[RFC] Wonderland: The Rise, Fall (and Comeback) of the world’s largest DAO.
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Wonderland: The Rise, Fall (and Comeback) of the world’s largest DAO.
Author: The Professor
Hello Wonderland family. You must be hurting right now with the events that have unfolded in the last few days. This post is intended to showcase my thoughts on what really happened with Wonderland and my recommendations for the protocol going forward to make it the most powerful DAO in Defi.
Some background about myself: I currently run a fund and my background lies in mergers and acquisitions and specialised private equity focused on operational turnarounds and special situation investments. As part of my PE experience, my job was to identify undervalued companies that were not operating at their full potential and that were run inefficiently, where I could apply a combination of operational expertise, change disciplines and management restructure to help the companies reach their full potential.
My job was to take a completely impartial look at facts and figures and block out any FUD about a company, as this could always be managed with the right pair of hands at the steering wheel.
Most people don’t see how valuable the Wonderland ecosystem is. It’s currently trading at a 35% discount to its book value, whereby most companies trade at a multiple of their P/E (price-to earnings) ratio (this is what Daniele refers to as “the premium” of token price to backing).
Here is a list of competitive advantages and USPs that are immediately apparent to me in Wonderland prior to the current situation at hand:
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Large and passionate community: It is not an easy thing to build a community with over half a million people. This is an intangible asset that does not appear on any company balance sheet but needs to be factored in, nonetheless.
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Strong Brand: “Fuck the Suits” — Wonderland and Frog Nation have created a brand whereby they are battling to break down the barrier to entry to financial services and yields for the little guy (i.e., retail investors) who have for so long not been unable to get the same prized deals as institutional investors. Taking recent events aside, such a brand has the power to attract the masses and give a certain level of freedom to the 99%.
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Prior success in other projects: Wonderland isn’t the first rodeo for this team. They have built a Defi Bank (Abracadabra) and an automated market maker/yield hunting platform (Popsicle), which is no mean feat. They also took over one of the largest decentralised exchanges (Sushiswap) and instantly made improvements with limit orders. One of the biggest annoyances for traders and investors in defi is going to sleep while still directional on a shaky asset. You don’t have a pre-set order book to “get filled” once your price hits a certain level like you do on a CEX, which makes for sleepless nights. Within a few weeks of taking over Sushi, this was the first upgrade made and is a massive advantage over other DEX’s and shows the team’s ability to innovate and problem solve in a world where infrastructure and user experience is constantly lacking.
To put this into real world context, imagine a group controlling Bank of America, Goldman Sachs and the NASDAQ. I know this is a gross exaggeration and in the real world anti-trust laws would prohibit it but consider that defi is unregulated and with a much smaller market cap and you get how powerful this consortium can be. Synergies and economies of scale are key to any business and Wonderland has a much larger competitive advantage to any defi protocol when considering these synergies.
This is important to mention, not only for “track record” but also for economies of scale (i.e. integration between platforms, first mover advantages on new farms and opportunities etc). However, it also brings conflicts of interest on the table: a clear example is allowing leverage on wMEMO within Abracadabra, whereby liquidations benefit the Spell holders (more on my suggestions for this below).
Looking at this from an unemotional perspective, here is a summary of the restructure and changes I would make to Wonderland to make it one of the best protocols in Defi:
1. Scrap wMEMO and replace it with only one token.
If you ever listen to Dani’s AMAs, the majority of questions revolve around things that most of us would consider elementary: “how do I wrap my Memo,” “why is my wrapped MEMO balance not increasing”, “if I have wMEMO, do I still have MEMO”… When running a successful company, one of the first things you need to do is to identify your target audience. It’s clear that many people in Wonderland are new to Defi and the transition to wMEMO whilst still having three tokens in play (Time, Memo, wMemo) is confusing. I’m sure most of you still think in Memo and not wMemo when trying to calculate your token holdings.
The concept around wrapped MEMO is actually quite powerful and I understand some of the reasoning behind why the team transitioned liquidity to this token, as it no doubt has more utility for the future (i.e. hold wMemo to earn rebases and then stake it elsewhere for further yield), however the tokenomics of the wrapping and its calculation is too confusing for most people and needs to be simplified.
Recommendation:
- Scrap wMemo, Memo and Time and replace it with a new rebranded token.
2. APY vs Revenue Share
This might be a difficult one for degens to grasp but the 80,000% APY you see on the website is a marketing tool, it’s a gamification element of the protocol in order to build the Treasury at a fast pace. The marketing aspect of 3,3 also needs attention: this is built on the prisoner’s dilemma whereby if we all held the token and received the juicy APYs, price would continue to rise or at least not fall whilst the number of token accumulate. Newsflash: it’s called the prisoner’s dilemma for a reason, not the prisoner’s solution: people will always sell their tokens in a market built around free movement. Whichever way you skin in, relying on new users for your exit liquidity is a ponzi scheme and is not sustainable.
Now on to revenue share. Think of this like the dividends you would receive from a stock you invested in: it pays you a certain amount every month based on the company’s success and cash flow. Dividend paying stocks normally don’t have significant price increases as most of their cash flow is not being reinvested in the company. On the other hand, a non-dividend paying stock (i.e. Tesla) can invest in R&D and other expansion plans for the future growth of the company which increases the share price.
So if we know the APY is a gimmick, this leaves the question about what proportion should we give to token holders as a revenue share and what share we should reinvest back into the protocol for future token price appreciation.
Recommendations:
- Bring APY to 0%. This will be hard for some to digest but the future benefit will be enormous. Continuing rebases will simply add more downward pressure to price.
- Dedicate no more than 20% of monthly earnings from yield farming activities to token holders as a revenue share paid on a monthly basis. This should be paid in a stablecoin rather than a basket of assets to avoid confusion.
- Invest the remaining balance into growing the Treasury and future VC investments. The power of compounding in yield farming is substantial and having to continuously drain the Treasury to pay a substantial monthly revenue share limits future growth.
- In order to qualify for revenue share, you need to hold your tokens for 30 days. This massively reduces selling pressure and provides less opportunities for price manipulation.
- Have a maximum supply of tokens in circulation to build price pressure.
3. Management Structure
Whatever way you want to view Dani as a person and the mistake he made, you cannot dispute that he is one of the best brains in Defi and is a big asset to the protocol. Although I don’t know him personally, my feel is that he is a “big picture” thinker, a guy that likes to create and innovate that has a thousand ideas a day and is not a detail-oriented person that can also focus on the smaller administrative tasks in managing a $500 million DAO.
Many of these personality traits are depicted in people with ADHD, whereby such people tend to have hyper-focus on tasks they enjoy (much higher levels of focus than the norm) and an inability to focus on smaller menial tasks they don’t enjoy. Richard Branson and Ingvar Kamprad (IKEA founder) are good examples of this. People’s minds operate in different ways and genius level thinkers are rarely wired like the rest of society. Even with their shortcomings, their strengths achieve great things (think Tesla, Einstein and Newton who were all autistic). The key to success for these people, is surrounding them with people who counteract their weaknesses to let their strengths flourish.
Recommendations:
- Keep Dani on as CSO (Chief Strategy Officer) and free him up from Treasury Management to maximise his strengths.
- Bring in a COO to be the engine of the company responsible for managing day-today operations, managing the rest of the team and investor relations, sticking to deadlines, PR, social channels, reviewing and updating SOPs, maintaining quality control and risk management, vetting external contractors and devs etc. My opinion is that it is not essential that this person be doxed to the public as they would not be handling treasury keys, but their identity needs to be known to the core team.
- Bring in a CFO for Treasury Management and include an additional 2 people as multi-sigs to execute a transaction. Disaster relief protocols to be put in place in case sudden death. These people need to be well known in the Defi community and have built up a certain level of trust over time and not groups like Bastion Trading who are in the business of trading and have the possibility to front run execution with their own funds.
- During this transition period of treasury management, I suggest that Dani takes over as the interim treasury manager and community liaison until suitable replacements can be found.
- Bring in a full time CTO to manage the backend development team and any external third party contractors.
- Bring in an Investment Director or experienced M&A consultant to handle and hunt down investments for the protocol. Build a portal for the Wonderland community to submit investment proposals, as we can use our community for scouting opportunities.
- Bring in experienced yield farming consultants to help innovate ideas for new profitable farms that the protocol should create. Build a portal for the Wonderland community to contribute ideas for the team to build. For example, imagine we were able to create an algorithmic liquidation protecting yield optimiser (similar to what Nexus Protocol is trying to do) and it allowed you to leverage on any farm, without the risk of liquidation by automatically paying back once your collateral was approaching its liquidation price and increasing leverage automatically when your collateral appreciated? Such a protocol greatly increases APRs through technological efficiency. What if the Wonderland Treasury and token holders were able to access this before the market? Having such technology would be a huge competitive advantage that no one else would have.
- Bring in an experienced Communications Director and/or Risk Manager to handle all Social Channels (Discord, Twitter etc) and public relations, especially during times of crisis. Have weekly AMAs with the Comm Director and Dani over Spaces at set times. Community engagement is key.
4. Allow a Rage Quit Solution.
The proposal to wind down Wonderland is premature and was an unexpected turn of events to most frogs. I feel a middle ground can be reached between those wanting to exit the protocol and claim their part of the Treasury and those that want to continue on the Wonderland journey.
One solution I am in favour of is the “Rage Quit” solution, allowing those that want to claim their portion of the Treasury and be done with it. It is only fair to some of those that just want this behind them. However, I’m sure many of you have noticed that this can be arbitraged by buying in now at prices below backing, claiming the Treasury and then buying back in again, so my suggestion here would be as follows:
- Shut down the LP and all trading of wMEMO/MIM for 48 hours to allow those people that want to exit to claim their part of their Treasury.
- Prior to opening the LP, burn all tokens from people who claimed as well as enough DAO tokens to bring the market price at least 20% above backing. This allows both sides to benefit and doesn’t leave either without a profitable solution.
- Institute an automated bot to defend the backing price at exactly the backing price, so that price manipulators cannot take advantage of manual rebuys that occur below backing. Many people had bots that followed Sifu’s wallet and simply front ran him every time he was rebuying, then immediately dumped the token, so also implementing anti-robot wallet detection technology would be a good idea.
- Eventually phase out buybacks as this is not good for the health of the protocol. It will be needed in the near term to get Wonderland back on track, but if we bring APY to 0%, cap supply and have a 30 day holding requirement for revenue share, the token will eventually trade at a significant premium.
5. Monthly Audits, Treasury Dashboard and Backing Price
Monthly Audits
Audits of the Treasury on a monthly basis by an external blockchain auditor are recommended, however, considering we are a DAO there might be many licensed auditors that may not want to have exposure within the unregulated defi arena. Also, if the auditing firm is known to the public, what’s to prevent 10,000 people calling up the auditing firm and harassing them if we have another crisis? At the very least we need full transparency from the Wonderland Team on all investments, holdings and circulating tokens and a real time view of how they are all performing. This is where a sophisticated Treasury Dashboard comes in.
Treasury Dashboard
The team needs to build a specialised dashboard with its Treasury Balances and positions as well as current profit/loss, to be accessed easily by the public. The dashboard provided at: Wonderland or zapper.fi is a joke and not easy to read. My suggestions would be:
- Divide the Dashboard into several tiers including Assets held, LP positions, farming strategies and VC investments. List token/pool, balance, price and chain at each level as well as a grand total. Do not include DAO owned Time in this calculation.
- Clearly identify the non-DAO circulating supply of Time tokens and DAO owned tokens so it is clear. Moving to a one token system will make this much easier.
- For the LP and Farming strategies, there should also be a section where it can automatically tell you what they LP/farm earns each day, week, month, year on average.
- For the VC investments section, this should outline the total investment made from the Treasury in each protocol, the amount of tokens provided to the DAO, vesting schedules, future airdop values etc. Also, upon investment, a newsletter/press release should be linked on the website detailing the business case for investment, percentage of tokens Wonderland received and all other fundamentals when considering an investment (i.e. market size, future return potential etc). Perhaps a Portfolio or Investments tab on the website, similar to how most VC fund website show the investments they made.
Backing Price
The Backing Price you see on the website was developed from the original Olympus code base, but it is flawed for multiple reasons. Firstly, the backing price and Treasury balance includes the value of the native token (Time, wMEMO etc) held in the Treasury. If there ever was a bank run, these tokens (as well as the native tokens in the LP) would go to zero and as such is not a true reflection. My recommendation would be to remove all DAO owned native tokens from the calculation of the Treasury balance as well as the circulating supply as they would never be sold and to keep them aside for bonding events if we ever wanted to increase the size of the Treasury in the distant future (this should be done by a vote). Contracting the circulating supply then has a much higher effect on increasing price.
Although it is difficult to determine the true circulating supply from the blockchain given the three tokens are intermingled, by my estimations the DAO owns:
Avalanche:
- 4,547.24 wMEMO,
- 725.83 wMEMO (from wMEMO/MIM LP),
- 12,224.75 TIME (~247.5 wMEMO); and
- 187,438.49 MEMO (~3,796 wMEMO).
Fantom: 1,790.67 wMEMO
Total (Avalanche + Fantom): ~11,107 wMEMO*
Note: The values shown above are at the time of writing and change over time.
However, what is the true circulating supply of non-DAO owned tokens? If we simply took the wMEMO values on Avalanche of 15,060.80 and 2,343.07 on Fantom, this would bring us to a total of 17,403.8677, which means the circulating supply of non-DAO owned wMEMO is ~6,297 wMEMO.
However, it is difficult to determine from blockchain analysis how Time and Memo tokens add to circulating supply and this needs to be cleared up by the team, so investors can make informed decisions.
Liquidity
We need to really work on having deeper liquidity for the native token. At its highest point, wMEMO had ~$250 million worth of liquidity, which in my opinion is still very low.
6. No Leverage
Leverage only works in rising markets and will destroy any rebase protocol once the market turns bearish. It’s also a conflict of interest with Abracadabra as highlighted above. The majority of leverage options listed on Abracadabra are less volatile coins and LPs where daily price movements of up to 30% would not occur and allowing it for a token that inflates in supply is not good risk management. However, I believe volatility of the token will dampen should we take rebasing out of the equation and have a max supply. Only then can we think about allowing leverage, which should be voted on by the DAO given the pain this caused in the past. I suggest we don’t touch this subject for at least six months and focus on growing the protocol.
Having reviewed many blockchain transactions in the lead up to the liquidation cascade, my opinion is that this was an orchestrated attack, perhaps even from within. Let me lay out the evidence and you make your own decision:
- Limit orders were set up a few days before to defend the backing price at a price slightly lower than backing to prevent any attacks. No one knew the price that the limit orders would buy at or the level of funds within those wallets outside of the Wonderland team. For security reasons (limit orders can’t interact with hardware wallets), a small portion was dedicated to defend against a sudden price drop.
- Dani and Sifu’s wallets (two of the largest wMEMO holders with the most leverage) are publicly available and whilst one can generally estimate where their average liquidation level might be, it is not an exact science when viewing on-chain as most people taking out leverage will have a tiered structure with different price points to manage exposure. Case in point is Dani’s wallet, which lost close to $20 million through the liquidation event: abracadabra liquidations
- These tiered liquidation prices are not publicly available and could only have been known to people with access to Abracadabra’s back end. This is also the case with the buyback reserve within the Sushi limit orders. Is it a coincidence that when Dani and Sifu were sleeping that there were millions of dollars simultaneous sell orders to break the ‘buyback wall’ set up and trigger the liquidation panic we saw? Someone knew when and how hard to push in order to collapse the price.
- Although I have only heard this through secondary sources and cannot confirm for sure, I have been told that @zachxbt (the man who exposed Sifu) was tipped off by someone using a burner account about Sifu’s identity. How many people knew Sifu’s real identity? Not many I assume. It wouldn’t surprise me if it was the same person who orchestrated the liquidation events with their inside knowledge. Remember the story about how Nathan Rothschild made a fortune after the Battle of Waterloo? TLDR: After Napoleon’s defeat at Waterloo, Rothschild was able to get a message back to London quicker than the royal envoy to spread misinformation that Napoleon won. The result? Stock markets crashed with the mass hysteria and he was able to buy up some of the most valuable companies for a fraction of what they were worth. Everything is not as it seems.
Recommendations:
- No more wMEMO leverage on Abracadabra.
- No bail out for people that were liquidated with Treasury funds. You live by the sword, you need to accept dying by the sword. It is up to Dani if he wants to compensate these people from his own funds, something I believe he will probably do. I don’t know too many people who would be so charitable with their own money and his record with Popsicle speaks volumes about his character.
7. The Merger.
Although I can see the vision from Dani’s perspective in merging the two Frog Nation protocols of Abracadabra and Wonderland, this is ill-advised in a time of crisis, especially given that most Wonderland frogs don’t understand the tokenomics of Abracadabra and the benefits of the merge. Steady the ship for now and provide a middle ground to everyone: those that see the value of the merger should be able to swap their wMEMO and equivalent Treasury balance for Spell and those that want to stay on the Wonderland path should be able to do so. You might say that allowing Wonderland holders to claim their portion of the Treasury in both the merger and rage quit situation would severely deprecate the Treasury but the tokens will either be burned or be held by the DAO which can then be used for future bonding events to increase the Treasury. And if we change to a zero rebase token, the bond discounts won’t need to be as high as the 7–8% we saw to outpace staking rewards, thereby reducing dilution.
Why the merge proposal? The team’s motivation for this is to have Abracadabra own the majority of the MIM liquidity and not need to be exposed the mercenary liquidity, which will increase price pressure for the Spell token. The business case is sound but the types of investors in Wonderland vs Spell are very different. Wonderland tends to attract more speculative investors who are excited seeing rebases and to be part of early stage VC deals that otherwise wouldn’t be available to them. They have no education around Spell’s tokenomics and how valuable a merger can be. They are not interested in waiting around for a year for the token to double or triple in value. They want they 3x yesterday. They don’t understand the benefit of Protocol Owned Liquidity especially with an ecosystem with its own stablecoin. Each protocol has their own brand and roadmap and many stakeholders in each protocol do not want to be exposed to the potential shortcomings of the other.
Further, on announcement, the team provided little information as to how this merger would work and what benefits it would provide to both ecosystems. A better approach would have been to prepare a whitepaper outlining the business case for a merger and what benefit stakeholders on both sides could expect to see. However, I feel that whilst the team may have been working on this for the last few months, the announcement was rushed to try and counterbalance the FUD the liquidations caused.
Recommendations: Keep the protocols and brands separate whilst allowing those that want to merge, the ability to do so. Wonderland to then continue to utilise the synergies between each protocol to gain a competitive advantage on the market. As an example, the UST-MIM leveraged stable farm is one of the best strategies created in recent times if managed correctly. Where else can you get 100% APY with no directional risk? Wonderland has first dibs when using the 100% APY UST-MIM pool before anyone else can access the pool. It also has first mover advantage in Popsicle when new yields come out as each pool is limited to a certain value. It will continue to have first mover advantage on other protocols the wider team creates.
8. Education & Support.
In any large-scale company (certainly one with a value of $500 million), you have Standard Operating Procedures (SOPs) and a built up Knowledgebase. Given the target audience of this protocol is the smaller retail investor, an education platform should be created through video content and be updated on a regular basis. This would involve heavy lifting upfront to get the main content out and would require minimal upkeep thereafter.
Recommendations:
- Dani and his team do not have time to educate the community and need to focus on growing the protocol. I would allocate a small portion of the Treasury to get this done by a professional outfit that would then be on retainer for future videos. This is not expensive and worth its weight in gold with not only onboarding new investors in a more efficient way but also for the current larger community.
9. Beware of Sharks.
Many of you may have anti-whale sentiment but I would draw your attention to the other marine creature currently circling the Wonderland Treasury. Concave is a good example: they see blood in the water and want to orchestrate a shadow takeover from within (i.e. voting power of DAO members). They will use the same mercenary tactics as our governments do to orchestrate a takeover through a FUD campaign. You need to remember that these are ex-Olympus personnel and have deep affiliations with Olympus. They are part of that Deep State that look to consolidate Defi within the control of a few. Their playbook? Buy up as many wMEMO tokens at these low prices and use that as voting power to take control of the Treasury whilst simultaneous using all crypto media channels to gather create FUD for their cause. Ever been in the Discord? It is filled with bots promoting FUD to take advantage of current situations. Is it a coincidence that the leader of Concave tweeted the governance proposal at 10:30pm UTC time and between 9:45–10:15pm, we saw a monster green candle on the wMEMO chart after days of static activity. They are buying votes not wMEMO.
Sudden buying spike before Treasury Management proposal made.
Furthermore, whilst I cannot confirm this for sure, it seems that part of the Frog Nation founding team (not Dani) is in favour of winding down Wonderland to limit exposure to their other brands. I’m sure that most of you have seen the wallet with 12,000 Time voting for Wonderland to be wound down. This same wallet made its first purchase of Time, the day Wonderland was launched on the 3rd of September, so its reasonable to assume this could potentially be someone that was there from Day 1:
Before I conclude, I would like to state that having witnessed the power of the masses in the Snapshot vote to turn the vote around was something special. At the start of the vote, 80% had voted ‘Yes’ and this was turned around through heavy campaigning by the community. It is rare that you see a frog defeat a whale and showed the true power of the Frog Nation: If we stand together as one, whales can never take what is ours.
10. Conclusions.
- Transition to a one token protocol.
- Kill the APY, change tokenomics to a capped supply of tokens, move to revenue share model where to qualify investors need to hold for 30 days.
- Restructure management, bring in a COO, CFO, Treasury Managers, Investment Manager, Communications Director/Risk Manager and other external consultants. If we are truly to grow, there needs to be a larger team helping to push it forward.
- Allow Rage Quitting for those that want to exit by locking trading for 48 hours, then burn tokens to increase the price well above backing. Win-win for both sides.
- Implement anti robot technology to prevent bots from gaming the system and our own bot for automatic buybacks to protect backing price but only for the short term.
- Create a clean Treasury Dashboard showing assets held, current cash flow and P&L and clear metrics of total circulating supply vs DAO owned supply.
- Abolish all leverage, especially if rebases aren’t cut.
- Create an education platform for investors with video content with FAQs and How-To’s so that the Discord channel and AMAs don’t get clogged with these types of questions.
The Professor