with you more. You’re suggesting that Balancer’s growth phase is mostly behind it-- while we’ve come a long way, that would be sad if true!
I think it’s safe to say everyone associated with this project, and the majority of people involved in the DeFi space overall, would actually argue the extreme opposite on this one.
Not saying at all that our success is guaranteed; we’re going to have to build and execute at a very high level. The growth opportunity is ahead of us, not behind us.
Your suggestion indicates that if it were up to you, you’d remove half of Balancer’s operations in order to maintain a high veBAL payout. In other words, your stance seems quite eager to sacrifice the future of this project in order to extract from it in the short term.
We’ve trimmed the fat, we even trimmed some muscle. Next is bone. You’re proposing to start cutting off limbs, for a project that has been building momentum and doubled its marketshare thus far during the bear. What the justification behind your suggestion?
Do you see half of the Balancer ecosystem’s costs as unnecessary? Please name the functions of this ecosystem that should cease to exist. What is your vision for Balancer succeeding with half of its personnel gone? Is it time to shut off the engines and coast?
I’m just wondering if you’ve put serious thought into the implications of this idea or if you were just throwing out a few numbers that sounded nice.
I would also like to invite everybody to give the financials dashboard I just released a look. Please note this is a beta build and might still display some wrong stats, but gives an overall good picture of the DAOs financials: Balancer Analytics: Financials Dashboard
Hi @immutbl, nice to meet you too.
You’re advocating to take from VeBal holders to match spending, I propose to adjust spending to match revenue, which is currently lacking by a great proportion.
I’m not convinced that reducing the underlying factor that propels the flywheel won’t slow it down in the medium term and reduce demand for the Bal token. There has been no discussion about it, so here’s a good way to start it.
Balancer has been launched mid 2020, it’s more than two years old. It’s a long time in crypto, it has seen a full bull market which allowed it to grow, experiment and show the relevance of its protocol. Now changes are incremental. So, it’s “mature”. It doesn’t mean innovation can’t happen, just like Google or Apple continue to innovate.
An organization can’t grow forever if it doesn’t address at some points its inefficiencies. This discussion is quite mundane in the tech sector, and the recent wave of layoffs is a result of this. Scaling down is often an opportunity to focus on what matter, move faster and improve communication in the teams.
It doesn’t necessarily prevent innovation. Most new protocols in defi are built by teams with few devs. The latest issue that affected pools show that even larger teams aren’t immune to problems in prod.
It’s not a specifically high veBal payout, it’s the current veBal payout that was voted earlier (and revoted to increase it) and that propels the flywheel, which is at the core of the protocol. VeBal requires locking your capital for a year. Liquid staking protocols, that soak plenty of emissions, lock…forever. I therefore don’t see any “short-term extraction” – I could say the same about you, by the way, so let’s keep it cordial, please.
Well, it doubled thanks to Balancer’s superior technical proposition, but also because of its veTokenomics, which we are currently planing down.
Anyway, this is an interesting point. From what I see (please tell me if I’m wrong, as I may have missed something), there’s no KPI, no estimated ROI on the core integration work.
What are the most important ongoing projects for Balancer right now, along with their estimated costs? Then maybe there could be an informed discussion regarding which body part removal we’re talking.
It seems to me that many projects listed on the front page rely on Bal and veBal revenues. Cutting into it would indeed endanger the said ecosystem.
I think btw you missread the proposition: there approximatively 50% of the budget missing, so to cover 50% of the hole with cost reduction would mean a 25% budget reduction. Given that there are currently 5 engineers at Orbs + 7 at the front-end team (I don’t have a clear count of the front end team), I don’t think it’s reasonable to use such “There is No Alternative” tactics.
I could say the same about the current proposal: no analysis was done on the impact of the fee reduction for veBal holders and the revenue cost of a reduction in spending. As for my proposition, it was an attempt to meet in the middle between the different ideas brought in the discussion, and the obvious need to address costs.
As a final note, I don’t hold a grudge against anyone here, I’m exposing what, I believe, is right for the organization as a whole. The reductions in cost should, if they need to happen, be decided by the DAO, with an informed decision. Maybe an external audit would help?
[Accidentally hit delete on the last one, re-posting here]
The veBAL flywheel is being driven primarily by gauge emissions and the power to direct them, not revenue distributions.
Balancer is a nascent technology that even DeFi natives are still grasping. The majority of the world does not use DeFi yet and there are no mature projects in DeFi today. We as an ecosystem are positioning ourselves for future growth.
It’s a very high compliment to compare Balancer’s growth to Google and Apple’s, but I don’t think we’ve earned that yet.
Since you brought them up, the FAANG have gotten to where they are by investing in hyper-growth; they didn’t shift to post-growth mode after 2 or 3 years.
Addressing cost inefficiencies has been a high priority focus for the ecosystem as a whole and my team in particular for the past quarter.
You are free to say what you believe about me. I’ve been dedicated to Balancer almost 2.5 years and I believe my actions have shown that I prioritize doing what’s best for the long-term success and sustainability of this project.
I agree that forum discourse should be cordial and respectful. There were some statements in your post that honestly made me unsure whether you were being serious.
Even if we strongly disagree on things, I do welcome your views and your contributions to this community.
Also because of the hard work of the contributors to this project…
Which ones? I don’t think any of the projects on our front page other than Aura rely on the veBAL split of protocol revenues.
Aura is a super valuable part of the ecosystem and supporting the health of the project is a high priority for myself and my fellow contributors. If we enact policies that sacrifice Balancer’s future prospects, we would thus also harm Aura and all of the ecosystem players who rely on Balancer for the long term.
This proposal was predicated on both of those things-- a comparison of the value/impact of veBAL revenue vs gauge emissions and an ecosystem-wide effort to reduce costs across the board.
Xeonus’s tool is a useful resource if you’re interested in digging into financial flows.
Game theory tells us that demand for Bal token (and veBal lockings) will be dependent on the future revenues buyers will get from it. Just like people buy stocks because one day they expect dividends. Or bonds.
Reducing the future revenues distributed to veBal reduces the NPV of Bal as an investment opportunity, which should reduce demand for it in demand, other things being kept equal.
If that’s not a problem, then where does Bal’s underlying value come from? Why not make a new proposal for 0% revenue directed toward veBal owners if only the emissions are important? It’s a bit concerning to see ponzinomics being advocated so openly in the wild by the team.
As I said, you’re slowly suffocating the golden goose.
FAANG are notorious for killing branches that aren’t profitable to preserve their capital efficiency.
Anyway, I think I made my point clear. Reducing revenues for veBal means less demand for the Bal token eventually. Bribes are mainly a compensation for the dilution of veBal owners.
As for cost reductions, the hole is big enough to discuss it. It doesn’t mean firing engineers. The last budget you published had twice more costs in “People Ops and GA” than in “engineering” : maybe there’s some possible improvement on this side? I’m sure OpCo could also participate.
Thus, let’s agree to disagree and leave the readers (and future voters) free to their opinions from what they read.
Disclaimer: I am from Hedgey, we create decentralized treasury protocols that help DAOs diversify native tokens and perform other core token operations.
Congrats to proposal B passing. I’m Lindsey from Hedgey, and would like to help out should Balancer decide to sell a portion of their tokens to other DAOs/buyers outside of an OTC desk. As a background, we created the protocol that helped Gitcoin execute a $6mm token diversification last fall, and would be happy to help Balancer do the same with their current plan of selling 250k BAL tokens.
I want to point out that a core benefit in using Hedgey for this diversification process is that our protocol will allow Balancer to execute the swap via escrowless OTC, as well as allow Balancer to enforce a lockup period on the purchased tokens. There’s a few reasons this could be beneficial for the DAO:
- Selling locked tokens prevents a sizable amount of BAL from entering liquid markets.
- Selling locked tokens prevents immediate governance dilution via restricting the ability to convert to veBAL.
- In addition, selling locked tokens also prevents the immediate dilution of existing veBAL stakeholders.
To offset the buyer’s opportunity cost from not being able to stake, the tokens could be sold at a slight discount equivalent to the approximation of the APY buyers would receive from unlocked staked tokens. This would look like a standard discount and lockup for buyers.
We’re in Discord and happy to discuss this in whatever way works for the DAO.
Hi @solarcurve,
I’m Nicole, cofounder of SIZE. SIZE is a sealed bid auction protocol for on-chain OTC. Assuming proposal B passes, could be a great fit.
SIZE gives you the option of one-sided seller lockup, so you can get the stables you need for immediate use, and sellers can’t dump your coins on the market; the tokens are vested at your discretion.
Here’s the Gitbook to learn more (docs.size.market) – we’ve spoken to ENS, TrueFi, and a few other treasuries about use and have been working with SNX on multiple auctions.
More than happy to hop on a call to discuss further.
Thanks!
Nic
Hey Nicole.
Proposal B has already won, so now we’ve been engaging in conversations with parties interested in the OTC. Please reach me on Discord and we can discuss it further. My DMs are open. Thanks.