PASSED - PROPOSAL 21 - Restructuring of Protocol Fee Disbursement to LINKSWAP Fund

Abstract/Executive Summary

We’re looking to build a venture fund with a fraction of the fees generated by the LINKSWAP platform, which will then be utilized to make seed investments in early-stage projects. To mitigate issues with transparency and liquidity, we will be only making investments in tokens, not equity.

The new system will not reduce the percentage of the fees directed to the staking vault, so YFL stakers will receive the same amount of income from staking as before. The capital will instead come from a portion of the percentage of fees that are presently set to be directed to the treasury (more details to follow). If needed, the cash reserves within the fund can be sent to the treasury if any expenses arise via a governance proposal.

Motivation

The goal of these investments is to drive value to YF Link and the YFL token — by finding early-stage projects with tokens that have yet to list, we can help bootstrap their development and direct exclusive listing to the LINKSWAP platform. In a way, projects that we will fund will become branches of the YF Link ecosystem.

A portion of the profits made by LINKPAD will be allocated to holders on a rolling quarterly basis. This essentially makes all YFL stakeholders Limited Partners in an actively managed venture fund and opens up a new revenue stream for the staking vault.

Here’s a simple breakdown of the ways this benefits the YF Link ecosystem and the YFL token:

  • Creates a new stream of profits for the YF Link governance vault, decreasing the P/E ratio of the YFL token (and thus increasing its monetary value).
  • Directs value to the ecosystem through exclusive listings, heightened liquidity for LINKSWAP, onboards new development projects to the YF Link ecosystem.
  • Because many, if not all, of the projects funded by LINKPAD will exclusively list on LINKSWAP, the fees and initial trading volume spikes generated by these listings will also direct value to the governance vault.
  • Incentivizes long-term staking — because those staking tokens in the vault won’t receive the profit distribution if they withdraw their tokens before the end of the quarter.

When possible, all assets will be stored in public wallet addresses governed by a 3-of-4 multi-sig. This makes all movements transparent and fully auditable by the community. For more information on our transparency criteria, please navigate to our project announcement post.

Specification

We propose that we redirect half (50%) of the fees that would otherwise go to the treasury to be sent to the LINKPAD fund. This capital will be used for investing in projects and driving value to the ecosystem. These funds will remain fully owned by the ecosystem, with all profits from token sales being redirected to the governance staking vault on a rolling quarterly basis.

How fees will look under our proposal:

Trading fees:

  • 0.05% (one-sixth) of the 0.30% trading fee will be a ‘protocol fee’ (this remains unchanged from the current system)

Protocol fees to be allocated as follows:

  • 80% to YFL-LINKSWAP Governance Vault stakers (unchanged from current system)
  • 10% to YFL Treasury (reduced by 50%, redirected to the LINKPAD fund)
  • 10% to the LINKPAD fund

With this new system, the YFL tokens staked within the governance vault will generate more revenue than they are presently.

To maximize the value we provide to the staking vault and to encourage long-term staking, we propose that 50% of the profits made each quarter are used to market-buy YFL tokens, which will then be distributed via a smart contract to the staking vault. 30% of the remaining profits will stay in the fund to be used for future investments, and the other 20% will be reserved as a profit-carry to be distributed to the 4 members of LINKPAD’s core team. By only distributing half of the profits, we can compound our returns and perpetually increase the profitability of the fund, regardless of the revenues source from the aforementioned LINKSWAP fee disbursements.

Stakers should think of this as a hedge against LINKSWAP trading volume fluctuations, as the fund’s growth will allow for a steady increase in rewards regardless of LINKSWAP’s trading volumes.

To ensure that individuals don’t deposit YFL the day before the distribution to earn some quick profits, only tokens staked for the previous quarter will receive the distribution. Exempli gratia: wallets with YFL staked in the vault before the end of Q2 will receive the profit distributions for Q3, and so on. We intend to develop a time-based payout structure that awards individuals a percentage of profits based on the amount of time they staked their tokens during the quarter.

Voting Options

For:

By voting for this proposal, you support the proposed alterations to the protocol fee disbursement and to the aforementioned structuring of LINKPAD profit disbursals.

Against:

By voting against this proposal, you reject the formation of a LINKPAD fund and the changes to the protocol fee outlined above.

6 Likes

Cole, I am generally for the idea, but I believe that a lot more details are required on this proposal so that it looks less like we are voting for redirecting treasury funds to a black box.

Some of the minimum things that I would like to see here before we vote are:

  • What are the investment fund rules?
  • Who is on the investment committee, what is their time mandate and how is that revoked or extended?
  • How is the investment committee incentivised?
  • How are non-invested funds (“cash”) controlled?
  • How are funds disbursed to/in investments?
  • How can current investments be independently audited?
  • What are the exit strategies?
  • How are profits distributed? / How are losses reported?

Hi Yolau,

Thanks for the questions and taking the time to carefully review both the proposal and the LINKPAD concept. I’m going to go ahead and answer each of your questions in line format, in the order in which you listed them:

  1. Due to the dynamic nature of the market, we feel that creating a set of strict “rules” wouldn’t be effective and could, in some circumstances, create operational barriers that limit the speed and effectiveness of any investments we may make. While we do not have rules, we do have guiding principles that govern our investment thesis. Primarily, these center around making safe investments with moderate-to-high upside potential, while also trying to fund projects that can in some way contribute to the YFLink ecosystem.

I would like to emphasize that, while creating profits for YFL holders is our main goal, we are also aiming to spark and incubate more growth within the YFLink ecosystem via strategic investments. I’ll give you an example: the first project we invested in (which will be announced soon) is a BTC-based DeFi project that offers users access to decentralized margin trading that is funded by P2P collateral. While the project is built on the Rootstock (RSK) sidechain, they are making a wrapped version of their token so that it can be traded on Ethereum-based DEXs… they have informally committed to doing an exclusive launch and liquidity inventive program on LINKSWAP. Moreover, we are also participating in the round alongside Multicoin Capital, Galaxy Digital, and other notable venture funds… Via our partnership with BlockVenture, we’re really only accessing high-quality investment opportunities that are often being funded by notable groups. We are not aping into random token presales for Uniswap listings (haha).

  1. The core team consists of yours truly, Roy, Joseph Young, and Nick Chong. All four of us have venture capital experience outside of LINKPAD (please see the announcement post for our bios and social media links). There is no formal mandate when it comes to how long they serve on the team, but this is a concept that the four of us created together and we are all committed to it in the long-term.

  2. I forgot to add this in the proposal, so I edited in as soon as I saw your comment (thank you for pointing this out!). To start, the core team is requesting that 20% of all net-profits generated on a quarterly basis are split evenly amongst the four members. If we generate $100,000 in profits in Q1 2020, for instance, this will translate into $5,000 for each core team member. We are not, at this time, requesting any type of regular management fees from the treasury.

  3. It’s unlikely that we will have any serious sums of free cash (or stablecoins/ETH) sitting around at any given moment. Nick Chong, one of our core team members, is heading up DeFi investment strategies at a Vancouver-based fund – he will be developing and executing farming strategies to ensure that uninvested capital is still generating returns for the YFL governance vault. This may include LPing on LINKSWAP.

  4. Funds are distributed to crypto projects in USDC typically.

  5. We are in the process of creating an SPV based in the Cayman Islands that will be the signatory for all the investments. This SPV will be used to sign all the SAFT agreements to shield any of our team member’s private information (home addresses, IDs, and other KYC-related documents)… As such, we will be able to hold all these SAFT agreements in a publicly accessible Google Drive for public viewing. For ERC-20 token holdings and LP tokens for any farming strategies we are engaged in, stakers can simply monitor the public multi-sig wallet address we will be using, through which all LINKPAD transactions will be conducted.

  6. Exit strategies will be executed at our discretion. Some investments may require longer holding periods due to the vesting structures, while others we will have instant liquidity (or close to it). The goal is to create a steady flow of quarterly profits and take a conservative approach towards exiting when we have the opportunity to do so.

  7. Each quarter we will have a professionally created profit-loss report drafted – we are currently in talks with some leading accounting firms like Assure to have this done. Naturally, we will mainly be detailing things that are already viewable on-chain, but the goal is to make it as easy for stakers to digest and understand where any profits and losses were incurred, and what they mean for their bottom-lines.

Profits are distributed on a quarterly basis. We are currently working with the development team to create a smart contract that issues disbursements of profits on a pro-rata basis, instead of the original concept where you had to have your tokens staked before the start of the quarter to receive disbursements for the subsequent quarter. We will provide more information on this soon, but it should be straight forward and easy for those staking their tokens to understand.

I hope these answers adequately address your questions. Based on some of the comments in the Discord channel, I do have a few other things I would like to mention:

Some have questioned the strategy of LINKPAD pulling its funding from capital that would otherwise go to the treasury, suggesting that we either institute a hybrid model where half of revenue derives from what would otherwise go to the staking vault, while the other comes from the treasury (leaving the treasury with 25% more inflows than what it would get under our model).

I think this highlights a misunderstanding of LINKPAD from a conceptual standpoint. Just like the funds in the treasury, the funds and assets held by LINKPAD are controlled wholly and fully by the community. If developers need to push a grant for something or emergency expenses arise, they can propose, and the community can vote, to delegate LINKPAD funds to whatever they need – and we’d fully support this.

Think of LINKPAD as the YFLink ecosystem’s equivalent of a city’s actively managed pension fund, or a university’s endowment – at the end of the day, despite the core members managing the funds, they are still controlled by the community. Of course, liquidity could, in some instances, limit which assets we have ready access too, once we have a dynamic portfolio by mid-2021, this shouldn’t be a problem.

Furthermore, the vast majority of the community that I have spoken to would prefer that the governance vault distributions remain untouched from where they presently stand, while concurrently supporting a modification of the treasury fund’s inflow structure.

There have also been some comments regarding projections for LINKPAD’s funding inflows. I’d like to refrain from offering any predictions as they would be purely speculative. That said, if down the line (or at any point, really) the community feels LINKPAD is receiving capital distributions that are disproportionate to the value we are generating, they can easily put up a proposal to change this – we support this type of active governance so long as it is for the good of the ecosystem, even if it works against LINKPAD’s favor.

To conclude, here is what I’d like to ask of skeptics: Give LINKPAD six months to prove itself as a concept. This will allow for 2 full quarters of funding, investing activities, and profit distributions. It will also allow us time to understand LINKSWAP’s trajectory. At this time, we will put up a forum proposal like this one, highlighting our success and activities and asking for a show of support from the community to continue on course (and adding in any potential structural changes we may make)… This will be the community’s chance to vote on whether or not LINKPAD was a success.

5 Likes

The response to @yolau answers most of my questions. Will there be any disclosures as soon as investments are done?