Proposed SQUIG Tender Offer/Buyback

glorysk87

Brief Authors: glory, homerfan33
Project lead: glory
Squad: Treasury
Creative approval: n/a

Abstract

We believe, based on recent DEX trading activity, that the market is currently materially undervaluing SQUIG tokens. As a result, we propose authorizing the use of up to $750k of ETH and/or USDC for the purpose of repurchasing SQUIG tokens from willing sellers who want to exit their positions.

This authorization will be valid for 90 days starting from the date the Snapshot vote passes.

Motivation

There are multiple compelling reasons to execute a repurchase program right now:

We believe the token is materially undervalued at its current price. The 45-day VWAP from 6/4/22 (based on Etherscan DEX trading data) is ₀.0003 ETH/SQUIG, or $0.56 based on $1,795 ETH/USD. We believe the NAV of the treasury holdings alone is many multiples higher than this, and that assigns no premium above and beyond the NFT and token holdings. As a result, we believe the token is trading at a 75% discount or more.
There has been consistent feedback over the past few months that members desire liquidity for their SQUIG tokens. We believe offering a token repurchase provides a mutually beneficial program for both the DAO and members looking to exit as it will leave a stronger and more aligned community.
Offering liquidity to potential sellers here will make launching DEX liquidity more practical, as it will reduce the potential for significant upfront selling.
We have significant capital available in the treasury that is currently lying idle - deploying a portion of it into a buyback provides an immediate and significant positive quantitative and qualitative return.

We’ve included an example of the potential accretion from a $750k buyback at $1.50, as well as a scenario analysis that includes the potential accretion across a few different price points and aggregate repurchase amounts:

Buyback Analysis

Success Conditions

This proposal will be considered a success if we’re able to repurchase at least 100,000 SQUIG tokens at a 50%+ discount to NAV.

Specification

This program will be limited to a maximum of $750k from the treasury, and repurchases will be limited to a maximum of $2.00 per token OR 40% discount to treasury NAV, whichever is lower.

The format is subject to feedback from members, but the initial concept is to have an auction-style format on a first-come first serve basis. For example, to start, the DAO will announce that it will buy back tokens from any member at $0.75 (or whatever starting price is determined based on then-current pricing) for two weeks. At the end of two weeks, if the full allocation for the program hasn’t been utilized, the DAO will announce that it will buy back tokens over the next two weeks at $1.00. This will continue in $0.25 increments (up to the maximum authorized price limit) every two weeks until the time limit is reached, or the DAO has expended all capital available under this program.

To facilitate the program, we’ll build a contract that allows any SQUIG owner to redeem their tokens at a specified exchange rate. Squad Leads and Core Members will have discretion to operate the program by managing the smart contract parameters over time to create an auction-style/rising price format.

Launch Details

We will enlist a member or hire an outside contractor to build a tender offer contract for use in this program.

We should make a dedicated marketing push behind this to increase awareness of the program. This could activate idle holders who received the airdrop and have just been sitting with it. The marketing team will have discretion as to how to promote this.

Costs

$500k to $1mm

Rewards

N/A

JussaMouse

Thank you for moving forward with this Glory. I am not a finance guy so bear with me while I try to wrap my head around this. I am curious what the implications are for the current Uniswap pool? Or maybe there is not any liquidity on Uniswap right now to matter, I don't know. I just want to make sure we don't accidentally set up an arbitrage opportunity where someone could buy out all the SQUIG from the pool and sell it to us for a profit.

glorysk87

JussaMouse thanks for the comment. The Uniswap pool is effectively non-functional at this point. There is a small amount of SQUIG in there and almost no ETH, so maybe there's some room to achieve some sort of arbitrage there (though I don't see how), but even if that is the case it would be a very small opportunity. As part of this project though I think we would encourage anyone who has liquidity in that pool to remove it before the program goes active.

NiftyFifty

I really like this proposal and at this discount is a no-brainer. We are going to be adding a lot of value to the remaining $SQUIG holders.

For the non finance people, the basic example I always share to explain buybacks is the following: Imagine you have a business valued at $3M with 3 partners (i.e. each partner is valued at $1M). One partner needs money and wants to sell his share of the business for $800k. If you repurchase, the remaining business is worth $2.2M with two remaining partners (each share is now valued at $1.1M).

That's why buybacks below intrinsic value are accretive to the remaining token holders.

SoundsInteresting

NiftyFifty Very clear. Thx

homerfan33

I'm very supportive of this proposal. It's highly value accretive to the DAO. I am also supportive of the DAO executing this in auction-style format.

My only suggestion - given that there was a trade of 1,000 SQUIG for ETH at a dollar value of $0.29 three days ago, I would start the auction at $0.50 and cap the buy-back token value at $1.00. Rationale: while I want value accrual to the DAO, I also don't want the DAO to pay significantly over market rate.

Last note - I was the main liquidity provider on Uniswap. I started providing liquidity at $3/$SQUIG. In order to not allow people to arbitrage the LP against the proposed token buyback, I have since pulled my liquidity on Uniswap.

cheesebiz

ETH has declined 33% since this proposal was posted. @glorysk87 would you mind providing an updated analysis of the impact of this at current ETH prices?

glorysk87

Hey @cheesebiz -- I received very strong opposition from this from board of strategy members @quickrider and @jess, as well as @0xgregory - their support is generally required for these proposals so I've decided not to move forward with this.