Token Swap 1.75M DAI from AavegotchiDAO for GHST from Pixelcraft Studios

Ideas
1

Summary
This proposal aims to swap 1.75 million DAI from AavegotchiDAO’s treasury with an equal value of GHST from Pixelcraft Studios’ balance sheet.

Rationale
The launch of the Gotchiverse has introduced new and increasing infra costs for Pixelcraft Studios that cannot be paid for in GHST (or any crypto for that matter). These costs primarily consist of usage of AWS and Redis Enterprise for real-time gameplay in the Gotchiverse, and will continue to scale up as the game gets more popular.

To pay for these costs, we have outlined several options:

  1. Raise funding from VCs
  2. Liquidate GHST into DAI and swap for fiat
  3. Use GHST as collateral on Aave to take loans in DAI
  4. Perform a token swap with AavegotchiDAO

We believe Option 4 (Token Swap) is the best available option at the moment. We strongly value our independence from VCs, prefer not to have debt on our balance sheet, and do not want to market sell GHST acquired from sales.

Therefore, we propose a token swap between AavegotchiDAO and Pixelcraft Studios to ensure adequate fiat runway for several years of further development, no matter how bearish the market becomes.

Key Details
At the time of this writing, AavegotchiDAO treasury holds roughly:
2.5 Million DAI
3.5 Million GHST
3 Million Alchemica

(live source here: AavegotchiDAO Treasury Balance)

Pixelcraft Studios, on the other hand, is heavily skewed toward GHST with over 6.7 Million GHST in our primary revenue wallet while our only DAI is coming from the curve’s monthly 150k DAI faucet, 50k of which is already earmarked for GHST purchases.

Pixelcraft Studios has been able to effectively grow the team and support infrastructure costs without needing to liquidate any significant amount of GHST. But last month’s launch of the Gotchiverse and anticipated continued growth has pushed operating costs dramatically higher. Server costs for the April playdrop, for example, exceeded 40k USD, and that is projected to grow in the months ahead.

Such operating expenses are anticipated but we have to acknowledge that these subscriptions and invoices almost always insist on trad banking (fiat). We would prefer to not have to sell GHST in order to achieve the necessary growth budget.

STARTING THE CONVERSATION
This is the main thesis of the proposal as written. The ideas, questions and analysis we expand in this thread will help to determine if a SigProp goes to publish and what more can be included under Benefits/Risks categories as well as defining the methodology for valuing GHST in such a swap.

I have prepared a potential methodology that is quite generous toward the DAO. I will share it soon and want to know what you think. Maybe there is an even better way.

Thank you for your consideration, lets discuss!

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The DAO’s revenue from the GHST bonding curve opens up the possibility of a large-scale exchange of assets between our two parties. With the game live, GHST off its all time highs, and a DAO treasury that is well established, we believe this is the right time to propose an OTC token swap.

For the purposes of this token swap, a valuation for GHST that all can agree on must be established. There are many ways to arrive at such, so in the interest of expediency, I am proposing an intuitive method that also tips the scale generously in the DAO’s direction:

Valuation

GHST valuation methodology

Pixelcraft Studios will calculate GHST’s average price from insert 5 day range (duration of the SigProp via CoinGecko) with a 5% discount applied to the final price. On last day of range dates, I will publish the final calculated GHST price in the above linked Discourse Thread for everyone to discuss. If DAO voters find the results agreeable, they may vote to approve this SigProp and the resulting CoreProp will use that published GHST price for the deal. This means the ideal time to cast your vote on this SigProp is from insert 5 day range.

Execution

If the CoreProp passes, the token swap should process in a predictable way. I suggest the token swap occur with the following method of execution:

  1. Pixelcraft Studios shall first transfer the agreed upon amount of GHST (defined in the CoreProp) to the AavegotchiDAO treasury wallet.
  2. AavegotchiDAO treasury wallet (currently managed via multisig by Pixelcraft team) shall transfer 1.75 million DAI within 8 hours of receiving the GHST to the Pixelcraft Studios primary revenue wallet.
  3. Pixelcraft Studios shall make an announcement in Aavegotchi Discord confirming the reception of the DAI, thus concluding the token swap.
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This proposal is something we’ve put a lot of time into. Over a month in the making. We have held off because the voting power on the Snapshot has been so screwy but we can at least start this conversation now. Especially given the fact that we see more conversation around DAI treasury management recently with @Mkkoll 's recent AAVE staking proposal.

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If the DAO is going to initiate a token swap with anybody, its going to be Pixelcraft itself as you aren’t going to find a more aligned party in all of crypto xD

I will however note that such a token-swap would leave the DAO treasury uncomfortably over-weighted in GHST vs stables. It’s always prudent to have a decent portion of stables in your treasury, especially for bear market times such as these.

If the token-swap goes ahead, the DAO should look at ways to re-diversify its holdings into more stables going forward. Maybe with a simple strategy such as Dollar-Cost-Average out back into stables over time so the DAO doesn’t nuke the market.
Advanced tactics would be for the DAO to actually initiate its own deal with a VC or two to vest out some GHST in return for DAI or USDC.

Anybody know some VC’s? :slight_smile:

For reference, ive seen DAO’s doing deals with VC’s before. Check out PoolTogether doing it here. Ultimately the DAO sold around 5% of its holdings for nearly 6 million USDC which the PoolTogether treasury utilizes to this day.

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Given that neither the DAO nor Pixelcraft can diversify out of GHST without significantly affecting the price, borrowing and farming are the only ways to meaningfully unlock that capital without selling it. If there was a way to yield farm with a GHST pair, the DAO could borrow at low leverage against deposited GHST on Aave and pair additional GHST with the borrowed asset. Or it could simply make a GHST/DAI pair and use that for farming.

I don’t know much about Dystopiaswap (new Solidly fork on Polygon), but Marc is apparently on their multisig and trusts them enough to move Gotchivault’s Qi/vQi liquidity over there. Perhaps he could chime in on why they are trustworthy, and we can decide if it’s too degen for us to risk it, or if this could serve as an expedient way to cover some costs. Or at the very least get some diversity into the treasury. Both Aavegotchi and Gotchivault received a protocol veNFT for voting power, perhaps we could coordinate? Emissions start on the 26th. The aforementioned GHST/DAI, or some other, more clever pair could be appropriate (GHST/aGHST? GHST/vGHST?)

All that aside. Rather than trying to cover operating costs for the whole year, I think it would be more prudent to swap DAI for GHST on a quarterly basis. The DAI represents the DAO’s free capital. Dumping the majority of it now for GHST seems like a waste, given that the DAO already has a large illiquid GHST position it can’t use, and yes, while the market is currently down against the dollar, it won’t remain that way forever, which means the DAO should consider gradually diversifying its DAI into “safe” assets like wETH while the USD is enjoying its current highs.

The priority is keeping the Gotchiverse up and running. But I think there are opportunities to cover costs without dipping so deeply into our reserve funds.

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I support this measure as more DAI will be incoming to the treasury in the future.

I would swap the few remaining DAI after this operation into USDC, given the concerns surrounding stablecoins as of late. Then as replenishing happens, the treasury will have mostly DAI and the native tokens- but also some USDC.

The main reason I support this measure is it helps us fund the dev budget without creating dilutive pressures for the NFTs at this juncture.

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100% agree. Anything we can do to kick the can of selling GHST to pay for things, is a win.

Can we make this a dual prop, where we stake 1 million USDC, and swap the rest with PC for GHST?

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Great perspective & suggestions - ty! :slightly_smiling_face:

I like the idea of quarterly exchange, but at the same time, GHST currently being down a little against DAI does present an opportunity. In addition, renegotiating quarterly uses energy that could go into other things. Perhaps go with 6 months for now?

I do not like the idea of bringing VCs into the DAO. There are OG holders who wield a lot of DAO power but they’re part of the community. That’s very different from your typical VC.

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This would be the most efficient use of the proposal. Wrap the staking of any remaining DAI into Aave with the proposal to swap DAI for GHST. We should be utilizing our assets in the lending market by default on the supply side. No reason to have capital sitting doing nothing.

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I fully support and endorse this proposal and agree that Option #4 is the best path forward. Highly appreciate the Team bringing this up and offering the Community an opportunity to comment and weigh in beforehand.

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I support this as well but agree with @Lululute that since this is a very large portion of the stablecoins in the treasury, the swaps should instead be spread out over time to reduce impact of volatility on both sides. 1.75 million is almost 4 years of costs at $40k/month, this is an unnecessary amount of runway imo.

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I respect your decision to be independent from VC. And in general, I personally and the Metaguild team support this proposal. But I would like to raise discussion about the size of the discount. Discounts in previously DAO-to-VC made deals are in the range of 30-40%. For reference, mentioned PoolTogether to VCs deal made with 35% discount. Of course, GHST has lower volatility, and it’s not a deal with VCs, but I still think a 5% discount is meager. A 15-20% discount is more relevant to market conditions and still will be the best available option for Pixel Craft and more fair for the DAO.

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For context, $40K at this point covers basically just the AWS bill and some Redis. As the game continues to scale and more players join, this will certainly go up, even with optimizations that we’re working on to send less data.

Every month there’s always something that comes up which needs to be paid in fiat. Lawyer costs, audits, bug bounty programs. Right now we are extremely underexposed to fiat, and have been liquidating ETH earned back in 2020 from the private sale to pay for fiat costs.

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Just dropping an idea for how this could be remedied long term here. It should be possible to create a redemption mechanism for GHST starting from the bottom of the bonding curve. We can create a contract that the DAO funds with DAI, and PC can use this contract to redeem the GHST for DAI in an increasing amount as more GHST is redeemed at the same rate as the bonding curve.

This should eliminate all conflict of interest with the community as long as the DAO does not sell this GHST, and will create a dynamic of PC being the last one off the GHST ship. And PC would be able to redeem ALL their GHST without impacting price and hurting the community.

Obviously this is not a favorable proposal for PC, but it should align PC with the objective of the long term health of the ecosystem and encourage PC to generate more GHST in revenue, rather than being stuck with essentially illiquid GHST since selling is pretty much synonymous with dumping.

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Appreciating the thoughtful discussion thus far. I should address the burn as I see some potential misunderstanding around the 40k number I used in the original post.

That 40k is merely one example of one monthly expense (servers). There are so many other subscriptions, services, one time expenses and payroll that also exist and grow.

In short, the actual monthly burn rate requiring fiat or stables is far higher than 40k USD.

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We can definitely talk about a bit more and whats fair but in every OTC deal Pixelcraft has ever been party to, I’m pretty sure 5% would by far be the biggest discount we would have ever given.

We are used to defending GHST value so we generally don’t do discounts outside of slightly outperforming what a big buyer would experience on the open market (better than slippage basically).

This segways into the conclusion i’m drafting for the sigprop which emphasizes this “token swap needs to be considered on its merits as mutually beneficial to both parties. In other words, this should be an arrangement the DAO finds attractive regardless of what it means strictly for Pixelcraft Studios.”

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I think that the DAO should be mostly paying community members to make things for the DAO, and paying the community in GHST is perfect. PCs big issue, is paying for outside services, that dont accept GHST. I don’t see much use for DAI on the DAO side, besides the staking and the stability of funds, and our ability as a protocol, to interact with traditional finance, needs to be dollar denominated.

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I very much agree with this. It’s important to keep in mind that AavegotchiDAO’s purpose is governing and nourishing the Aavegotchi/Gotchiverse ecosystem, it is not an investment fund with the primary goal of generating profit for it’s shareholders (ahem, looking at you Gary Gensler). For this purpose it makes much more sense to hold GHST that can be used in many different ways (e.g. Rarity Farming, competition prizes, funding sub-projects, etc.). All of our Treasury’s DAI has been sitting idle since the beginning of AavegotchiDAO for exactly this reason, I don’t see why diversification should be a big priority.

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I propose having a few options in this voting. One is “No, don’t buy GHST from PC”, and a few other ones are “Yes, buy GHST from PC with X% discount” where X is a number with a 5% step.

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I’m looking at this more from the perspective of sustainability. Costs are already high and are expected to run higher over time. This means we need increasingly more revenue to keep the Gotchiverse open. NFT auctions and Bazaar sales are the only revenue entering the Gotchiverse. Gameplay-driven demand will bring more, but we should keep in mind that we are paying Alchemica (and therefore GHST liquidity) to drive some of that demand.

I agree that keeping the Gotchiverse healthy is the DAO’s priority, which is why I advocate for investment into reliable staking protocols that will mitigate some of our costs over time. If expenditure is already so high that we need to immediately liquidate 70% of the remaining cash reserves, I think that’s cause for some concern. If that isn’t the case, we need to be looking at how we can invest our cash during this time of market distress in a way that will keep the Gotchiverse sustained for the long term.

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