Authors: @alesco, @winning
(Note: This post has been cross-posted between RGT and TRIBE forums)
After soliciting feedback from various parties across multiple channels (forum, Discord, community call on 12/10), we would like to put forth an amendment that revises the RGT-to-TRIBE Exchange Rate to use a 7-day time weighted average price (TWAP) PRIOR to deal announcement on 11/16. In an effort to align both communities and drive towards consensus, we also propose that RGT holders will assume the REPT-b repayment obligations and pursue a 7-day TWAP that is more favorable to TRIBE holders, rather than a 14-day TWAP originally endorsed by several RGT holders and mentioned on the community call. Please see “Proposal” section below for specific calculations.
Our goal is to revise the deal such that it becomes an acceptable compromise for all parties, even though not all terms are favorable to each respective community. We sincerely hope this can put to rest the major disagreements that have been voiced to date, and allow both RGT & TRIBE communities to come together and support the broader vision for a synergistic “Fei-Rari” combination.
Context For This Amendment
The current proposal was drafted by GFX labs, who were transparent in noting that they
“did not lead discussions about what an appropriate valuation should be” (forum post link).
The current methodology of a 7-day TWAP leading up to 11/27 was a placeholder at best and did not incorporate the majority of perspectives from both communities.
The most recent snapshot was rushed and did not fully follow governance conventions when it closed for vote without a last call on the main thread. As a result, there were important outstanding questions that weren’t addressed properly, which this post attempts to rectify. As Joey noted:
“This snapshot represents “broad consensus building” and NOT a definitive vote on how the merge will execute in detail. In particular things such as mechanism, exchange rate, and post-merge intentions are all an active work in progress and should continue to be discussed."
Why should the Exchange Ratio methodology be adjusted?
- The current proposal uses a 7-day TWAP leading up to 11/27, which is 11 days AFTER deal announcement, and fails to abide by standard practices of using unaffected prices to calculate deal consideration. Any trading of RGT and TRIBE tokens after the 11/16 announcement (link to forum post) would have been impacted by the merger news and deal-related discussions.
- In addition, it would have been almost impossible to control insider trading and market manipulation after the potential deal was announced.
- Using prices prior to deal announcement would best reflect each protocol’s true independent market value, without being impacted by the ongoing merger discussions.
- While this DAO merger is unprecedented, it makes sense to use merger precedents in Tradfi to guide and inform our thinking as the business impact is similar. All major mergers / acquisitions in Tradfi have used prices PRIOR to deal announcement (just look up any deal you can think of).
- This amendment’s usage of 11/16 as the ending date for the TWAP calculation also aligns with the date chosen for the Rage Quit snapshot (November 16, 2021).
- While we can agree that the RGT token price has traded down ex-post, the reality is that this would have been the appropriate methodology even if RGT traded up.
- Please remember… our decision on the methodology for calculating Exchange Ratio will likely set a precedent for all future DAO transactions.
Why only a 7-day TWAP and why suggest debt repayment by RGT holders?
- Given that GFX arbitrarily chose a 7-day TWAP window, many believe that a longer lookback period (i.e., 14-day TWAP) would smooth out the impact of any potential short-term price volatility in either token’s trading history.
- Many also believe using a longer lookback period would better account for known information leaks about the deal and any appearance of insider trading or market manipulation by those aware of the deal.
- If a 14-day TWAP were used prior to deal announcement, the Exchange Ratio would be 38.27, which is 15.1% higher than the 7-day TWAP Exchange Ratio prior to deal announcement.
- However, in order to achieve buy-in from both communities, we believe a 7-day TWAP is appropriate here.
- Furthermore, to align both communities and drive towards consensus, we believe RGT holders should be responsible for repaying the REPT-b obligations of approximate 11.6M DAI (see section V-I D. in proposal for details). To simplify the deal mechanics, the obligation amount can be subtracted from RGT’s 7-Day TWAP price prior to calculating the Exchange Ratio; text in Section V-I of the proposal should be edited appropriately to reflect this change while maintaining the same payout mechanics in FEI.
Will this amendment require additional development time from the team?
- We would welcome input from the team members, but the same contracts can still be used as per the original GFX proposal – with the only revision being a different Exchange Rate utilized
- As such, any additional time required would be very minimal
Change Section VIII. E and VIII. F of the merger proposal to reflect 7-day TWAP leading up to 11/16 deal announcement date (ethereum block 13582977 to 13628450):
- RGT 7-day TWAP (ethereum block 13582977 to 13628450) is $41.0863 USD
- TRIBE 7-day TWAP (ethereum block 13582977 to 13628450) is $1.2321 USD
- Unadjusted Exchange Rate is calculated as 33.3465 TRIBE : 1 RGT
- Adjusted RGT 7-day TWAP is defined as RGT 7-day TWAP adjusted down by the cost of REPT-b Repayment Obligations, equal to $41.0863 - $11,600,000/12,500,000 = $40.1583.
- The final adjusted “Exchange Rate" is defined here as 32.5933 TRIBE : 1 RGT, equal to Adjusted RGT 7-day TWAP divided by TRIBE 7-day TWAP.
- In Favor of the above proposed amendment
- Against this amendment
While this will be a combined vote for convenience, RGT and TRIBE votes will also be tallied separately to get a better sense for each communities’ penchant for this proposal, given that TRIBE holders have majority voting power in a combined vote.