Strengthening the DoodleBank - A Phased Strategy - Phase 1: Buy Bitcoin

Howdy Doods! :cowboy_hat_face:

After the highly successful public and private sale of Doodles, as well as the continued secondary market sales, the DoodleBank in a great position with nearly 760 ETH in the treasury! :clap: Wow! :clap:

With such strong capital just sitting around waiting to be utilized, I would like to propose a phased strategy to build the strength of the DoodleBank! For now I have broken down the strategy into 3 phases. The scope of each of these phases may or may not include multiple proposals. For example, Phase 1 may include multiple proposals as we decide which assets to diversify the treasury into, or maybe we decide to make a single reallocation into BTC, in which case Phase 1 would be complete, and we would move onto Phase 2. The phases simplied:

  • Phase 1: Diversify the treasury = Build a wider base of liquidity! :dollar: :yen: :pound:
  • Phase 2: Put the treasury to work = Use existing capital to grow the treasury! :chart_with_upwards_trend: :chart_with_upwards_trend: :chart_with_upwards_trend:
  • Phase 3: Maintain the treasury = Keep the fund healthy! :stethoscope: :heavy_heart_exclamation: :weight_lifting_woman:

##PHASE 1 PRELIMINARY PROPOSAL##

Doodle ID: Doodle #1458

:rainbow: Preliminary Proposal Summary: Allocate 10-15% of the DoodleBank ETH reserves into BTC or a collateralized Bitcoin backed asset such as WBTC. This action shall only be taken upon deciding where and how this asset will be custodied.

:brain: Rationale: Bitcoin has arguably become the most powerful and desired form of collateral on the global market. With a fixed supply of 21 million BTC and just over 90% of supply in circulation, many investors also see BTC as the strongest store-of-value asset in the world. The argument for Bitcoin as digital gold grows stronger every day.

Doodles is seen as a bluechip NFT project, so Doodles deserves a bluechip quality treasury right?

Many seasoned investors, accountants, and fund managers may likely to advise that a reasonable amount of diversifcation is always good thing. I believe it would be prudent of the Doodle community to diversify a significant portion of the treasury from ETH into BTC for a multitude of reasons:

  1. Derisk from the price volatility of ETH in the case BTC.Dominace prevails.

  2. Build an allocation in the Doodle Bank treasury of a highly desireable store-of-value and form of collateral.

  3. Build confidence in possible investors and prospects that the Doodle community takes conservative measures in maintaining the trearsury.

:alarm_clock: Timeline: ASAP. Ideally completing the allocation before the 15th of November (two weeks from releasing this draft).

:golf: Goal: Swap 10-15% of the ETH held in the DoodleBank treasury to BTC or WBTC with the intention of holding the asset in the treasury long term, or putting the asset to work though a lending platform or liquidity pool durring Phase 2 of the strategy.

:moneybag: Cost: $Duffle Bags$… 10-15% of the ETH held in DoodleBank treasury at the time of official snapshot proposal.

:briefcase: Accountability: Funds would be transfered to a clean Multisig wallet, and swapped using a Gnosis 2 of 3 multisig wallet with Poopie, Tulip, and Burnt as signers. Poopie, Tulip, and Burnt would be responsible for further transfers or swaps as deemed appropriate by Doodle voters.

9 Likes

good idea, i dont think we will be able to use millions at once, so keep a little bit on the side makes sense, just cant be in volatile assets or we wont be able to take it out at a loss when we need it

3 Likes

I completely agree, we must thoughrougly vet any assets we consider allocating to in the treasury. Surely we don’t want a bunch of meme coins, or inflationary tokens in the treasury.

1 Like

I like the proposal, and I do agree diversification is key. I would add that any allocation should be backed by Technical and fundamental analysis and approved by the community. Long Live the Doodles

1 Like

Great point. We can surely add some additional information to support any descisions we propose to make! Some peices of information that may be key in doing a fundamental analysis:

  • Market Cap

  • Circulating/Max Supply

  • Price History, On-Chain balances, Open Interest

Anyone have any other suggestions?

Also think it’s a good idea to diversify some eth to btc and later on if the crypto market gets to overheated, to stable coins as well

1 Like

Thanks for sharing this idea! :slightly_smiling_face:

Respectfully, I disagree. My opinion is that Doodlebank should hold only currencies that we require for our operations. Anything other than that would be speculative. Below are my three arguments;

  1. Holding BTC in the treasury will introduce volatility – both upside :chart_with_upwards_trend: and downside :chart_with_downwards_trend:. With introduction of the BTC futures ETF there is a risk that movements will become more volatile with new investors coming into the market that have different objectives :moneybag:. Our objective is to build our brand :rainbow:which is native to Ethereum; this is where our inflows and outflows of funds will occur (For partnership expenses there is possibility that it will be fiat, but this is yet to be seen).

  2. Switching/maintaining costs would be an unnecessary expense – It costs gas to convert to a different currency, not to mention operational costs to setup a wallet and develop a maintenance process. What will we do if it goes up 150% vs ETH? Do we hodl or sell :thinking:. What will we do if it goes down 80% vs ETH? Do we hodl or sell :grimacing:. These parameters need to be set and maintained, which are pretty complex even for investment firms.

  3. Risk of being viewed as a security (:face_with_monocle:) – I am not certain on this one but raising it here for discussion. The prime objective of the Doodlebank is to grow the Doodle brand and make it recognizable. Our end goal is to bring the joy of NFTs to folks that do not know about them yet, rather than make a profit like a company (:innocent:). If we hold speculative assets as an investment for the purpose of seeking asset appreciation, I believe there is risk that we are viewed as an investment vehicle.

As Doodles are native to Ethereum, I believe it makes sense for us to denominate in ETH. We should minimize exposure to FX (Crypto Exchange = CX? :money_mouth_face:) risk unless we have recurring expenditures in that particular currency and thus need to maintain exposure to it.

These are just my thoughts! Happy to discuss.

3 Likes

Hello Semui! Thanks for your response.

I think you have some valid arguments, which bring up some very great points and business model building/accounting that surely needs to be discussed and addressed as a community. For now, I will give some counter arguments to your 3 points, as I personally think they are rather weak arguments against holding some Bitcoin in the treasury.

  1. Holding Bitcoin in the treasury will actually dampen volatility. By having a diversified treasury, the net assets under management (when priced in USD) shall see a reduction in volatility due to the fact that the two assets have different varrying economic models, despite being fairly coorelated to eachother in price relative to the rest of the crypto market. As for the point about BTC futures ETF - this shows the demand and new found acceptance of Bitcoin as an asset to institutional investors. As for building the brand - of course this is our #1 objective! However, with over $3.6M+ in the treasury we surely have enough capital for expenses and investments. With the power of blockchain, we are able to efficiently and effectively put the treasury to work for us through diversifying revenue streams, while primarily focusing most of our efforts on building the brand.

  2. The operational expense and maintainace cost for such a transaction would be negligable. I think 0.3-0.5 ETH is very reasonable for long term costs. I view this as a low maintainance strategy. Just diversifying the treasury a bit until we discuss working strategy in Phase 2. I do not think it would be reasonable the DAO to be conducting active trades.

  3. Point is mute in my opinion. Holding ETH in the treasury is just as speculative as holding BTC in the treasury. I personally do not see these as being speculative assets, but rather currencies in their own right. Additionally, Doodle holders will not be receiving any profits from the treasury. The securty argument is still a total grey area until the US Congress and the SEC work together to more clearly define what a secuirty is. They may even see governance tokens/DAO NFTs/ as security tokens.

Finally, I agree we should minimize exposure to Crypto Exchanges, as a DAO, and the purchasing and custody strategy needs to be further discussed and developed. That is the whole point of writing the preliminary proposal!

Thank you for your comments and consideration. I will be using this information for the next proposal iteration.

Best, Mr. B

2 Likes

Thanks for proposing this!

I gave it some thoughts and my subjective opinion is to be against it. I think BTC and ETH are super correlated anyways so the diversification gains are not necessarily big and we create some complexity. More broadly, I’d rather optimize for liquidity and simplicity. And if we really need to diversify, then perhaps fiat. That said, I’m also against diversifying with fiat.

4 Likes

I agree that keeping a small percentage of the treasury in Bitcoin would help reduce the risk involved with being 100% Ethereum. Semui brings up interesting points about when the two assets move in opposite directions though. Would we rebalance to maintain the set percentage goal? How often? If Ethereum outpaces the growth of Bitcoin and that 10% allocation is now 6%, do we funnel more into the Bitcoin pile at the beginning of each quarter? Each year? Who is deciding when market-wise is a good time to do so? Will this then become an ongoing issue where every few months people are debating the allocation of funds causing drama in the discord? I think these parameters would have to be very clearly set before we did something like this to reduce later complications and drama.

2 Likes

This is great! Thank you for taking the time to pose these questions. I absolutely agree that all the parameters should be predetermined if we all come to an agreement to make something like this happen, for the reasons you mentioned. I think keeping this simple is key. We could make some major descisions first in order to help inform how the system will continue down the line.

First - Do we plan to sell/rebalance? If so, what is the timeframe for the allocation, when do we take profit/rebalance into ETH or USD? If we do not chose to sell or rebalance, we can begin to discuss about lending/borrowing strategies. We can also consider using a portion of ETH for this. (I would think this falls under what I’m proposing as Phase 2)

Second, informed by the first descisions - How often do we plan to rebalance? This helps us understand how the transactions need to be managed. It may be worth considering hiring someone for the roll of treasurer, under very clear terms, to facilitate these transactions. (This increases operational costs, and ideally profitability of the treasury). However, I do not see this as being necessary yet. We could just plan to keep the Bitcoin for the long term, as it is a fixed supply asset for storing value.

These are all things that require further discussion and development.

I generally like the idea and think that we should actually make sure to diversify the doodlebank, such that our buying power is not 100% correlated to the ETH price. Unfortunately most of the businesses or potential partners do not value 1 ETH = 1 ETH and therefore would not accept payments or compensations in ETH, especially if the price of ETH drops.

While I think that buying some Bitcoin is also a nice idea, I would feel more comfortable having a certain amount of fiat for liquidity and hedge against ETH. We don’t know what’s about to come in the next months and while I hope that the value of ETH increases we don’t know. And since we want to do this project properly, I think it is inevitable to regularly cash out some of the ETH from the doodlebank. Let me know what you think.

1 Like

Sebi,

I completely agree that we should also begin an allocation from ETH into a stable coin such as USDC, USDT, or UST. I was actually planning on drafting another proposal with in ‘Phase 1’ for such a reallocation. I believe that should be done in a separate proposal. I think you are spot on in the reasoning.

Additionally, having stable coins in the treasury gives us the option to provide dual sided liquidity, or lend using stables (no risk of liquidation) if the Doodles wish to pursue such a strategy. Thank you for your comments, I will be sure to include them in the next iteration of the above preproposal.

Best, Mr. B

1 Like

I would suggest instead of actively trading as a DAO that need consensus, you do what real companies do and establish a relationship with a hedge fund that specializes in and take crypto in Kind. I can suggest some and am on the board of one.

1 Like

You have a great point about securities. And even if we ignore the SEC portion for us US-based folks, I personally think ETH has much more room to run than BTC considering the magnitude in which we would purchase.

The chances of ETH doubling are MUCH higher than BTC, and they tend to run up and down together. So we wouldn’t really be diversifying into something better or worse… just slower growth, IMO.

I’m curious what BAYC and Cool Cats etc do with their Vaults/Diversification, etc.

2 Likes

Hey Daniel!

Can you please elaborate on how this would classify Doodles as a security? How do we know for certain it is not already?

As for the potential ROI of ETH vs BTC, this is beside the point actually. The point is to have a diversity of assets in the treasury instead of fully exposed to ETH. The DoodleBank treasury is not and should not become an investment vehicle for DoodleHolders, IMO.

I would also be curious to look at BAYC and Cool Cats as precedent.

Hello Silber,

If a trading strategy is what we decide is appropriate, then is would be a good option to consider.

Thanks!
Mr. B

Thank you for your consideration and comments!

For sure… When you are ready to look, happy to walk you through our product as well as who I think the top 2-3 competitors are in the space.

1 Like

I think this is a very solid idea, but I would like to see some of the ETH allocated to an account that is interest bearing. All these ideas do bring up additional risk though.

1 Like