PIP-6A : Should PathDAO implement an NFT-based Profit-sharing utility?

[xViking]

**This proposal will attempt to improve the utility of $PATH, and align interests between the treasury and token holders. **

Authors: xOctavia and nf.carlos.acutis

Summary

Inflationary tokenomics and lack of token utility have affected the $PATH price, market cap and trading volume negatively (PathDAO price today, PATH to USD live, marketcap and chart | CoinMarketCap). We propose a tokenomics revamp that introduces a deflationary mechanism for $PATH, a profit-sharing utility for investors, and an additional revenue source for the treasury. $PATH holders will be able to burn their $PATH for a Pathfinders NFT, which can be staked for 30% of realized treasury profits. This can be raised to 50% of all realized profits at the discretion of the team.

note: The name ‘Pathfinders’ is merely a placeholder until a better name is discovered. Something more creative and original would be ideal.

Visual representation

How it works:

• $PATH would be burned out of circulation forever in return for a Pathfinders NFT

• Pathfinders NFT is staked for profit-sharing rewards

• Rewards would be paid out in USDC, ETH or WBTC (this may be done in epochs or delayed emissions, exact details tbd)

• There will be no lock up period for stakers (you can enter and exit whenever you want)

• There will likely be a membership tier depending on number of $PATH burned. Each tier will provide stakers will additional benefits, such as, entry into partner project presales, access to real life PathDAO events, PathDAO merchandise etc. More benefits could be added at any time.

Example using February data
Monthly Realized Profits: $580,000
30% of this: $174,000
Number of stakers: 100
Average reward per staker: $1,740

50% of $580,000: $290,000
Number of stakers: 100
Average reward per staker: $2,900

Realized profits and number of stakers are variable. Exact reward per person is determined by the number of $PATH burned into the staked NFT.

Benefits

• Incentivises burning of $path. There are new $PATH entering circulation daily, which dilutes all current holders. This would help offset some of this. If 10,000,000 $PATH is burned, that equates to 1% of the max supply, and almost 10% of the circulating supply. Bear in mind, there is a lot of $PATH already locked in the staking contract.

• Incentivises buying of $PATH as a financial utility has been added. In order to access the profit-sharing pool, many will buy $PATH in order to take part. This decreases the supply and puts buy pressure on $PATH at the same time. A higher $PATH price and market cap would be fantastic for marketing, and increase overall satisfaction of token holders. It would also allow PathDAO to engage in further rounds of funding at higher prices.

• Increases trading volume and trading fees for LPs as token is given utility. The treasury owns its own Uniswap V3 liquidity for PATH-USDC at 1% fees. This means a daily volume of $1million in that pool would generate $10,000 per day in fees.

• Creates a new income source for the treasury through NFT sales royalties. Although no fee has been determined, it is likely that it will be somewhere in the range of 5%. Each time someone wants to exit their position, and sell their Pathfinder NFT on the secondary market, the treasury will earn a piece of that sale. Trading volume of $1m would equate to $50,000 if royalties set to 5%.

• Gamifies trading. As PathDAO specialises in gaming and NFTs, it is fitting that the trading of its token becomes gamified. Buying and burning $PATH, minting NFTs for profitsharing and selling the NFTs later on, creates an interesting new dynamic for traders. All of which benefits the protocol in various ways already discussed.

• Distances $PATH from being a security while still benefitting from profit share. If we were to use $PATH in order to stake for profitshare rewards, this would class $PATH as a security and exchanges would be forced to delist. In this case, the NFT would become the security. Luckily, there are many decentralised NFT marketplaces we could use.

• Helps PathDAO gain exposure to another group of investors. Getting verified on an NFT marketplace could help spread awareness about PathDAO and the gamified trading element could open the doors for new traders.

• Exposes investors directly to the performance of the treasury. This will lead to higher engagement from the community members, and higher quality alpha for investment opportunities.

Counter Arguments

If the project pays out its profits to stakers, wouldn’t that reduce the amount in the treasury and subsequently its growth potential?
Potentially. First of all, rewards are derived from realized profits, so the treasury will still be growing only at a slower rate (ceteris paribus). You must also take into account the additional revenue stream (NFT royalties), token price increase (the DAO can engage in further rounds of funding at a higher price) and the trading volume (LP fees).

How can we be certain that this will have a meaningful impact on inflation?
There are no certainties, but, generally speaking, with financial incentives we should see quite a lot of $path burned to earn these profits, bearing in mind you can still sell your NFT if you wish to exit your position. The incentive to burn and stake would increase with increasing treasury performance. We may see a period of time where it is more profitable to buy the NFTs on the secondary market as opposed to burning, this would still benefit the profit-share rewards through royalties.

What impact would this have on $PATH or Pathfinders NFT being a security?
Using an NFT creates a buffer for $PATH as $PATH itself would not be able to be staked for profit-sharing rewards. There is a chance that the NFT itself would become the security, however, as long as we use a decentralized NFT marketplace, we shouldn’t have any problems with being delisted. The issue of securities is a genuine concern for this model and would need to be taken into account when voting on this.

What about those who have already locked their $PATH
Unfortunately, $sPATH is a non-transferrable token so that would not be able to be included in the burn to mint Pathfinders NFTs. If successful, all $PATH stakers will see a direct benefit through price appreciation, supply decrease (while they get more $PATH and therefore a larger overall proportion of $PATH), and project awareness. Staked LPs will benefit from higher trading fees.

Budget
No additional budget required.

The vote

1. Yes, rewards in USDC
2. Yes, rewards in ETH
3. Yes, rewards in WBTC
4. No

Will leave this up for 5 days before launching an official proposal.

[Ehsan]

Very optimist about future with this proposal

[weekee]

This is a very well thought proposal. Thank you so much @xViking and @carlos.acutis

I personally support this proposal, and would love to further the discussion on details

[cks]

I support this, although I don’t think it’s enough to contain the depreciation of the token since the inflation is so high, I would like to hear what the team has to say about this proposal.

[nf.carlo.acutis]

let’s say that 100 people burn an average of 50K tokens each.
That would be 5M tokens out of circulation
50K tokens costs about $1500 at current prices.
They stand to make more than that on the first month of rewards.

[xViking]

Check what Carlos wrote. But youre right, it cant stop all of it. There will need to be more initiatives to keep adding utility.

[TwinkleToes]

Love this proposal but it does draw some major concerns. First concern is that this would undoubtedly be deemed a security in the USA and most likely in most countries throughout the world. Not sure if we can get some legal expertise to give their insight and recommendation.

Second concern is that 30% in my eyes is way to big of a share of the profits. I would be more inclined to vote yes on 10-15% of profits in on a quarterly basis.

[Ethermage]

Thanks for the depth of the proposal @xViking and @nf.carlo.acutis .

1. Additional suggestion on RevShare pool emissions:

• To allow for a more stable pool payout, it might be good to have a revenue share pool that receives the realised revenues (which fluctuates monthly) and then disburse 25% of it every month.
• This ensures a more consistent payout rate, ie the rolling average of 4 months realised revenues.

2. For some concerns that revenues have a higher IRR in the treasury than being disbursed as “dividends” - This is true but we are seeing a massive disconnect in fundamentals of the treasury vs the token price (which is currently the only value accrual mechanism to our community). Having a revShare outlet help bridge this gap.

3. Why not buyback and burn $PATH. Isnt it easier?

• Say if we realise 100 USD of profits.
• Buy back and burn will only create a 100 USD impact on price.
• RevShare model might create a buy pressure greater than 100 USD because of the forward returns that RevShare pool is projected to have.

[Ethermage]

On the profit sharing size, we can potentially scale down the % to 15% initially.
Giving the executing team the mandate to scale it between 15% to 30% depending on the size of the staking demand.

Any increment above that requires another PIP vote.

[Bailey]

Fully support the idea to connect revenues with $PATH to increase value accrual from treasury growth.

I would to hear more thoughts about introducing the profit sharing NFT as the tradable vehicle.
It creates a extra step that is bad for UX and an irreversible change if we go down that path. (Pathfinder NFTs will go to zero if we ever decide to direct revenues differently).

TraderJoe introduced sJOE that paid out stablecoin from fees generated by their DEX and wasn’t delisted etc. I believe we can experiment and push the boundaries here with sPATH.

[xViking]

Sure, 15% might make more sense if youre only considering the potential reduction of treasury growth, but it needs to be interesting enough to incentivize burning and entering the pool in the first place.

[xViking]

This is actually a good idea (with regards to a slow drip approach to rewards payouts). Its basically vesting the rewards to stakers and that would make complete sense. Would only require a simple emissions curve over a given time period. more consistency and ensures expectations are met. It also creates a nice runway for the project.

[xViking]

The problem with that is that spath isnt transferrable. plus, theyd benefit from this anyway even if they cant use their spath to earn rewards. I like the idea of reward them more though.

[Ethermage]

@xViking @Bailey

My thoughts around irreversibility.

Pros:

1. Permanently takes $PATH out of circulation.
2. Decouples the dividend component vs the principal component in a sense. It can be PathFinder NFT, it can be $revPATH tokens, but the idea is that there is permanent split. This might be good because it creates a near-term market for people who are in for liquid dividends.
   The good thing is that current Path operations do have two forms of yield. The highly liquid ones from NFTs and scholarship programs. Long term horizon ones with private deal SAFTs.

Cons:
3. There will always have to be a revShare model and we cannot revert back.

An alternative option:
People are given the option to lock $PATH permanently.
When they do so they are given revShare tokens or NFT.
The contract will have a revert function installed in the case where the DAO decides to move away from rev sharing

[xViking]

That’s a very good point. It may be beneficial to make the function reversible, but remember that people can still sell their NFTs on a marketplace. So its not as if people are 100% bound to the burn function. Another option is to remove specific dividend amounts (30% or 50%) etc so it resembles something more like a dividend stock model. Dividends are reduced during times of poor treasury performance and increased during times of high performance. Essentially, it makes the entire function much more flexible.

[ajyoda]

Great proposal for a DAO structure. A yes on this for me.

[CitF]

It’s been a while since I came here to provide my input. This is the perfect topic for me to give my input.

1. If an outsider reads this, the title seems to give them the impression that PathDAO is making so much money and the team doesn’t know what to do with it. So let’s start profit sharing discussion. But wait a minute, it’s not about that, the project has just started less than 6 months and is still in its growth phase aka infancy stage.
2. I appreciate the team’s effort to hear people out. But as I go through the overview of most discussions here, they’re mostly a reactive approach that only focuses on short term price fixes than a proactive approach on how to make PathDAO stands out and be the best amongst all other game guild crypto projects. Most of the discussion topic is around ‘Why is token price low? We need to fix this.’ No, we don’t need to fix this. We’re in a bear market. Eth isn’t going to fix when token price went from 4.8k to 2.5k or when dot fell from 40+ to 14. They just don’t and the teams get what is buying and selling. Basic economic 101.
3. Too many cooks spoil the soup. That’s what I’m seeing here. I wish to see greater plans. Not all ideas just to fix short term price movement. Burn token, buy back tokens etc.
4. I love the 5 arms of PathDAO. Now, that’s a very very good vision and a good roadmap and one that sets PathDAO apart from other gaming guild projects. Price low? Time to buy. Most tokens are down 50% past month. How many are reacting to it and needing to make changes? Short term price movement means nothing. Long term price will reflect its true value.
5. In fact I’ve decided to load up my bags on path tokens this week waiting for my fund to accumulate enough to buy one go. But after seeing this really, this made me think thrice about my very simple decision. What transpires it? Roadmap and approach that keeps changing due to reactivity to public’s feedback to satisfy their noises (not voices) rather than focusing on what needs to be done.
6. Profit sharing through nft will invite tonnes of problem. Why do only people who own nft are more qualified to earn profit sharing while the rest doesn’t. Is an nft holder more ‘qualifed’ to earn holders as compared one who doesn’t? So they are more qualified cause they burn tokens so supply is lower. Again, we’re talking about reaction to price rather than focusing on roadmap. Why even segregate investors into 2 groups of people :one with nft and one doesn’t.
7. What’s next later? Burn all tokens then turn into nft and higher traits get higher profit? Where are we heading to? Where is the initial vision, goals, and objectives?
8. Are we not in a growth phase right now? Growth phase isn’t the time to give out profit. It never should. Not now. Current profit should be reinvested back to treasury and keep the fund growing. Only when the entity is generating a good roi then we can start considering how to reward holders. At this point the staking and LP reward is superb. Start treating PathDAO as a business entity than a playground attending to people’s ‘why price low, I need the price to be high now’.
9. Do we really need to focus and worry so much about token price at this time. Really? Like, really? If so, we have placed our attention at the wrong place. Maybe token discussion channel shouldn’t even exist at all that results in such cancel culture. I don’t see other projects focusing on token discussion. Maybe they discuss on overall market sentiment, project updates but token discussion? no. If it’s been set to be 1 bil, then keep it that way.
10. There’s only such discussion popping up because we’re in a bear market. Imagine it’s bull market now, this topic won’t exist. So go back to the initial idea, what is this discussion really focusing on and what’s it’s trying to achieve end of the day? If this idea goes through, price will continue to go down, it won’t go up. You can mark my word here. People thought CEX will help with price. Did it? No. Simple reason: overall market is bad. Simple as that.
11. There’s no problem with 1 bil supply. Other projects have 50 bil supply and lost over 60% past month and doesn’t react to the market. If anything, it’s to buy more. Smart investors will do that.
12. What can be done is to reward holders through various ways such as launchpad WL etc. Whatever that will happen along achieving roadmap for 2022, further expand how it can benefit holders and them wanting to buy path tokens and become a long-term investor. Follow how enjin has done it. Give holders the reason to hold.
13. I think we’ve enough changes made from copper launch to staking to changing contract etc. We don’t need more changes. We just need to focus on delivering those targets for 2022.
14. PathDAO is doing great and I’ve zero concern with what PathDAO will achieve in the coming years. But seeing so many changes made just to pacify some noises doesn’t sit well with me.
15. Democracy is great until all noises result in mediocre results and a confused pathway. Time for management to step up and make bold decisions even if people don’t like it. Focus on the goals and roadmap and just achieve them. Time will tell, results will speak.
16. As for now, there is no need to do anything other than to figure out along the roadmap, ‘how can we make holders to want to hold the tokens more and what is the use of these tokens? The tokens should be usable in the PathDAO ecosystem (not profit sharing or earning more from NFT sales which isn’t part of the roadmap for 2022, we are still in infancy stage and focus on the roadmap). Is it to use it as token for future launchpad games?
17. I just realize after writing so much, what people really want is: what can I do with Path tokens. Let’s think about that. Make it usable. I don’t think at this point, right now, that profit sharing is a good idea. Let’s explore to use the tokens in other ways, that generates demands, that generates use cases.
18. Choices 1,2,3,4 were given. I pick 4.

Thanks for hearing me out.

[Ehsan]

1- everything is proportional
2- this is a DAO
3- this is not a kitchen
4- no other gaming guild is having a low volume like this and huge gap between treasury and token price with 0 buys
5- we need new blood not you
6- weak argument
7- what? Karen?
8- community first DAO and token price boosts treasury too
9- this is about utility not mere price
10- it’s nothing to do with bear or bull. Mind the gap!
11- if there is no utility why release so many tokens and dilute early investors?
12- that doesn’t mean DAO should stop inventing new ways
13- those were not changes. They were fixes to problems that should not have existed at the first place.
14- Karen
15- DAO
16- utility first.
17- it is not good for governance token to be undervalued. People with little buys can change the votes of the DAO easily. Profit sharing and utility can co-exist

[xViking]

Ok, thanks for your input. A couple things I would like to mention in rebuttle:

• Yes, people who burn their path to access the profitshare would be more qualified because they are sacrificing their tokens. The project benefits by a reduced supply, and the burner benefits by receiving profitshare.
• Path price is VERY important. There is a huge disconnect between price and treasury value, due to suboptimal tokenomics, not just bear market. Yes bear market means poor price performance, but there are countless tokens which have done the same during the bull market too. Blaming the wider market is a weak excuse imo. Path price stability and trading volume are good indicators of interest in the project. PathDAO is killing it on the fundamental front, but struggling on the token front. If the staking is so good, why arent people scrambling to buy $PATH and stake?
• This is just a start to add value. There can be more utiilty added over time.
• View this as a necessary business expense rather than try to compare it too much with traditional businesses. Communities in crypto are important, a good price helps in that regard too.

[wutwut]

Super interesting proposal!

A few thoughts

1. I generally like the idea of revenue sharing. It’s a good way to align incentives in a gaming DAO.

2. However, I agree with @CitF as in that we’re currently in a growth phase and funds should be earmarked for growth. To reconcile this with a revenue sharing approach, one idea could be to set a (liquid) treasury threshold above which the revenue sharing kicks in. You could even do this in stages, e.g. 15% above 100m, 20% above 150m etc. - This would also create a great incentive for DAO members to help push the treasury above the required threshold

3. I see this proposal more as a first gate to pass the idea of revenue sharing. As much as I respect the authors’ work that went into this, I believe that the operating team itself most likely has a much better overview to detail out the specifics (e.g. %s, thresholds, legal setup). So I would much rather vote on passing revenue sharing as an idea to be specced out and leave implementation details up to the team, with the rest of the DAO voting on a set of options that the team presents.

Will think about it more! Great stuff

Also @Ehsan please do the rest of us a favor and keep it civil. It’s such an interesting discussion and there’s no need to get this aggressive