AGP10: Reserve Strategy #18
Comments
|
Super happy the community is thinking about these kind of issues. However I'm not sure AN should be using its ETH reserves to support the price of the token. The scope of the project is absolutely massive and realistically it is going to take many years for the jurisdiction to be fully self sustainable. A large reserve serves as a long runway making the probably of success that much higher I agree with the argument price appreciation will boost attention of speculators. This definitely is positive for the health of the AN ecosystem, but I'm not convinced depleting the ETH reserve is an efficient use. If ANT holders believe AN is holding too much ETH why not simply return some to ANT holders directly and avoid the exchange fees? (This is very simple as ANT is a minime token) Imo this is a better for the network as it gives speculators back some liquidity and longer term investors the opportunity to increase their holdings. There by Increasing the voting power of those aligned with the long term vision. Further more one trader employed to do the job would be concerning for me. If AN was to do something like this, it would make alot more sense to test the futarchy system being developed with a small amount of the reserve and increasing it over time. A prediction market would be far better at deciding forward policy than a small group of people |
|
The reallocation to a 2:1 ETH:ANT ratio of reserves wouldn't impede the development of AN over the coming years. And the intent isn't to support the price of ANT, the point is to re-allocate reserves to capitalize AN, which is reflected in the market cap of ANT. There will still be ample reserves, several multiples higher than the initial $25mil invested in Aragon. The proposed strategy has nothing to do with speculators, while I don't dispute that an effective strategy with forward guidance will attract further investment. And, reserves wouldn't be depleted, as ANT is an asset, they would simply be reallocated. Returning ETH to ANT holders would be like a dividend, which has its own issues. Trading fees should be minimal, placing large buy/sell large orders on the variable margins of the reallocation trend line, and overall should be insignificant given the scale (depending on trading platform used). Furthermore, reallocating assets achieves the ends of benefiting ANT holders, without draining reserves, as an ETH giveaway would. Speculators can always sell their ANT, but with the published forward-guidance, they will be incentivized to hold their ANT for at least the next year, over which time the overall crypto market will most likely cycle through its current bear market and be in/past its next bull market. And with AN purchasing additional ANT, it does in fact increase the voting power of current ANT holders. I think whoever is currently managing bittrex orders on behalf of AN could fairly simply execute this strategy so that there is no introduced trust issues. All it takes is making some significant sized orders, stepping them up gradually every few days, and publishing the strategy. The 3-month strategies could be published one at a time rather than publishing the 1-year strategy up front. Any upside volatility can be sold into so that the trend line is supported for a gradual reallocation of the $ denominated reserve ratio. However, if that individual(s) are too busy, the position could be created and an individual hired to fill it. The gradual nature of the reallocation ensures that only a small fraction of reserves need to be available at any given time, though a significant sized ANT sell order on the high margin should initially be placed prior to the announcement so that upside volatility is curbed, as I mentioned, which will also benefit AN. I'm not sure what the futarchy system is that you mention, but this initial reserve reallocation strategy could be executed given current conditions fairly simply. The free market is a prediction market, it needn't be developed. Utilizing available reserves to capitalize the AN rather than keeping the vast majority of eggs in the ETH basket (a majority would still remain in ETH at a 2:1 ration by the end of the year by this strategy), and then publishing forward guidance simply helps the free market to make its decisions in favor of AN, providing stability and confidence in ANT, as demonstrated by reallocation of reserves. |
Not sure what you mean by capitalize in this context. I don't see how AN buying back ANT from the open market is not a measure to support the price. Of course AN needs ANT reserves to for various reasons (paying contributors in voting tokens for eg), but what is the significance of a 2:1 ratio. And as far a market cap, this is a pretty poor metric to measure the success of the network Imo
Yes it is an asset, but ETH will always be far more liquid. its like a company choosing to hold 2:1 cash to its own stock as oppose to 5:1 (or what ever it currently is). From a business perspective I'm not sure that makes sense, why would you hold the runway in your own stock instead of cash? Sure AN is not a 'company' and ANT is not stock but they are analogous in this context.
I disagree. Dividend is profit returned to shareholders. What were talking about is investors receiving some of there own ETH back. No one is making a profit. AN has had no sources of income other than what holders invested. But your right, the legality would need to be looked at before any decision. Also just to be clear I'm not advocating for this, Imo the more eth AN holds the better. But for me this is preferable than a buyback. A buyback increases everyone's voting power, this potentially puts more voting power in the hands of those more aligned with the long term vision.
Futarchy is s governance system. Aragon is a platform for governance. Using futarchy would be AN eating it's own dog food. https://blog.ethereum.org/2014/08/21/introduction-futarchy This is a good technical article by vitalik on futarchy. It's quite long but I'm sure Wikipedia will have something too. So the way it might work on a high level is for token holders to decide a ratio of ETH:ANT is important. But the exact ratio and when to adjust it would be left to the market it's self using Gnosis or Augur. So instead of arbitrarily setting a ratio and time period, we use the wisdom of a crowd of experts @lkngtn is the research lead with Aragon, I'd love to hear how he sees something like this potentially working |
|
ETH and ANT are both assets, forms of capital. Reallocation of reserves from ETH to ANT capitalizes ANT. Yes, the price of ANT would almost certainly rise, but that is an effect of the primary intent which, as stated, is reallocation of reserves to reflect the values of AN. The ratios represent the valuation of the reserves, rather than the current, arbitrary, strategy-less ratio; maintaining and publishing a strategic ratio and modifying it over the time frame proposed gives forward guidance to the market; that the AN values ANT more and more relative to ETH over time and is reflecting those values with allocation of reserves. After all, AN is evolving into an autonomous, decentralized jurisdiction, not merely an Ethereum subsidiary. ETH will not always be more liquid than ANT if ANT forks off of ETH and forms its own blockchain or utilizes another platform which is superior to Ethereum. I don't know the overall strategy, but from what I've gathered, this is a potential in the long-run. But the allocation of reserves reflects values, not liquidity. Otherwise, I agree with point 2, and why not allocate reserves more heavily in AN as opposed to keeping such a large ratio of reserves in ETH? And last I checked, the current ration is around 7:1. Investing abundance of ETH into ANT capitalizes ANT (like I mentioned), shows confidence of AN in ANT, and forward guidance bolsters that confidence from investors' perspective, all of which is to the benefit of AN. ETH in reserves is only necessary for similar reasons that companies need cash, and even at a 2:1 ratio, there is still an abundance of ETH for these purposes. Why do you think companies invest their abundant cash into equity? It is in the interest of the network that underpins it, and attracts further investment. If ETH is returned to ANT holders, it drains value from AN, which is the opposite of the intent of the proposal, which is meant to increase the value of AN. The rest is semantics. The valuation of ETH has increased, and the increased valuation of ETH is profit in regards to AN, whether realized or not. The last sentence in point 3 doesn't make sense to me... who else should have voting power than those who are investing into the long-term success of AN? The proposal incentivizes long-term investment, an ETH 'airdrop' incentivizes short-term investment and crashing valuation after the 'airdrop'. I'll look into futarchy after this post. From your initial explanation, it sounds more like competition based on the ETH platform, whereas Aragon is positioning itself to be its own platform, if I understand what you're saying correctly. And, I don't see AN as a dog that needs fed from an ETH subsidiary, I see it as a DAO of sovereigns which stands on its own two feet. Maybe I am only dreaming though... I do agree with your last point, and ideally by the end of 1 year, AN is at the point where the ANT holders can take the helm as far as strategy. However, that isn't an argument for having no reserve strategy between now and then. |
|
We have been thinking for a while about our reserve strategy, so thanks for bringing this up. However, my view has always been that transitioning the funds to the Network is the right move, and then the Network can decide to do whatever it wants. Time-wise, starting to execute a strategy would likely take a few months, and in a few months we want to start transitioning the funds, so we may as well directly do it. |
|
I see. I would assume when you say "transitioning funds to the Network", you are referring to ETH as well as ANT, right? Seeing as there is already an unspecified ANT buy-back plan, meaning trading accounts are open, I don't see why the above strategy couldn't be applied today if there was agreement amongst the current team. Place some orders and publish the 3-month plan to re-allocate to a 5:1 ratio. I don't expect this, I am just saying, I don't understand why this would take a few months?... But I understand and respect leaving this decision to the Network, though it seems at odds with the existing token buy-back program. It would really just be modifying that program so that there's forward guidance and a ratio target. |
|
On the idea of taking it slow and eating the dog food... what about using TCR and DAO as in the following?
This could start with small amounts, and those who do well receive more funds over time. One could imagine several of the Reserve TCR/DAO operating in perpetuity and coming/going with their ability to compete. (enter LD) |
By liquid I mean the volume of tx of ETH vs ANT. ETH by its nature is fuel as well as digital cash. Sure Aragon can move to another chain but it will always sit higher up the stack in the application layer on what ever platform it chooses.
Probably didn't make it clear what I mean. Aragon is a platform for governance. Direct democracy, liquid democracy, futarchy, TCRS. and with aragonOS pretty much any other system someone might come up with in the future. The food is the governance systems Aragon is developing/enabling. The promise of these governance systems isn't just "fairness" it's that they will make better decisions. In principle having a reserve strategy is definitely a good idea. My concern is how the parameters are set. For me it's important the numbers are not arbitrary and the decisions linked to performance. of all the systems being actively researched, prediction markets seem the most natural fit. |
|
I agree, the ratio of ETH:ANT reserves should not be arbitrary. It should be a ratio which is defined and published for forward guidance and confidence in AN, as represented by the value of ANT. If AN values itself, the ratio of ETH:ANT holdings would favor ANT over time. However, the opposite is true, current ratio is about 7.25:1. You guys are talking about potential future strategies, and they sound great. But I'm talking executing and announcing a strategy NOW. The free market doesn't care about future potential strategies, it cares about the reality now. This shortsightedness it what has stymied BTC's advantage, and I don't want to see the same thing happen for ANT (currently witnessing it), simply because there's no basic understanding of market fundamentals. Continuously missing deadlines, lack of interest in strategies that benefit token-holders, and a chart that screams "sell" is not going to benefit AN. Rather, having deadlines which are achieved ahead of time, having confidence and forward guidance regarding the value of reserves of AN, which should be reflected in value of ANT, and a chart that represents the fact that ANT is positively developing, not diving lower and lower... these are in the best interest of all of us. There are no obstacles to these actions I propose other than the unwillingness of current core team to act. There is already a buy-back program which has been pretty much inactive in the last 2-3 months, which is when its actions would have most fruitful in recapitalizing ANT and separating Aragon from the pack of crashing tokens, thereby generating positive momentum. The fact that the Eth in reserves is so much higher than the value of AN, as reflected by the market, is a concerning sign, when there is an agreed-upon token buy-back program, and is another reason why enacting this proposal is wise. It will profit AN as the price of ANT is bolstered. Letting the cash reserves sit and do nothing is opposite of what they are for. Put them to work! I guess I'm getting a bit frustrated, which is probably reflected in my communications at this point, but the only reason is because the lack of strategy dis-incentivizes me to continue investing in ANT. While this frustration has led me to contribute by providing a basic strategy where it is lacking, and while I resonate with the overall concept of Aragon, I, along with many other market participants aren't seeing encouraging signs. This proposal is a very simple and effective way to address the issues at hand. Perhaps whenever the 0.5 platform does launch, and there is a viable product (maybe that's not the viable product, and it will still take longer for this milestone), the team will put more emphasis on market strategy. It just doesn't have to be either-or, they need to be developed in tandem for optimal results. |
|
So as a investor/community member, I think it's short sighted and against the ethos of the project for the devs to impliment any major decisions with the reserves without a vote by the token holders. I like everyone else invested on the basis that the funds would be transferred to AN when it's on the main net. Your proposal seems reasonable. I wouldn't vote for it my self as I don't think any organisation should hold more of its own stock than cash (again I know it's not stock or cash) but the point is I want a say in any major decision. It's our money and our organisation, not the devs. Now this can only happen when 0.6 is out and the funds have been transferred to AN. Yes the delays are fustrating to everyone myself included but this is to be expected. It's important to keep in mind this is a Decentralised organisation and the core team are developers not fund managers. As long as they continue to push forward with the development (which they are as you can see by the git commits) the team will continue to have my support |
|
I like @verdverm's idea of setting up multiple TCRs to take on managing the AN's funds. Regarding executing a strategy right now @sovereign-naan, we are completely product-focused and cannot afford to be distracted at this stage. We are conducting some hedging of a small portion of the funds to guarantee the long term survival of the project, and that's even a stretch in terms of focus. We are obviously open to other proposals like this, but first things must come first. When the AN comes into fruition, its reserve strategy will be very important to figure out. As I said before we will likely need some liquidity mechanism for other subtokens inside the Network, and something like this could make sense then. |
|
I hear you @shyblugs, but if you examine the proposal, even after 1 year, AN would hold 2x as much ETH [cash] as ANT [stock]. And the proposal would benefit all ANT holders as well as AN as a whole. And I understand that you guys are too busy for for executing a strategy right now @luisivan, but maybe after 0.5 gets released, taking a minimal amount of time on strategy regarding the token buyback program would be prudent, and if a ratio could be determined and published, on a timeline like proposed, I assure you it will do wonders as far as investor-relations and creating momentum! Maybe consider hiring a part-time trader/manager for the short-term to manage the token buy-back? While Market Cap is lower than Reserves, this is a profitable trade for AN! And the volume would no longer be a concern... Is the token buy-back what you are referencing when you mention hedging funds, or is that something else? At risk of sounding like a broken record, giving some attention to strategy now (and transparency regarding that strategy/ the token buy-back program) would allow momentum to build over the next few months rather than continuing to dwindle, so that come time for the AN to take the helm, the value will be looking much nicer overall- maybe market cap will even exceed reserves, so that AN has a positive valuation on top of reserves, rather than having a negative valuation being lower than reserves... Anyways, doesn't sound like there's much interest in this proposal, but thank you all for taking the time to consider enacting a strategy and for the responses. I appreciate the ability to contribute regardless :). |
|
@sovereign-naan when I reference hedging funds I mean taking a part of the funds and putting them into other cryptos, fiat and possibly some real estate too. Of course all of that will be transparent! |
|
Funds going into fiat and real estate? Doesn't that mean acceding to a jurisdiction? Hmmm... That seems like a decision than that requires AN input more-so than this proposal! But, I have faith you guys are doing what you believe is necessary and for the good of AN, I'll just wait and keep an eye out for the transparency report. Nice to see some well-timed action with the multi-sig! 👍 |
|
Fiat and real estate means linking the funds to a jurisdiction, yeah. That's why we want to leave most of the funds in crypto, and preferably ETH, so transferability to the Network is easy. We could also use Dai and I think it's a very compelling option. |
|
@sovereign-naan I'm curious what your thoughts are on the reserve strategy proposed here: https://github.com/aragon/whitepaper#4-aragon-network-token |
|
I appreciate that this may not be popular, but it seems to me that:
It seems reasonable to me that the foundation should limit it's treasury management to matching it's current and future liabilities and responsibilities towards the furthering of the network. Ergo probably holding a large portion of treasury in cash? |
|
Exactly @dfauchier. Efforts in the last months have been towards making sure the Foundation can hold some fiat. |
Goals
Execute a Reserve Strategy and publish forward guidance to the market in order to incentivize stable growth in the overall value of Aragon.
Description
The strategy proposed is to create target ratios for reserves of Aragon assets, primarily ETH/ANT ratios, as valued in $, and provide a timeline for each ratio to be achieved.
Utilizing liquid assets (ETH) to create market orders to buy ANT at low limits, as well as ANT sell orders at high limits, The variability of ANT price (relative to ETH) is limited and a growth trend can be established for ANT valuation while avoiding variable spikes.
Significant market sell orders at high limits are created prior to the announcement to ensure no extreme variability of price on the upside.
Increase of holdings of ANT by multi-sig benefits all current ANT holders, who get a larger voting share as a result.
Increase in valuation of ANT benefit Aragon as well as ANT holders.
Ample ETH reserves are maintained for payment of developers and necessary functionality.
Gradual change in Reserve ratios over given time periods ensures a steady increase in value of ANT market cap, attracting additional investors and developers.
Using reserve assets to place large buy/sell orders at the low/high limits decreases volatility and ensure the reserve re-allocation is done in a responsible and gradual process where trades only take place on behalf of Aragon which benefit Aragon.
Proposed Reserve Re-allocation Timeline:
Stage 1 -0-3 month timeframe - 5:1 ETH:ANT $ Valuation Reserve target
Stage 2 -3-6 month timeframe - 4:1 ETH:ANT $ Valuation Reserve target
Stage 3 -6-9 month timeframe - 3:1 ETH:ANT $ Valuation Reserve target
Stage 4 -9-12+ month timeframe - 2:1 ETH:ANT $ Valuation Reserve target
Going forward
By next year, ideally, the ANT holders will have the operability to vote on proposals in order to maintain or alter the Reserve Strategy.
Uncertainties
-The primary uncertainty is what limits to set in order to achieve the desired goals. Ideally, these should be purely mathematical, but practically, a competent trader could achieve these goals without strict mathematical limitations, other than the general guidance to achieve the target Reserve ratio by the end of the Stage period (within a certain variability, say +/- 5%), using a basic 3-month trend line for guidance for trades.
-Another uncertainty is trading pairs. Ideally, trade could be done using the ETH/ANT trading pairs, rather than converting to BTC as an intermediary. While this volume would benefit the adoption of ETH trading pairs (BTC is unnecessary as intermediary, it is simply the most trafficked), and would be entirely feasible as the means to incentivize the market to adopt this trading pair, it might not be entirely practical. If the ETH/ANT trading pairs are used solely for the revaluation of reserves, the free market will arbitrage any spread to ensure the adoption takes place, but that arbitrage will be at the expense of Aragon, so it may be prudent to do some trade in BTC as well as ETH pairs to ANT, if not entirely necessary.
-Trend lines to determine market orders, as well as the mathematics behind these decisions are a uncertainty as well. This could be done algorithmicly, but lacking the expertise, a competent trader can execute the strategy to achieve the desired reserve ratio requirements gradually while profiting Aragon from the limit orders which limit variability on the high and low side. Something on the order of +/-33% above and below the trend line toward the next reserve ratio to place buy/sell orders is one (somewhat arbitrary) suggestion.
-The execution of the strategy requires a dedicated manager who is trusted to manage the orders and reserves. They should be given limited access to funds on designated trading platforms in order to achieve the stated goals. Amount of liquidity available to manager should be limited relative to total reserves, while ample enough to achieve stated aims, and allocation should be re-adjusted every 3-month stage.
The text was updated successfully, but these errors were encountered: