Summary
I am proposing that we remove the rage quit provision from the Fei-Rari merger agreement and table it for future discussion after the merger closes.
I believe this is critically important because it:
1. Incentives all old TRIBE holders to rage quit
2. Lets old TRIBE holders transfer the majority of the Protocol Equity to themselves at a cost to newer TRIBE holders and the incoming RGT holders
3. Will drain the PCV of most of its equity value
None of these are actions that I think any of us would want the protocol to undertake without substantial discussion – let alone tie to another proposal. In addition, I have grave concerns about enacting a proposal that will effectively divide the TRIBE community into two factions in which one group conducts a governance attack on the other.
Proposal/Action: Remove the rage quit option from the Fei-Rari merger agreement and table it until the merger is completed.
Background
GFX’s proposed merger agreement included a provision called a “Rage Quit” which allows TRIBE holders to cash out of their share of the Protocol Equity and exit the community. Under the Rage Quit, each exiting TRIBE holder will be paid:
Rage Quit Payout = (Protocol Controlled Value - User Circulating FEI) / Number of TRIBE outstanding BEFORE the merger snapshot date
However, an additional ~350m TRIBE will be issued in the merger with Rari Capital. This issuance will immediately reduce the protocol equity per TRIBE by about ⅓. i.e, each TRIBE will now only be backed by:
(Protocol Controlled Value - User Circulating FEI) / (Number of TRIBE outstanding BEFORE the merger snapshot date PLUS ~350m Newly Issued TRIBE)
HENCE EVERY OLD TRIBE HOLDER WILL BE INCENTIVIZED TO RAGE QUIT (AND BUY BACK THERE TRIBE AT A LOWER PRICE).
Moreover, because the protocol will pay Rage Quitters a 30+% premium to the current protocol equity per TRIBE, the protocol equity per remaining TRIBE will decline as more and more TRIBE rage quits. This mechanic will only amplify the incentives for the old TRIBE to rage quit and accelerate the drain of protocol equity.
Example Calculation:
Pre-Merger:
Protocol Controlled Value = $1 billion
User Circulating FEI = $300m
Protocol Equity = $700m
Number of TRIBE outstanding BEFORE the merger snapshot date: 620m
⇒ Protocol Equity per Tribe: $1.12
⇒ Rage Quit Amount = $1.12
Post-Merger, Pre-Rage Quit:
Protocol Controlled Value = $1 billion
User Circulating FEI = $300m
Protocol Equity = $700
Number of TRIBE outstanding: 950m
⇒ Protocol Equity per NEW Tribe: $0.74
⇒ Rage Quit Amount FOR OLD TRIBE = $1.12
Post-Merger, Post-25% Rage Quit:
Protocol Controlled Value = $1 billion - $173.6m lost to Rage Quitters = $826.4m
User Circulating FEI = $300m
Protocol Equity = $526.4m
Number of TRIBE outstanding: 950m - 155 lost to Rage Quitters = 795m
⇒ Protocol Equity backing up each NEW Tribe: $0.66
⇒ Rage Quit Amount FOR OLD TRIBE = $1.12
The Bigger Picture
The bigger problem is that we are setting a snapshot date for the Rage Quit and then issuing additional TRIBE which have no right to the Rage Quit (or even to vote on it). This mechanically creates two, non-fungible classes of TRIBE in which “pre-snapshot TRIBE” are incentivized to conduct a governance attack on “post-snapshot TRIBE” – and then Rage QUIT to transfer PCV to themselves at the expense of the “post-snapshot TRIBE.”
This will happen as long as not all TRIBE holders are eligible to rage quit.
Considerations
Transferring protocol equity from one class of TRIBE holders to another is about as important a decision as a protocol can make. So is draining the protocol equity. I believe that we should consider these decisions deeply as an entire community until a broad, super-majority consensus is reached.
I believe this is especially important given how the Rage Quit sets a precedent for one faction of the TRIBE community (here, old TRIBE holders) to conduct a governance attack on another faction of the TRIBE community (here, recent TRIBE holders and all incoming RGT holders) and take their PCV. I also think it is important to think through the implications of this sort of behavior because … why would anyone buy TRIBE if they might be governance attacked by another faction of the community?
Next Steps
Given that we are deep into trying to execute a complex, first-of-its-kinda DAO-to-DAO merger, I propose that we remove from the merger agreement and table it for further discussion until after the Fei + Rari merger is closed.