Revised proposal to reduce SPOOL token supply

Summary :memo:

A tactical reduction in the supply of total SPOOL tokens.

Proposal Option 1 :mailbox:

Burn 60 million SPOOL tokens from the treasury, reducing total supply to 150 million SPOOL.

Motivation :fire:

The current total SPOOL supply is 210,000,000 of which there currently remain ~127,000,000 SPOOL tokens are in the treasury, as yet unallocated. When the initial token economics were designed, the project had planned to utilize these tokens to incentivize liquidity deposits; however, thanks largely to early and sustained success, emissions ratios have dropped twice since, resulting in the current reserves being able to sustain emissions for many decades to come.

Aside from selling the tokens, there is currently no use for such a large amount of tokens. Since the price of SPOOL is well below the LBP price , and the runway with current spending is secured until 2026 and beyond, there is no need for these tokens to be liquidated in order to support OpEx.

A tactical reduction of the treasury supply, via burning of tokens, would allow the FDV of Spool to more accurately reflect the current state of the project. Open market participants and potential partners have begun to view the full valuation of a project as the true mark of value and an important indicator of potential upside: having a massive supply overhang of tokens that are a) deeply illiquid and b) would likely be introduced to the market at a zero basis is cause for justifiable concern for future investors and/or partners. In removing a portion of the unused and unallocated supply, Spool would better reflect its massive remaining upside while appearing more favorable to potential partners, investors, and community members, while negatively impacting none of the existing DAO members and contributors.

Additional Information :thought_balloon:

It should be noted that this is an amended version of a previous (and live) proposal to reduce the SPOOL supply, presented by the team a couple days ago. The key changes to that proposal and the one outlined above are the removal of the Builder and preDAO tokens from the supply burn. The rationale for doing so is based on the following:

  • Precedent: although limited, there is some precedent for simply burning tokens from the treasury or reserves as several recent, successful proposals have done just that (Merit Circle, Klaytn, Floki Inu). This not only gives Spool a framework for how other organizations have handled supply burns but also suggests that breaking the mold would set a new precedent.

  • Ethics: burning tokens granted to the team (in exchange for work) or sold to investors (in exchange for foundational capital) sets a dangerous precedent that, absent a written contract, tokens bought from a DAO are subject to repatriation or seizure, even in cases without cause or malfeasance on the team or investors’ part. Put simply, it could be perceived as unethical and unsettling for a DAO to sell someone tokens and then take them away - and we wonder whether this precedent might dissuade prospective future investors/partners considering a strategic purchase from the treasury with a lockup. This is the optics risk that must be weighed against that of FDV:Market Cap Ratio.

  • Centralization Concerns: there should naturally be concerns of increased centralization risk, as the burning tokens from the treasury will increase the relative ownership percentage of all SPOOL holders (both liquid and illiquid). However, if tokens to be burned were not expected to have been distributed for many decades, then they are, in effect as far as ownership and control are concerned, already functionally removed from the supply and simply burning them would mean all things would remain the same, ceteris paribus.

Vote Options :ballot_box:

With “Yes” you vote to burn 60 million SPOOL tokens and with “No” you vote to not burn any tokens.

Timeline :clock130:

(I will defer to the team/mods for an appropriate timeline here)

This honestly sounds like a completely short-term, poorly thought through cash grab by early token holders. Would you rather have a few more tokens to dump then a smaller absolute share in a future-proof, higher relative value project?
It reads like the interests of a few early investors should be held higher than the future of the project. I have invested a lot since the LBP and should something as destructive as this pass, I would fear for what’s to come even if v2 turns out to be a good product.
The original proposal (not this one) gave me a lot of hope for the future of Spool and a further democratic spread of governance.
This is some c-tier VC-grift kind of bullshit.

Thanks for this but I try to get the reasoning behind it.
Why would we vote to massively shift ownership to a few early holders vs the broad Spool investors that bought during LBP and on market over the past year? It is entirey the wrong way to go to make the DAO more centralized for the benefit of a very few.
Especially, since builders proposed to cut their own tokens for the benefit of decentralization, who is this even for? What future value does Spool as a project gain from this?
This comes a bit out of the blue for me!

Few responses:

  1. PreDAO investors took on max risk at the earliest stage, providing the capital necessary to build SPOOL and enable your participation in the LBP. We paid for our tokens just like you - are you willing to burn 1/3 of your tokens?
  2. There is no guarantee that this proposal will result in the remaining SPOOL tokens appreciating to offset burned token value for anyone - we run a fund and have a fiduciary duty to our LPs, we cannot vote to arbitrarily destroy LP holdings in the hope that future investors look favorably upon the FDV impact. This isn’t a cash grab - we are simply protecting our purchased interest in the project. We will happily vote to do nothing or somehow burn 1/3 of all tokens - not just early participants.
  3. Decentralization happens naturally over time as early token holders take profits redistributing tokens to the open market. We sent funds over two years ago with no MVP let alone a V2 on the horizon - our larger share of tokens is simply a result of investing at the pre-seed stage where significant risk is priced into token allocations / prices. Call it c-tier VC grifting if you’d like but there is no precedent for involuntary token clawbacks and this would be a huge overstep by the DAO. This precedent could very well deter future investors and urge early investors to claim and dump their tokens to mitigate risk around the DAO burning any more of their purchased holdings going forward.