Changing our share price from an ETH peg to a DAI peg

Raid Guild
#1

Will update this as thinking evolves - most recently updated Jan 18

Advantages

  • Keeping the share price stable over time
  • Aligning share price with the currency in which raids are typically paid (clients rarely pay in ETH)
  • Raiders paid in DAI don’t lose share buy-in power if ETH price increases during their raid
  • Making consultation share buy-ins much simpler

Drawbacks

1. Share dilution

As ETH prices goes up, minting new shares on a DAI peg would dilute shares purchased on an ETH peg.

One potential solution would be to establish a cutover date, and do a one-time share rebalancing based on the ETH:DAI price at that time (i.e. minting new shares with no tribute) so that subsequent shares purchased on the DAI peg would not dilute the old shares.

The math goes like this:

[ETH price at cutover date] is the price of ETH on the day we decide to make the conversion. As I write this in 1/18/21, ETH price is $1235.
DAI_share_price is the new target share price, e.g. 500
existing_shares_multiplier = [ETH price at cutover date] / DAI_share_price

For example, if today was the cutover date, all existing members would get multiple their existing shares by 2.47. I currently have 20 shares, so in this example, post-cutover date I should have 49.5 shares.
existing_shares_multiplier = $1235 / 500 = 2.47

2. Incentive to ragequit

An ETH price increase would create an increased incentive to ragequit, since the current share value will be temporarily higher than the targeted share value. The extreme version of this is a raider buying shares with 20% of their spoils and then immediately ragequitting those shares for a profit.

This issue is mitigated by the amount of ETH in the DAO bank. One potential solution would be to swap all our ETH for DAI, though that would limit the DAO’s financial upside. Another option is to swap enough ETH for DAI such that current share value = share price when only looking at the DAI balance, and then moving the ETH into a minion (non-ragequittable) dedicated to funding RIPs.

How to do it

Currency

If we decide to make this change, we then need to decide what currency the share price should be denominated in. Two options:

A. Shares price in DAI, i.e. new members tribute 500 DAI for 10 shares.
B. Share price ETH, i.e. new members tribute $500 worth of ETH

(B) has the advantage of maintaining RG’s economic alignment with Ethereum (including exposure to ETH upside), but also the downside of slightly more complicated share purchasing protocol, since any new share purchasing proposals will need to show their calculation work and be verified by voters.

Share distribution mechanism

We also need to decide how the new anti-dilution shares actually get created/distributed. Again, I see two options:

A. Personal responsibility. As discussed in roundtable, we treat this as an inactivity test. Each member needs to submit a proposal for more shares based on existing_shares_multiplier. If they don’t, then that’s a clear signal that they are inactive. Individual responsibility to not get diluted.

B. Multi-summoner. We combine new share minting with the migration to xDAI. Scrap the existing xDAI DAO and redeploy with additional shares for each member according to existing_shares_multiplier.

2 Likes
RIP in retrospect -- DAO and share price migration planning/execution
How to do the xDAI migration
#2

I feel like already we have two prices, but this logic isn’t documented anywhere yet. Please excuse my attempt to simplify and understand the situation.

We have two prices currently:

  1. Buy-in price: 0.1 WETH / share. This is used whenever a new member joins. Currently $63.00 per share
  2. Market price (aka rage-quit price): Whatever the current value of a share is. Found using War Chest WETH balance / total shares Currently that is 63.9 WETH / 1839 shares = 0.0347 ETH or $21.89 per share

We are solving for what happens when there is a difference between these two prices.

Right now Market price << Buy-in price. Its expensive to join and get new shares. New members pay a hefty amount, and increase the value of existing shares. There are no incentives to rage-quit.

If we move to DAI peg, then for example we would fix Buy-in price to e.g. $25/share. The issues with this are, as you said, share dilution, and incentive to ragequit if we end up where Market Price >> Buy-in price.

Am I on the right track here?

  • Raiders paid in DAI don’t lose share buy-in power if ETH price increases during their raid

Also, I’m in this boat right now, so thank you for recognizing this.

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#3

I added this specifically because you mentioned it :slight_smile:

One piece of the puzzle is that the guild has from the start (as far as I’m aware) maintained a social consensus to target a share value (i.e., ragequit value) of 0.1 ETH per share over the long term (aka share price:value parity). We’ve spent a lot of those funds on RIPs to improve our operations on the working theory that improved operations will lead to more business and spoils, which will get us back up to share price:value parity (but with a larger overall footprint, impact, and more sustainable business than when we started).

Put a different way, we have intentionally decided to not target share value > share price, since that could create weird incentives (as discussed). Shares are meant to be a reflection of value created for the guild and corresponding governance power, not an investment.

In my view, as long as we maintain that collective commitment to share price:value parity in the long run, things will work well enough*. If we transition to a different share-pricing mechanism, we’ll need to make a one-time correction to address the value:price discrepancy that switch introduces.

*If we move to a wholly different model that incorporates a product/venture studio type dynamic, we’ll need to revisit this concept.

A quick correction to your share value calculation: We also have 7868 DAI and some other tokens, so the share value is currently ~$26.58 per share. Still well below the target, of course.

#4

New member shares could be pegged to Dai, but still be purchased with ETH to keep the default upside exposure. (This probably induces ‘gaming’ when you submit a proposal?)

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#5

Yea, definitely a good move for us to maintain alignment with Ethereum in general.

If we wanted to avoid the gaming concern, we could potentially use a zap where you tribute in xdai and the zap auto-swaps it for WETH on honeyswap.

1 Like
#6

Edited the OP with some additional thoughts/options.

Here’s the approach I personally favor:

  • Migrate to $50 per share (new member tribute = $500)
  • Shares are still purchased with ETH, i.e. each share costs $50 worth of ETH, calculated at proposal creation time.
  • At the cutover time, existing members create proposals for new anti-dilution shares. This will also act as an inactivity filter, as inactive members (i.e. those who somehow aren’t aware they should request additional shares) will be diluted.

EDIT: one caveat to the last bullet point: we should only take this approach if we are confident we can reasonably reach all current members. Otherwise, we should use the xdai multisummoner approach.

#7

We could also denominate in eth-dai LP shares. Which has some advantages of both options

#8

I do not like the idea of diluting “inactive” members who are unaware of this situation. We should either fairly compensate everyone at the same time, or not make the switch.

What purpose does this serve besides being sneaky and scammy? Members paid their dues, they shouldn’t have their shares unfairly taken from them.

#9

I’ve done some analysis on how the anti-dilution share multiplying could go.

For the details take a look at this google sheet (anybody with access to RG google docs folder can access):

Because moloch shares are integers, multiplication will need to be rounded, and that rounding introduces errors in the exit (i.e. ragequit) value for some members. For example, at current ETH price, some members could lose around $30, while many could gain around $3 – average error of $5 per member.

One solution to this issue is to “split” shares by a further factor to reduce the rounding error. This is somewhat akin to a stock split. For example, if we split shares by 10 before doing the anti-dilution multiplication, we reduce the highest losses from rounding errors to around $0.35 (for many members) and the highest gains to around $3 (for a few member) – average error of $0.56 cents per member. If we split shares by a factor of 100, we bring all the errors down to just a few cents each.

Another approach would be to tweak the cutover ETH price so that the anti-dilution multiplier is an integer and not create the need for rounding. That tweaking would be somewhat arbitrary, but so is the choice of any cutover date, and ETH price is constantly moving within a given day anyways. This would likely be the simplest solution.

Feel free to play around with the inputs in the sheet to get a feel for the dynamics.

2 Likes
#10

FYI, snapshot vote in progress here:

#11

Notes from 2/11/21 roundtable:

  • DON’T MAKE ANY NEW PROPOSALS until further advised. We are in process of migrating DAOs and adjusting shares (passed snapshot vote).
  • During migration, existing members will now have est. 26.3 times more shares. eg if you have 10 shares now, you will have 263 shares in the new DAO. See the above Share Price Migration
  • New membership proposals are now 100 shares using $500 DAI (or equivalent value in ETH)
  • There is also a (temporary) option for new members to join using 1 ETH. Their share amount will not be fixed at 100, but rather calculated based on the current share price per ETH.
  • This optional 1 ETH membership is temporary, until the DAO votes to keep or remove it.
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#12

Hello, I hope this is the correct place to let knows that I want to change my member address, here are the information:
old one (Raid Guild): 0x08913515803c69EE3c2B8BdFF49Cf53Baa1694D6
new one(main): 0x1426FBd146942e153653863cbe633780c17268DA
THanks for support

#13

Meeting 2/18/21 - Summoning xDAI DAO

DAO Address 0xfe1084bc16427e5eb7f13fc19bcd4e641f7d571f

Current ETH price $1900

Old share price is $190 or 0.1 ETH

New share price is $5, which helps with rounding and ability to have granular shares.

New member price is $500. 100 Shares are required to be a full member.

Old shares were multiplied by 38, to account for the change in share price

New members can either:

  • Pay $500 in xDAI or WETH to purchase 100 shares
  • Buy in with 1 WETH (or equivalent in xDAI) and get commensurate number of shares.

This allows us to keep a stable share price:

  • without diluting previous shareholders’ financial power
  • without diluting future members’ governance power
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