Detailed plan to grow TVL and Treasury

Summary

  • The most efficient way to increase TVL is to target institutions/whales
  • Leveraging investor partners is a well-trodden go-to-market strategy in DeFi
  • PieDAO could issue short duration revenue-share tokens to institutional DeFi investors as a yield-bearing investment asset
  • After they get comfortable with PieDAO as a project, the PieDAO team, and PieDAO’s products, institutional DeFi investors are more likely to become recurring whale customers

Motivation and scope

@0xSami_ released a blog post on Sunday in which he pushes back on the concept of DAOs paying out their revenue to staked token holders. He explains that revenue distributions to token holders is equivalent to dividends and share buy-backs, and that these capital allocation decisions are appropriate for late stage companies (think IBM). For companies in very early stages (pre and post PMF), he argues, revenue should be used to grow.

PieDAO growth is driven by AUM/TVL

PieDAO is an asset manager. The value proposition of PieDAO is to do research, create strategies, deploy capital, and optimize gas fees. Customers pay a fee to PieDAO in exchange for this active management. Growing fee revenue is entirely dependent on growing AUM.

AUM/TVL growth is driven by institutional capital

One of the best ways to grow AUM/TVL is to onboard institutions. The benefit of targeting institutions is their size: a few large players can drastically improve TVL (and therefore fees generated). Institutions are also much stickier because they have a mandate to deploy capital and they invest for the long-term.

The problem is that institutional DeFi investors are difficult to access.

Partnership opportunity: Cinch

We are putting forward our platform, Cinch, as the intermediary to connect PieDAO to institutional DeFi participants.

Cinch helps protocols and DAOs reduce the sell pressure on their native token by creating short duration ERC-20 revenue-share tokens. We address the exact pain-point outlined by @alexintosh in improving tokenomics: our solution gives projects an alternative tool with which to reward short-term stakeholders that are likely sellers of native token emissions (which results in sell pressure, treasury depletion, etc.)

Our long-term vision is to be the marketplace where short duration revenue-share tokens are actively traded. As a result, we are in contact with dozens of institutional DeFi funds that are looking to deploy capital into yield-bearing opportunities like revenue-share tokens.

How PieDAO and Cinch can work together

  • PieDAO mints short duration revenue-share tokens via Cinch (example: [X]% revenue-share, transferred monthly to holders of the revenue-share tokens until [X ETH] is repaid)
  • Cinch introduces PieDAO to institutional DeFi investors looking to deploy capital into yield-bearing assets
  • Programmatic revenue-share is implemented via cooperation between Cinch and PieDAO team
  • PieDAO sells the revenue-share tokens to the highest bidder for USDC/ETH

Benefits & risks

Benefits to PieDAO

  1. PieDAO receives net new ETH/USDC in treasury

  2. Exciting narrative that PieDAO can actively promote across all existing distribution channels.

  3. The institutional partner could become a great long-term customer (familiarity with the team and incentive to try PieDAO products because of fee discount)

  4. The institutional partner could becomes a strong brand ambassador (incentivized to promote the use of Pie DAO’s products because fee revenue goes through revenue-share)

  5. The partnership does not require any assets to be sold from the treasury or DOUGH to be issued

Benefits to institutional partner

  1. Sustainable yield bearing opportunity
  2. Incentive to promote PieDAO product to drive faster repayment via revenue-share
  3. Easier to trust DeFi project when introduced via intermediary (Cinch)

Benefits to Cinch

  1. 3% fee [conditional on there being a transaction]
  2. Promote high quality DeFi projects and enable trust between counterparties that would have otherwise not been introduced to one another
  3. Further demonstrate the usefulness of short duration revenue-share tokens

Risks

  • Unable to find an investor that is willing to acquire PieDAO’s revenue-share token
  • Capital raised from investors is lower than anticipated
  • Revenue generated by PieDAO during revenue-share period is lower than anticipated, thus extending the time it takes for repayment to be complete
  • The investor partner does not become a customer or brand ambassador

Mitigants

Issuing native tokens to investors and/or customers is a popular go-to-market strategy in DeFi; there are very little risks. Ultimately, short duration revenue-share tokens will work exactly the same way except in that they will attract a different kind of investor than the DOUGH token, thus broadening PieDAO’s partner base.

Next steps

Cinch is currently in talks with institutional managers looking to deploy capital into DeFi.

We submit to the community that this can be done in small amounts as a first step to build trust among all parties involved (~10-20 ETH).

Following the results of the below poll, if this is something the community would consider, we will submit a formal proposal with precise amounts, proportions, and timelines.

  • Makes sense. I would consider it. Please submit a formal proposal.
  • I need more information before you go ahead and draft a formal proposal.
  • Doesn’t make sense to me. I’ll vote against regardless of what is in the proposal.
  • Why do we need this? I’ll vote against regardless of what is in the proposal.

0 voters

Hi all - I received some feedback privately via Discord so I thought I’d add some context with a couple of elements:

A subset of the institutions we are in contact with:

  • LedgerPrime
  • CMCC
  • Plutus21
  • Stablecorp
  • StrixLeviathan

The concept is similar to any form of non-dilutive financing: money is borrowed from the future to to minimize equity dilution for existing holders. This becomes doubly important when the equity being issued is sold into the market and pushes the price down. Below is an illustrative example (with fake numbers):

Nice post.

Points in which I agree:

  • It would be great to get more institutional money on board, esp. with longer term investment horizons.
  • Now is an excellent time for institutions to get in.

Points which I am not sure I agree:

revenue distributions to token holders is equivalent to dividends and share buy-backs…For companies in very early stages…revenue should be used to grow.

In general very sensible, playing devil’s advocate though:

  • One standout feature of PieDAO is governance mining and SLICE distribution. One could argue this is a core feature of the DAO as a product.
  • There are comparisons to be made between DAOs and TradCorps/Startups, but there are differences. It does not necessarily follow that what is good for a Web2 startup is good for a DAO.
  • “Revenue should be used to grow” → we need effective initiatives to grow. It could be argued that with the current team size and market conditions, we are effectively deploying capital. Team is lean, team is fully focused on new product development. In the meantime, the DAO is putting out SLICE and this gives back to tokenholders.

Final Thoughts and Questions:

  • Can you explain in more detail how does Cinch alleviate downward pressure on DAO tokens through a secondary marketplace? Thinking in simple terms, it’s a supply and demand question - right? Keen to understand more!
  • What are the key decision points for institutional funds when deciding in what to invest?
  • In TradFi, institutions hold enormous clout on PLCs. Do Web3 funds see themselves as activist investors? What do we think the implications of that are for PieDAO?
2 Likes

Thank you for the feedback @jordaniza! I appreciate the thoughtful response.

You are 100% right that spending money on the team and focusing on building is deploying capital, and I agree that distributing revenue to stakers has become a common feature in DeFi. My preamble about using revenue to grow was to contextualize the post. I respect the decisions the team and the community have made – building something that reaches critical scale is hard and you guys have done an outstanding job so far.

Allow me to answer your questions one by one:

PieDAO has 1 tool (the DOUGH token) but 2 types of holders: short-term (looking for immediate yield, namely liquidity providers) and long-term (core team and core community). By using DOUGH to incentivize long-term and reward short-term stakeholders, the DOUGH token is exposed to unwanted sell pressure by the short-term holders. Unfortunately, most DOUGH emission go to short-term holders.

PieDAO could issue revenue-share tokens to short-term holders instead of the DOUGH token. Less DOUGH in the hands of short-term holders = less sell pressure.

Illustrative example: if the DAO agrees to a ~2 year revenue-share up to $200k of revenue, that implies roughly ~3,333,334M DOUGH tokens can be replaced with revenue-share tokens (@ $0.06/DOUGH).

Slippage is far from a perfect proxy for sell pressure, but it does help to provide a directional sense for the protection this could offer:

Note: the above assumes revenue-share tokens are used to replace DOUGH emissions. If the revenue-share tokens are used to bring on institutional investors, then they would not be replacing DOUGH token emissions to short-term holders, thus not protecting the DOUGH token from sell pressure.

Because revenue-share tokens are effectively a revenue royalty, decision points are whatever impacts the DAO’s revenue-generating ability:

  • P * Q revenue drivers
    • Fee structure
    • TVL composition and volatility
  • Historical revenue performance
  • Fee paying customer wallet stickiness
  • Fee paying customer wallet concentration
  • Roadmap, scheduled product releases, partnerships, growth initiatives
  • Team

These assessments can be done very quickly (matter of hours) because they are an evaluation of the revenue generating ability of the project for the next 6-24 months, not 5-10 years. These assessments will all be done via Cinch’s dashboards.

The final item would be assurances that the revenue-share can’t be turned off by the DAO before the end of the agreement without the investor’s consent, which can easily be provided via multi-sig.

The institutional investors we are in contact with seek long-term, attractive, risk-adjusted yield opportunities. They would have absolutely no governance rights with the revenue-share tokens. I would compare them to debt investors (who don’t get involved in control-related decisions and only care about getting their money back) instead of equity investors.

3 Likes

Hi @habs4lyfe thanks for your post. Can you explain me like I’m a 5 year old kid? I’m getting that the process involves a series of steps starting from PieDAO issuing a token that represents Dough by deploying ETH. I’m missing how the growth is measured and how the payback is done to those that bought the Dough representation token (specially of the market goes down)

@Adrian.A absolutely, and sorry the above isn’t more clear.

ELI5: PieDAO can temporarily share revenue with institutions that choose to use PieDAO Indices.

+PieDAO gets to post large increases in TVL to kick-start growth flywheel.
+Institutions get improved return.

Cinch is currently in contact with a number of institutional funds interested in revenue-share opportunities like this.

1 Like

And how does that share revenue mechanism work? Can you make a practical numeric example?

@Adrian.A of course!

Assume PieDAO generates ~$50k annually in revenue (fees)

Rationale: TVL growth and promotable partnerships are key to attracting users

  1. ‘fee_collector’ sends [10]% of fee revenue to investor wallet address for [12] months

  2. Investor stakes $[250]k into PieDAO product

Benefit to PieDAO:

  • Promotable partnership
  • +$250k TVL

Cost to PieDAO:

  • $5k (2% of TVL acquired)

Benefit to institutional capital:

  • 2% incremental return/yield from using PieDAO product

All of it done through Cinch’s app with de minimis time required from PieDAO dev or commercial team.

Would love your feedback :slight_smile:

1 Like

@Adrian.A @jordaniza @alexintosh @Snook

Wanted to bump the conversation here following August vacations and the tornado cash / site hosting situations.

Of the people who voted 100% (5/5) said they would consider it if a snapshot vote were submitted.

It would be great to connect with someone from the team to chat through exactly how we can make this proposal as helpful as possible to PieDAO.

Thanks in advance!

Max LS