Use UMA's Success Tokens to Raise ETH for Protocol Owned Liquidity

Proposal

These days many protocols are trending towards having protocol owned liquidity and I believe it would be a good move for DappRadar to acquire POL right from the beginning. There are many existing solutions to acquiring POL but many of them have a significant cost and can contribute to token sell pressure.

UMA has a solution to this that has little up front cost and will only payout investors if the desired protocol growth is achieved. Success Tokens mature at a designated point in the future and don’t require a protocol to sell tokens at a discount in the present. Instead, each Success Token an investor receives would also include an embedded call option. The investor would only receive their bonus if the protocol is successful in achieving growth. There are several ways Success tokens can be used and in the case of DappRadar I believe acquiring ETH to provide our own POL would likely be the best route.

I do believe this can be done while still rewarding community members to provide liquidity in the early stages but having this POL can lessen our dependence on user provided liquidity. Giving users a place to earn on their RADAR tokens is also important to attract users in.Eventually I would like to see those LP rewards reduced to zero and RADAR tokens can be focussed on other needed areas.

I’ve created a table as an example on how we can use Success Tokens. This example would require 50,000,000 RADAR as collateral and assumes a sale price of $0.04 as we don’t know what the price will be at the time of the sale. This example would raise enough ETH($1MM worth) so that when paired with RADAR from the treasury we would have $2MM in POL. This guideline demonstrates both the value to the protocol and the value to the investor. These tokens are fully customizable and the following parameters can be decided by the community:

Radar USD Price on Redemption date Payout Per Success Token Investor Value at Expiration in USD on $1MM Investment RADAR paid out at expiry on $1MM Investment
0.02 1 RADAR $500,000 25,000,000
0.03 1 RADAR $750,000 25,000,000
Sale Price 0.04 1 RADAR $1,000,000 25,000,000
0.05 1 RADAR $1,250,000 25,000,000
0.06 1 RADAR $1,500,000 25,000,000
0.07 1 RADAR $1,750,000 25,000,000
Strike Price 0.08 1 RADAR $2,000,000 25,000,000
0.09 1.1 RADAR $2,475,000 27,500,000
0.10 1.2 RADAR $3,000,000 30,000,000
0.11 1.3 RADAR $3,575,000 32,500,000
0.12 1.4 RADAR $4,200,000 35,000,000
0.13 1.5 RADAR $4,875,000 37,500,000
0.14 1.6 RADAR $5,600,000 40,000,000
Max Payout 0.18 2 RADAR $9,000,000 50,000,000
0.20 2 RADAR $10,000,000 50,000,000

Summary

UMA has other treasury management solutions to offer including KPI Options and Range Tokens but I have chosen Success Tokens as the best way to acquire POL while aligning investor incentives with the community.

Want to get community feedback before turning this into an official DCP.

Would you support using UMA’s Success Tokens to acquire POL?
  • Yes
  • No
  • Undecided

0 voters

5 Likes

I’m not fully aware of the way Success Tokens / UMA works. So from a newbie user point of view:

  • User buys Success Tokens at a certain value in RADAR in exchange for ETH?
  • ETH goes in treasury
  • User gets Success Token
  • User can redeem ST at any time
  • But only receives bonus paid back in RADAR when certain Volume milestones have been met?

Very simply put, this is a bit like a presale with a bonus structure? And in this case the ETH earned will be put against RADAR from the Treasury to fund liquidity on DEX? That way the liquidity is owned by the RADAR community instead of individuals, correct? That’s the idea?

4 Likes

The value of the embedded call option is determined based on the price on the expiration date. The expiration date is flexible but my recommendation would be 1 year after the sale. The investor can redeem their Success token on the expiration date for 1 RADAR + (the call option valued up to 1 RADAR max). The investor now has financial incentive to grow the protocol and is locked in for 1 year.

In this case I am suggesting using the raised capital to acquire POL but it could also be used for a wider diversification. Perhaps DappRadar wants to have stablecoins in treasury as well to cover future operations and have strength through a bear market.

3 Likes

Welcome @TheRealTuna and thank you for kickstarting this discussion. I believe UMA products are very interesting and it is surely something we should pursue going forward.

I especially like this quote

There are no Series B deals in crypto.

I believe currently RADAR is still a newborn and it needs a bit more development before we can attempt such a move. Community, DAO, liquidity, price and many other areas are still in progress and we need to make sure we have a good foundation before we start selling tokens, either for protocol owned liquidity or other purposes, like treasury diversification.

Again, I believe UMA’s financial instruments are great and we should keep exploring together different opportunities, but let’s give it a bit more time until we have the basics in place.

Also, I’ve moved this topic to the Workstream - Tokenomics category, as it’s not following the proposal template.

4 Likes

Wanted to give this a bump to see if we have a better idea of DappRadar’s treasury needs now. Would love to see a partnership between UMA and DappRadar.

3 Likes

Why not, if it’s necessary or if it’s a way to support it. :muscle:

1 Like