Is the intent of this proposal to give long-term investors an off-ramp in case the direction of the DAO is off trajectory or is it to eliminate the spread which currently exists between market price and backing price?
These two objectives should be isolated:
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Quarterly redemptions as a way for long term investors to exit the protocol with some value.
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Quarterly redemptions as a way to align market price and backing price.
The debate seems to arbitrarily shift from giving long term holders an off ramp, to frustrations about the steep discount between the Ask and the backing price. Solving for one may contradict the other, and vice versa.
For example, to give long term holders an off ramp, we could require a vesting period be imposed such that arbitrageurs cannot exploit this loophole to drain the treasury. Without arbitrageurs doing their part, the spread would likely remain, at least for the time being.
Make no mistake, if given an incentive to, arbās will drain the treasury. Why? Because they can make a profit. By declaring a quarterly date, it invites arbs to buy just ahead of the redemption date, redeem, dump, rinse repeat. Nothing wrong with that. But to assume otherwise would be foolishly naĆÆve.
What is needed is a vesting period of 60 days (for example). wMEMO would need to be held for at least 60 days before it can be redeemed at the Treasury. Think of it as buying wMEMO with a Put Option attached to it that vests 60 days after you buy. The Put allows the holder to sell their wMEMO to the Treasury at the backing price. It will lead to a bump in price for wMEMO as market participants factor the Put into their valuations. It costs nothing to WL but creates immediate value while preventing ādeath by arbitrageā.
In either case, we should consider imposing an exit tax on all sellers except those who have held their positions for a minimum of 24 months (or 20 months or 30 month, etcā¦). The revenue will be distributed to existing wMEMO holders and a small % diverted to the treasury, with an auto-conversion feature that gives wMEMO holders the choice of taking the revenue from the exit tax as additional wMEMO. The tax would sunset based on the length of time the position was held. An investor holding his/her position for say 12 months, would have a smaller tax than someone that held for 1 month. And after 24 months (or 30 months, etcā¦) the exit tax would be zero.
On the other hand, if we want to let the market resolve the huge spread between backing and the Ask, then we should implement daily redemptions much like mutual funds do. This would be expensive and logistically difficult to do, but it would almost immediately eliminate the spread by allowing arbitrageurs to serve their purpose and wouldnāt drain the treasury because the gap would close almost immediately.
As it stands now, this proposal is structurally flawed and should be withdrawn and resubmitted after we incorporate the above suggestions. Otherwise, if it passes as is, it will fail to achieve either of the two objectives and the result will be another blow to WLās viability to continue as a going concern.