[INVESTMENT] cMETA market making

Hi guys, since we listed cMETA there has been very limited volumes and some pointed out that we should make a market using the treasury to provide some liquidity. This is a snapshot of the current state of the book

image

I’m opening this thread so that we can discuss if/how much to dedicate to market making cMETA and what strategy do we want to adopt

also worth pointing out that we have an OTC trade facility on the website where we can show prop liquidity. So far we have received no request on it though maybe it can be advertised better

The problem is that the fund didn’t have time to perform and not many people got to know it yet…it will be hard to have people wanting to buy cMETA until we can actually advertise the results…

completely agree. I think there is some sell pressure (which may be coming from the airdrops) but I’m not sure how much do we want to provide price support on this side. If we leave USDC on the book it will not earn any yield as well, so in case we should bid at quite a discount

Also here is a numerical example for how the treasury could make money buying back cMETA.

Let’s assume the tsy is worth $5m and that there are 50m cMETA. That means the fair value of cMETA is $0.10. Due to very low liquidity let’s assume that the tsy manages to buy 2m cMETA at $0.05 (so 50% discount) and that it burns those tokens.
After the trade the tsy is worth $4.9m but there are only 48m cMETA. That means the new fair value of cMETA is ~$0.1021, or about a 2% return on the trade distributed to all the remaining cMETA holders.

In practice there is uncertainty about the fair value of cMETA (due to illiquid investments) and even the liquid part changes in value all the time as the assets owned by tsy change in price. Finally the trade may take days or weeks before filling, and the opportunity cost of keeping USDC on the book should also be considered

The % below NAV for buy backs and % above NAV for the sale of cMETA should be adapted to the volatility of the asset classes and our exposure to them. If our portfolio is very volatile then it needs to be treated as such and have wider % gaps. I think that the opportunity cost of keeping USDC is worth it in order to peg the cMETA value and tsy together somewhat.

Would it otherwise be a possibility to have some sort of mechanism that sells part of the portfolio or digs into USDC and reimburses 90% of the NAV? You could sell the cMETA in potential future investment rounds or when the price goes higher than 10-15% of NAV.

Hi guys, sorry I’ve been AFK for so long.
I’m not sure if using the treasury funds for market making is the best idea anymore, at least to support selling. While it is a net benefit to holders to provide liquidity at a discount to the NAV, the problem is that it will shrink the overall size of the DAO. $5M is already not that large in the grand scheme of things to build our reputation as a DAO, and if it shrinks further we won’t have much reputation as an investor to get access to good projects or negotiate favorable placement of funds. Not just in the VC side, but also in the regular staking side of things. We need size for reputation and a $3m DAO just doesn’t seem as appealing as a $5M DAO.
On the flipside if cMETA starts trading well above NAV it would be a good opportunity to amass funds under management.
I understand this is not really fair to people who want to exit the project, so I suggest we just provide limited liquidity, for small trade sizes. Those with not much involvement should be given a way to leave, but not at a substantial impact to holders with longterm involvement. I believe liquidity is low mainly because not many people have heard of the project.

Sadly building a following is the hardest part of building up a successful DAO. I tried to shill the project at the few crypto conferences I attended over the past weeks, but the narrow focus on Solana excludes us from a lot of interest, for better or for worse. I really think we should continue discussing some alternate rewards to attract involvement into the DAO voting etc.

Have we considered raising more funds in a private placement? I guess we need to improve our track record first.

2 Likes

Actually we as founding team have been working on an actionable proposal to add more rewards and most of all trying to improve voting (which imho is at the base for having community). We are drafting a proposal and checking the technical feasibility of it, will come back with more detail on it in the next week or so.

I agree with @PorcoRosso that building the following is the only way to have a much liquid token, otherwise with less liquidity cMETA will be closer to a venture deal where the redemption come after “x” years since investment. I personally believe that market making cMETA is not sustainable long term as if we don’t create a following it will be a one way market and afterall in the long term our return should come from assets and not buybacks

Although I see the point of not making the treasury smaller to limit the scope of our deals I would like to see evidence for where our treasury size has helped us so far and what gains to the treasury it has made or should make in long term. IMO we have not had huge deal flow from the size of our treasury. I am not sure if we could have had many less investments in VC for the ticket sizes we offer or if any of our staking our prices was contingent on the size of our DAO.

The liquidity could come one day to cMETA (and of course it can explode in one day too) but there is no guarantee for when it comes. In fact I would argue that providing mechanisms such as this will increase the demand in the token because the project becomes a lot more reliable in the sense that your cMETA is somewhat pegged to the treasury. Until then the utility of this token is severely limited. Currently there is no value in buying a token because no one would ever pay you close to the value of NAV, there is no WL possibilites in NFT projects, no possibilities to personally invest in a VC (the only VC investment we made as a collective was not open to individuals), the discord is very quiet and no opportunities from there either atm. Why do we think liquidity will still somehow come?

I believe this whole strategy of waiting for liquidity is way too passive and has led no where until now. I believe the way to get liquidity is to do things right. IMO offering people the ability to sell their tokens at -20% of nav is plainly speaking a great deal for the DAO in the long term and will allow possible investors the comfort of knowing they aren’t buying a token with little value. Do not forget the treasury is paying 80 cents on the dollar for assets it believes will increase even more in the long term! You put this up against one VC deal which had some issues…

The argument that cMETA is backed by a treasury is in fact a false statement because there is no actual mechanism. I have seen tons of NFT projects that are the same and the only actual link to the treasury is if the project stops and sells out everything and reimburses people. The fact that cMETA should be backed by a large part of the project is the main selling point of cMETA and I find it unacceptable that people who want to sell out because they need the money haven’t ever had the opportunity to sell for 80 cents on the dollar. I do not want to sell because I believe in the long term value of the assets but I honestly find it very disturbing the lack of movement on this front as it was a promised feature and IMO is the most basic of basic foundations of the cMETA token. If you want to view this collective as a Venture Capital investment fund cycle where we will end in a couple years and pay back cMETA ok, but make that very clear. If we are looking long long term and don’t have plans to ever shut down cMETA than there has to be some sort of mechanism that will help drive cMETA price closer to NAV. This will help remove a large risk of the project to potential investors and start growing the community in the right way. If people want to leave the project and therefore do not contribute to the community they should be allowed to do so. If we drop to 3m treasury value but the assets we bought were at 80% value and we start with more value and less total capital I think this is not a bad thing. If we have a future investor round I personally think it would be more attractive with the changes than without.

“Have we considered raising more funds in a private placement? I guess we need to improve our track record first.” → on this, i wouldn’t seek for another raise right now as 1) we still have USDC to deploy and 2) we need to build up an edge for the DAO and understand which type of investors make more sense to attract (e.g. few large tickets maybe not very active in the community)

1 Like

Thanks all for you inputs. I mostly agree with @PorcoRosso. The treasury is not that large and to build a reputation being larger rather than smaller helps somewhat. If cMETA traded above NAV then we could increase AUM but as of now it would be mainly to facilitate selling.

The issue in providing liquidity on-book is that it can’t be too tight anyways or we risk getting picked off. I can sympathize with people wanting out of the project. For this reason we have an OTC facility where block trades of cMETA can be discussed

We have never received an inquiry so far though arguably it has not been advertised a lot.

@EliteMentality , a few things I would mention. Agreed we did not have a huge VC deal flow so far, however if that’s something we want to keep open we can’t be much smaller than this. On one hand you don’t want to invest too much of tsy in a single protocol, but on the other you can’t make checks of like 10k.

Currently there is no value in buying a token because no one would ever pay you close to the value of NAV, there is no WL possibilites in NFT projects, no possibilities to personally invest in a VC

Looking at the book right now there are actually a few asks that are below the NAV so buying is not an issue. Selling is the problem (a better advertised OTC possibility might help). The value of the token is that it gives you a diversified exposure to the Solana ecosystem. The NFT WL or personal co-investments were never really discussed as key strengths of MC, though I can see why for some might be useful to have.

The argument that cMETA is backed by a treasury is in fact a false statement because there is no actual mechanism.

This was discussed at length in the listing thread. cMETA IS implicitly backed by the treasury and I refer you to the thread for the actual mechanisms (which in fairness include tsy market making cMETA).

I honestly find it very disturbing the lack of movement on this front as it was a promised feature and IMO is the most basic of basic foundations of the cMETA token

This was never “promised” but discussed as a way to “soft peg” cMETA. But as with all decisions of MC we need to reach a consensus and then vote on it.

cMETA is an hybrid type of token in that it’s similar to the NAV of an ETF (liquid, clear valuation of underlying, on-demand redemption) and an investment in a HF (very illiquid, no market valuation, lock-up periods & redemption only at specified times). When we discussed initially the target length was 5 years and then see how to proceed best, though of course we can unwind everything before then if we decide so.

Again, I sympathize with people wanting out and how the little liquidity might prevent people from buying in the first place. At the same time the underlying assets are very volatile, and I don’t think that 20% discount is enough to leave orders of size on the book, and to avoid being picked off when prices change rapidly. If we really want to show size on the book I’m more inclined in providing a larger discount eg 40-50% (which is quite large) while at the same time advertising the OTC facility, until we see some proper liquidity coming organically.

From what I see in the listing thread it says we have to wait for a wind down or a “potential distribution of funds”. Since the idea of dividends or other potential distribution was often shot down that leaves the wind down which is what I mentioned above. I don’t think that’s the right way to do it.

In the pitch deck, cMETA was advertised as the following:

"cMETA

direct claim on the assets
more diversification and exposure
more liquidity and less volatility"

I am not sure atm it is a direct claim on the assets, as to me at least, that suggests some sort of mechanism of being able to sell cMETA close to the value of the assets, or at least “claim” the assets to be able to sell at fair value.

I think the DEX option for small, opportunistic buyers and sellers, and the OTC option for large investors who want to exit is a fair compromise.
I can sympathize with your complaints on liquidity, and while it is not a personal need for myself at the moment, it would be great to have. I guess the struggle is in finding an effective mechanism. Please note that this has been an ongoing problem in finance for years. ETFs still haven’t fully solved this problem (they do large deals still as OTC from approved buyers and sellers) and otherwise have to try their best to remain on the peg. They benefit from the fact that all their constituent portfolio holds have publically traded liquid markets. In terms of holdings we are more like a Hedge fund, with some VC, some public but otherwise volatile positions. Periodic redemptions/subscriptions might be an option, but would be complicated

Really we just need to study the market and see what is feasible, note all the pooled funds mechanisms address this in different ways based on their underlying liquidity: (ETFs, Mutual funds, Hedge funds, VC, JVs, direct investments).

1 Like

Yes I vote for making market making happen.

Liquidity is much needed. Let’s do this.

Perhaps we should list cMETA on an AMM in order to get better liquidity. CLOBs for long tailed assets generally are quite inefficient for price discovery.

AMM could definitely be an option. However do you think that without farming tokens there would be enough liquidity? or you had in mind some liquidity incentives to bootstrap liquidity?