Title: Solving the Liquidity Problem
Authors: frogmonkee
Date: May 8th, 2021
Solving the Liquidity Problem
SUMMARY
To participate as a member of the Discord community (where 99% of activity occurs), members must register an Ethereum address holding 35,000 BANK to receive access beyond the basic channels. This has led to a liquidity crunch, where providing liquidity is offset by basically getting kicked out of the DAO. I think this is a blessing in disguise. This proposal is a plan that contains the liquidity crunch until the launch of Season 1, and then releases BANK in a way that reaches a natural market equilibrium price. Get hyped.
BACKGROUND/PROBLEM
When BanklessDAO was announced on May 4th, the salutary blog post read, âAt launch, access will be permissioned only to wallets that hold 35,000 BANK.â This fact itself is debatable, but for better or for worse, BanklessDAO has an entrance fee. Users soon flooded the newly minted Discord server and verified their BANK balance with a discord bot. But soon after, people started realizing that if they moved BANK from their wallets to liquidity pools (LP) like Uniswap, their access to coordinated behavior happening in discord would be cut. Soon, there will be a way to unlock that liquidity. For most, this may seem like a problem, but I think it is an opportunity in disguise.
NOTE:
- This proposal will be controversial. Iâm no expert on DAOs or decentralization. Iâve been called out multiple times (not rudely) by people that have different perspectives. I expect back and forth on this. Dissenters welcome.
- When I refer to locking/unlocking liquidity, think of it as a switch. One moment, people canât move BANK from their wallet without losing discord access. The other, they can. Itâs a code thing.
MOTIVATION
My motives here are threefold:
- Minimize speculation by allowing the market to naturally settle on a token price based on a strong use case for BANK.
- Build a large Treasury without need a crowdsale/token sale.
- Keep incentives aligned to mitigate dumping of BANK for profit (there is no perfect solution)
Market Equilibrium Pricing for $BANK
Settling on a token price should be as smooth as possible. In crypto, smooth means jumps of 30% in a day, but we donât want to crash the market in any way. With liquidity locked up, there really isnât a way for anyone to speculate. So when liquidity unlocks, there needs to be a reason to believe that $BANK has value beyond a pump and dump. To do so, we need to craft a strong argument for why BANK is money.
Right now, $BANK has no value, nor should it. If youâre reading this, you probably think BANK has value, but youâre just a small fish in a frothy sea of speculators. Hell, I think it BANK has value. I make the point in this forum post. Now, you and I can read that and agree on most things. But the Twitter Chad that just wants to know wEn mOoN 
.
For those of us that have been in crypto since 2017, we lived through the ICO craze. Remember BITCONNEEEEEEEEECCCCCCT??? How can we forget? Those experienced called for caution, imploring to focus on the fundamentals. The team, the whitepaper, the investors, the tokenomics and distribution were all important. We donât really have something like that yetâŚ
In this marketing proposal under #Content Strategy, we make this exact point: Bankless is experimenting with the worldâs first DAO-run media network. banklessDAO unlocks potential for the DeFi ecosystems because we can do (X, Y, Z). Tactfully making this argument while liquidity is locked will give the ecosystem time to press the breaks on hype and take a closer look.
Funding the Treasury
Until we reach a point where the income generated by DAO revenues exceeds the expenses of our Treasury every season, we need to make sure our Treasury is properly stocked. Some proposals are asking for funding and we need paid tools/services for better coordination.
With liquidity locked up, there has been some talk of taking a portion of the treasury and funding a token sale. For many reasons, this is a suboptimal plan. Itâs better than nothing, but it can go wrong in SO many ways. I can expand further in comments if yall want more details.
A better way of funding the Treasury ties in with the equilibrium pricing through LPs from the previous section. Liquidity is unlocked after we have seeded the ecosystem with our value proposition. Once we unlock Liquidity, people like you and I will release some of our funds to Uniswap so we can provide liquidity and earn fees.
In a few days, the price will stabilize. From there, we can convert $BANK from the Treasury into another token to make payments. (Better yet, we can convert to ETH and then use ETH across different DeFi protocols to earn steady income streams without having to sell our ETH. [JOE] has some fun ideas here.)
Stopping the Dump Truck
The final motivation is to mitigate any dumping of BANK when the liquidity is provided. Some dumping will be inevitable, thatâs just crypto. But we want to generate upwards buy pressure on BANK. We do this by (1) Proving that BANK is money and (2) The meme competition in marketing proposal. We covered (1) in detail under #Market Equilibrium Pricing. (2) is the controversial part.
Right now the meme competition awards winners 11 through 300 with 5,000 BANK token.In tandem, thereâs a proposal that reduces the entry barrier to the discord from 35K to 10K. The specific numbers donât matter that much. The point is that the vast majority of winners will receive some large fraction of the amount of bank to join. By the time awards are distributed, anyone that entered the meme competition will have been blasted with messaging that reinforces why banklessDAO is amazing and BANK is worth something.
Once done, some of those winners will dump their 5K BANK. But hopefully, more will buy 5K to meet the minimum entry condition. In fact, this is something we can track by querying the ETH/BANK Uniswap contract!
SPECIFICATION
When the meme competition ends (roughly June 11th, one week after the marketing launch), banklessDAO unlocks liquidity by letting members join LPs without losing membership status.
Metrics For Success
- Price of $BANK
- Ratio of $BANK bought to sold
- Number of LPs
NEXT STEPS
- Decide on a mechanism to let BANK holders with more than 35K retain membership status while providing liquidity.
- This could be strictly Uniswap or any Defi protocol that we can support. Here, I suggest we get BANK listed on zapper.fi and use their API to read vault/pool data associated with addresses registered with collab.land
- As far as I know, zapper doesnât support Uniswap v3 yet
- Execute marketing proposal
- Unlock liquidity as soon as meme competition distributions are completed
CONCLUSION
- To join DAO discord channels, you must hold 35K in BANK. If you move BANK out of your wallet, even to provide liquidity, your membership is revoked.
- This inability of liquidity is a good thing. It gives us time to tactfully think about the best way to solve this problem
- We should provide liquidity in a way that:
- Minimizes speculation by allowing the market to naturally settle on a token price based on a strong use case for BANK.
- Builds a large Treasury without need a crowdsale/token sale.
- Keeps incentives aligned to mitigate dumping of BANK for profit
- We do this by unlocking liquidity all at once after the meme competition is over around June 11th.
- With this launch date, we leverage the marketing proposal and the minimum BANK proposal to achieve natural price equilibrium with some game-theoretic mechanism driving buy pressure
POLL
- Vote âHard Yesâ to pass as is
- Vote âSoft Yesâ to change some minor details
- Vote âSoft Noâ to change major details
- Vote âHard Noâ to reject entirely
- Vote âwtfâ is this is anti-DAO
- hard yes
- soft yes
- soft no
- hard no
- wtf
0 voters
AUTHOR BACKGROUND
frogmonkee - Pseudonymous writer & wannabe dev