GIP-100: Should Gnosis DAO conduct a large-scale buyback program?

[RaulVolker]

While I agree with you - some people will just sell their position once buybacks kick in and gno price appreciates - i don’t think your argument is valid overall. I think there are two perspectives on this that show buybacks are very reasonable in this situation

1. Sure, if the dao can invest in projects that are even more profitable than buybacks and/or are important to the gnosis ecosystem then it should prioritise that. However it seems very unlikely all of the funds currently held by gnosis dao will be used for that. And then buying back tokens undervalued just means you can create value for gno holders or sell/spend them again (e.g. in a way martin suggested) once gno is not undervalued as much anymore

2. taking your argument to the extreme, it would not hurt gnosis dao if gno price went to $1 right now. that is simply not true. once again - i agree with you that making more profitable investments or making good investments into gnosis ecosystem is more important, but you cannot rule out creating value for gno holders at some point, otherwise there won’t be many gno holders left (like why would you hold the token longterm if the token doesn’t hold any value?).

imo a gno price appreciation will lead to more interest in gno, more interest in gno ecosystem, that leads to higher gno price again and so on.

i have no idea why gno is so undervalued, but this looks extreme enough to take advantage of the situation

[gno-investor]

Thank you @Nay

I would like to see a program for unlimited buybacks of GNO tokens on the open market whenever they are trading below book value (as they are now). This strategy would provide several compelling benefits:

1. Zero-Risk Investment: Buybacks below book value represent a zero-risk investment for token holders, as the value is directly returned to them. This ensures that capital is utilized in the most efficient manner, directly benefiting all token holders.

2. Market Confidence: Announcing a clear commitment to buybacks can significantly boost market confidence. Often, the mere announcement of such a policy is enough to prevent the tokens from trading below their intrinsic value.

3. Internal Confidence: When a DAO undertakes buybacks, it signals strong internal confidence in the project’s future. It shows that the community and governance believe in the long-term success and stability of GnosisDAO, reinforcing trust among token holders.

4. Optimized Capital Allocation: This strategy aligns with intelligent investing principles, ensuring that the capital is deployed where it can generate the highest guaranteed returns for token holders. Unlike other investments that might carry risks, buybacks below book value offer a sure way to enhance token holder value.

Given GnosisDAO’s 9-year presence in the market, it is clear that this is not a short-lived startup but a well-established entity. With ample capital reserves, GnosisDAO is in a strong position to invest heavily while taking advantage of this optimal investment opportunity. This unique situation positions GnosisDAO as both a growth and value investment, which is highly unusual and advantageous.

I support this proposal, but it would be even better to create a permanent mechanism to ensure that GnosisDAO can continuously execute buybacks whenever GNO tokens trade below book value.

[refri]

I completely agree with you that buybacks might be useful if there is nothing else to use the assets, that are more valuable.

But despite the large treasury I don’t see what we shall sell for GNO:

• Eth & equivalents which are in use by Karpatkey to earn income and as collateral and to foster liquidity on GC?
• Stables which are also much needed there till other parties will join?
• Many other assets, like OLAS or COW that hardly have enough liquidity to be sold in such a volume without major price impact.

Maybe @Karpatkey can tell us if there are really funds not needed for other, more important, purposes.

And looking at the 1 year chart of GNO

I don’t see why there is need to push the price. Will this really increase interest if this should be the main reason to do this?

But at last I must admit: I don’t mind to get some more GNO for cheaper than book value;-)

[gno-investor]

On this topic, it would be more informative to see a graph comparing Book Value/Market Value. A price number on its own doesn’t provide the full picture.

[refri]

agree, but if price increase is mentioned as a topic to increase interst in the project this seems sufficient to me.
And regarding book value there are also some obstacles especially how to value the locked or low trading volume assets.

[RaulVolker]

i don’t see why earning few % farming eth (and paying fee for that to karpatkey) can ever be better than buying an asset that is trading massively under book value.

imagine it wouldnt be GNO but another comparable asset trading a lot below book value - rather farm for like 3% or buy an asset >20% below book value?

[Nay]

Your assumption that during the period you reference there were no buybacks is incorrect. In fact, the amount of money spent on buybacks during this period is in 8 figures.

This proposal, among other things, aims to give this process the structure and signal to the market that the DAO is committed to bringing the price above the book value. Alternatives are executing buybacks quietly or not executing at all, both of which I would argue are suboptimal and don’t lead to generating more interest and activity in the DAO. It’s in the Gnosis DAO’s interest to take initiative rather than being reactive. In this case, hopefully, we can get to a situation where GNO is trading above its book, no more buybacks are needed, and GNO could be spent on other initiatives because more people view it as a sound investment.

Like it or not, the price matters - it attracts holders, builders, community members, and more people hearing about Gnosis and are willing to try its products as all of them are targeted at crypto users/holders. The same process works in the opposite direction.

[refri]

It’s not all about the calculated apy: How to value liquidity that is essential for gnosis chain (still low compared to many other ecosystems)? Attracting people to use the gc ecosystem needs seems to me of much more importance than the gno price. If buybacks are able to help I will not oppose, but right now I am not convinced.

Giving value back to investors can be another reason for buybacks, and to me this seems here the main focus. But as I said above: it will only benefit those who like to sell. All others will be happy to buy more undervalued assets over time. Or they are not really convinced about the valuation, maybe cause of the still not so clear structure/relationship of DAO, Ltd, Karpatkey and so on…this is something I would agree on.

[refri]

sorry had issues editing hope it workes this way

@Nay

It’s in the Gnosis DAO’s interest to take initiative rather than being reactive.

totally agree on this! IMO these buybacks should have been discussed/communicated before!

edit:
But still I am not convinced that more buybacks are needed right now. A clear DAO structure where it is clear for everyone who is deciding about what, and where the information is easily available to the whole community seems more urgent than ever to me. And this might also have a more sustainable effect on the price, cause it generates trust

Anyway: glad you brought this up.

[Wunderbernd]

1. taking your argument to the extreme, it would not hurt gnosis dao if gno price went to $1 right now. that is simply not true. once again - i agree with you that making more profitable investments or making good investments into gnosis ecosystem is more important, but you cannot rule out creating value for gno holders at some point, otherwise there won’t be many gno holders left (like why would you hold the token longterm if the token doesn’t hold any value?).

Ofc you talk about the extremes, but this is actually the case for me atm. It doesn’t make a huge difference for me if the GNO price is 400$ or 250$ atm.

What is the current GNO utility?

1. You can validate the Chain → you earn more with a higher GNO price
2. You can use Defi (amms) → You pool GNO with other assets and have IL
3. Lending markets → The current lending markets have isolated markets and bad LTV

As someone who doesn’t want to sell his GNO because I think it is undervalued, only the first option is attractive right now.

If we compare ETH with GNO, a reason why the ETH price is so stable, is because they have efficient lending markets for ETH. ETH maxis don’t have to sell their ETH, they can just borrow against it.

In my opinion we have to improve the utility of the GNO token to maximize the benefits of buybacks.

[refri]

agree on these topics but like to add one more reason why ethereum is more resilient than $GNO: it’s a much larger crowd looking at it and thereby stabilizing the price. As pointed out above, a single entity can move the $GNO price much and these decisions, at least I suppose, are done by very few ppl controlling directly and/or indirectly the majority of $GNO.
Although I am convinced they did it with the best intentions this should be prevented in the future.

Some algorithmic buybacks might be good, even a decision of the DAO to hand over the ability to decide about certain specifics to a entity like karpatkey might be fine in some situations. But at least after a trade (or a series of trades) was done this has to be published along with the results. Or did I just missed this in the regular updates from karpatkey?

[john_szczepaniak]

Thank you for the detailed and well-written GIP @Nay. GNO trading well below its book value does present challenges in regards to the growth flywheel of Gnosis (and more generally any project in web3).

Yet, crypto is still largely a game of hot potato or musical chairs with folks either farming incentives (airdrops, points etc) or VCs dumping on retail. For the most part, the new shiny projects, new infra or new products see the same hot potato of capital move through with the same dynamics at play. While a higher GNO price would be great, the question still remains - if most token holders are fickle, how do we introduce a level of stickiness around GNO?

I agree with @Wunderbernd @mkoeppelmann and @refri - we want the community of GNO token holders to materially share in the upside of Gnosis becoming broadly relevant. I believe we achieve that through finding real product market fit by building products people actually want to use and funneling them in through GNO incentives to spark the flywheel. There are many things to address that we could fold into GNO incentives as Gnosis 3.0 products are still in their infancy. Or simply improving the liquidity of money markets on Gnosis Chain seems to be something critical to solve for as we position Gnosis Chain as the payment chain - a key building block if we want to be broadly relevant.

At this point in time, I would rather see $30 million spent on building killer products that resonate with real, everyday people. GNO trading under its book value presents an asymmetric risk/reward, an opportunity for the Gnosis community to participate in the upside. I’d rather be in this position than having an overvalued GNO price as most would view the upside as exhausted. While I think your GIP is aimed at the right goal, I support the comments voiced by the community.

[owl.gno]

Thank you so much for the GIP, I am a big fan of it.

Like most of the participants in this discussion I agree Gnosis is extremely undervalued. I also agree with them that our treasury should be an important asset to create new businesses and cash flow positive projects.

However I don’t agree with them that Gnosis price doesn’t matter, in fact I think keeping a floor in the price of Gnosis when we are extremely under book value is very important, as Gnosis is our biggest asset in the treasury and it can be used for all of the investments discussed here.

Long story short, higher Gnosis price means more firepower to create and invest in future EV+ products.

[eklureuil]

Pretty interesting topic and discussion.
While at first sight, the proposal was very interesting (as i do believe $GNO is very undervalued by the crypto market at the moment), it seems to me that the DAO could make a better use of the treasury.
One point that came during the previous answers is the lack of lending markets for $GNO (isolated pool on Aave, cant be used as collateral on Spark, and Agave is retiring). The only option for $GNO holders is to sell (not even talking about leveraging their position).
Maybe some kind of incentives could be deployed in this direction ? Or bring back the discussions ‘Gno as collateral’ with Aave/Maker teams ?

[jackgale.eth]

I applaud the initiative @Nay and the discussion by the community. Each end of the debate raises very valid and persuasive points about the strategic priority for the DAO’s assets (which if you squint enough starts to look like value versus innovation).

The only point that I would add is that perhaps the “large-scale” nature of this draft GIP is a deterring factor. The arguments about developing a long-term framework for possibly unlimited buybacks apply equally to a smaller trial initiative. It may be helpful to evaluate what a sort of “minimum viable product” would look like, that could appease both sides.

[CryptosNF]

It’s a very interesting discussion with different opinions but with the same basic thought: See Gnosis, its ecosystem, and its token succeed for the good of the whole community.

The buyback idea is an interesting one, especially when you consider that it’s not just GNOs that will be stored without doing anything with them, they could also be used for investment, partnerships, protocols, farming etc.

But it’s true that all this discussion raises several points

What’s the best strategy?

Many retails can see the GNO price going up, and are therefore interested in the token and the ecosystem, so this is a very good thing in favor of buybacks.

BUT you also have to take into account the retention rate of your assets and the use of your ecosystem.

And to increase this rate for the ecosystem, we need to develop our ecosystem even further.

So yes, there are already some incredible existing products, and this is just the beginning.

But for example, the comments about liquidity on the GNO lending markets are real.

The situation is still too problematic with the current conditions, it has to be a priority.

We’re talking about being in a phase where we need to attract users to join Gnosis, but if these users don’t have sufficiently interesting products in quantity, what’s the point of them staying? For the price only?

So, in that sense, buybacks are appreciable.

But otherwise I think it’s still too premature, and that it’s much more important to do on-chain with precisely this cash, to launch products, platforms, protocols to show the interest of being on gnosis, buying GNO and keeping it.

It’s a difference of opinion and a different way of going about things, even though we all want the same thing at heart.

This vote will surely pass in the majority, as people think first about the direct return on their price/investment.

But is this how gnosis should be understood? The question is open

Or maybe the buyback amount is too big and could be reduced?

There’s a lot we could still talk about, so I’m not taking a position on this vote, but here are my open thoughts

[Nay]

Hello everyone, thank you for your valuable feedback and engaging discussions. We are getting close to moving this proposal to a snapshot vote.

Before we proceed, we need to clarify some execution details that were not discussed in the original post, particularly regarding the Gnosis DAO’s asset utilization for financing buybacks. We propose using a mix of ETH, stablecoins, SAFE, and other cryptos. Given that SAFE constitutes a significant portion of our total treasury, it seems prudent to utilize it for approximately 40%-50% of the total buyback value. This approach would set a precedent for Gnosis DAO to sell a modest portion of tokens from aligned projects for the benefit of its holders. To minimize price impact, we suggest gradually selling SAFE over several months, aligning with the extended timeline of the buyback program, instead of trying to secure all $30 million at the start of the program.

This leads us to the question of how to sell SAFE and potentially other cryptocurrencies to fund the buybacks. Transactions can be executed on-chain via CoW TWAP orders, but there might be more efficient methods. For example, Karpatkey could seek an OTC buyer, similar to its approach for the Safe <> Gnosis DAO joint treasury, or engage with market makers.

Furthermore, the execution of the non-TWAP $15 million portion could be carried out on CEXes, either through market makers or via an account with a service provider like Fireblocks, if available to Karpatkey.

Please share any comments or suggestions so we can discuss them further and proceed to the Snapshot vote.

[refri]

Valid questions, but cause I am against buybacks I can’t give my opinion on this. In the first place I am interested to know what kind of assets had been used for the buybacks that already happened and how these were done. Please @Karpatkey, elaborate if you can and are allowed to.

[Karpatkey]

There are several pros and cons to conducting a large-scale buyback program and communicating it in the way that is being done now.

The main advantage is signaling to the market a value accrual mechanism for GNO from the DAO investments. This is a strong first step towards Gnosis 3.0.

On the other hand, announcing a well-defined, time-constrained buyback program is prone to attract speculators that might front-run the DAO. At the same time, it provides exit liquidity for short-term traders, while long-term investors are left with a smaller treasury and will not see benefits if they do not exit their investment.

This proposal is outside of the scope of GIP-58, which remarks that karpatkey should conduct buybacks with the DeFi earnings of the exercise. For this reason, we will abstain from it, though we will undoubtedly execute it with the proper professionalism if it happens to pass.

In this regard, if the proposal goes through, we want to commit to doing as much as we can to avoid offloading large amounts of assets on the secondary market. We will undoubtedly negotiate OTC and Market-Making deals to unlock capital efficiency.

[gno-investor]

I don’t see front-running as a strong argument against the buyback. In fact, it’s an expected and logical reaction. Do speculators front-run when Apple conducts buybacks?

Nevertheless, as I mentioned before, I believe it would be better to have a permanent tool for automatic purchases when GNO is trading below its book value. This requires a precise estimate of the book value.

I am currently developing a real-time dashboard that tracks all assets held by GnosisDAO, both on-chain and off-chain. Additionally, I aim to map all expenditures and other significant data within the Gnosis ecosystem, such as the number of users of Gnosis services.

Once we have an accurate understanding of the book value, we can create a permanent tool. My vision is for GnosisDAO’s liquid assets to be continuously placed in limit orders on CowSwap, ready to purchase whenever the price trades significantly below the book value (e.g., at a 20-50% or more discount).

If this tool is implemented correctly, I am confident that the open market will not allow the price to reach such low levels.

One thing I don’t understand is why GnosisDAO, when trading clearly below book value (as it is right now), has $25 million on the wstETH/GNO pair on Balancer. If the GNO price drops against ETH, it effectively conducts buybacks, but if the price rises, it sells accumulated GNO on the open market, diluting GNO holders when the token is trading below book value! This seems very counterproductive to me. Why aren’t we only doing limit buys through CowSwap and zero sales? I guess the goal is to have better liquidity for Aave, Spark, etc., because they need to efficiently liquidate positions during liquidations. Limit buy orders would serve this purpose just as well. Am I missing something? If GNO is trading below book value, we should only be buying GNO on the open market.