TIP 7 - Paragons PDT Treasury Burn

Authored by Milamber on 31 Jan-25 with review from the Paragons and Treasury Councils

Proposal: Paragons PDT Treasury Burn - Google Docs

Summary

The Executive Team proposes to burn 16,117,421 of surplus PDT tokens from the Paragons treasury (10% of the total supply) in order to reduce the market cap/FDV ratio, thereby improving the project’s optics, increasing the scarcity of tokens, and ensuring a more sustainable token economy.

The Paragons treasury currently holds a total of 32,188,190 PDT tokens (inclusive of the PDT/ETH LP on Aerodrome of c.10.1m PDT), and requires a further c.5.3m PDT to support operations and contributor costs for the next two years. This means that there are 16.1m PDT tokens unlikely to be released in the future, an overhang which can create uncertainty and increase perceived risk around future dilution.

As part of the team’s 2025 strategy and following other recent changes, burning 10% of the circulating supply will further signal our long-term commitment to creating a fairer and more robust ecosystem for all stakeholders and provide a more accurate representation of the DAO’s true value to the market.

Motivation

The DAO has long held a substantial amount of PDT tokens within its treasury following the buyback of PDT from a number of its original founders in 2022 and 2023. While this has reduced as a result of general operations and increasing the size of liquidity provided to the market, the treasury is still in control of around 20% of the circulating supply of PDT, most of which is unlikely to be utilised.

As a result of this, there has been a gap between the DAO’s market capitalisation and FDV on platforms such as CoinGecko, platforms which newcomers to the project regularly use to assess risks such as any future dilution from teams and investors receiving and selling tokens. This however does not reflect the reality of the DAO’s operations and holdings today, with all founder and investor tokens fully distributed long ago and only small amounts of PDT used for parts of contributor salaries and small incentives.

As such, a reduction in non-circulating supply would go some way towards improving the optics around this value perception for investors, providing a more accurate representation of the project’s market cap and token availability, and building confidence that there will be no excessive future inflation. As the majority of these tokens have been deemed to be a surplus, it makes sense to remove them forever.

The team believes that identifying and removing tokens from treasury reserves should demonstrate transparency in how the project’s financial resources are managed, and that the team is proactive in controlling supply and not hoarding unnecessary reserves that could potentially be used in ways that aren’t aligned with the project’s vision. With the recent changes in team and strategy, it will be a positive signal that the DAO is always focused on a sustainable and fair ecosystem for all its stakeholders.

No other changes will be made to ongoing buyback and burn activities out of yield earned by treasury assets (i.e. this will not cease). As such the supply of PDT will continue to decrease over time.

Specification

Determine if there are excess tokens available to be burned

A thorough review of the PDT held by the treasury and estimated amounts required for the next two years has already been undertaken. After accounting for the PDT in the LP, contributor costs and leaving a small amount as a buffer for other operations, c.16.1m excess tokens have been identified.

Identify source and location of Tokens to burn and collate in one wallet

The DAO has PDT in various wallets and across both Ethereum and Base, as well as the Aerodrome LP. 16.1m tokens to be burned will be taken from the treasury and operations multisigs and bridged to Ethereum ready to be burned using the same multisig as for the ongoing buyback and burn.

Determine burn/reduction mechanism

The DAO already has a process in place for its regular buyback and burn process. The tokens will be burned through the “Write Contract” function in the PDT contract, accessed through Etherscan As such they will be permanently removed from the supply, ensuring no future use or recovery by any party.

Execute burn transaction upon approval of proposal

Upon satisfactory approval of the proposal, the tokens will be burned through the contract and a public transaction will be made available for verification via blockchain explorers to ensure transparency.

Market data platforms to be contacted and updated

Relevant platforms such as Coingecko, CoinMarketCap, DexScreener etc. will be contacted by the team and provided with updated metrics to ensure that these are reflected accurately to the general public. Certain platforms such as Etherscan should pick this up automatically but will also be cross-checked.

Ongoing buyback and burn activities will continue

In April 2024 the DAO approved a proposal to use a percentage of earned yield to enact buybacks which has continued over that period resulting in the current reduction in total supply from 162.5m PDT. This proposal will have no impact on those activities, therefore PDT supply will continue to reduce.

Assess treasury-held PDT on an ongoing basis and rebuy if necessary

As part of day to day management of the treasury and ongoing operations, the treasury team will assess levels of PDT held in the treasury and what is required in future to support activities. This will become more relevant as the years pass, however note that the amount held back includes a buffer for incentives/operations which may not be used in full and PDT outlay is generally low i.e. several years.

As such while not expected to be in the position for a number of years, the treasury reserves the right to buy back additional PDT from the market or remove it from the LP to the extent it wants to use this to compensate its contributors or community, or as part of any other business development.

Workings

The treasury holds a significant amount of PDT

The table below demonstrates the calculations used to determine the amount of surplus PDT available to be used as part of this proposal, as well as the expected impact on total supply. 16,077,029 PDT has been identified as being the surplus, which has been rounded up to arrive at 10% of total PDT supply.

Only half of treasury-owned PDT is required to support operations for the next two years

The majority of required PDT is for the deep liquidity provided on Aerodrome on Base. No changes are expected to this in the near future

The DAO has some outstanding obligations to team members in respect of options and incentives. It is not expected that a majority of these targets will be hit, however the allocated pot has been reserved as is necessary.

A further buffer has been included for general operational incentives required such as liquidity incentives, community awards and prizes, changes to existing salaries or new team members or contributors joining the DAO.

The DAO also pays a portion of certain team members’ salaries in PDT, as well as payments to its two councils on a monthly basis. This represents a small portion of overall treasury spend and can be adjusted as required based on treasury needs.

In total, 5.3m PDT has been reserved for non-LP purposes.

Rationale

We believe PDT is undervalued and part of this is due to the FDV overhang

Reducing total PDT supply has the potential to increase the project’s perceived value by reducing perceived inflationary pressures. The presence of a large number of idle tokens in the treasury can act as a drag on value as potential purchasers may price in the possibility of inflationary pressure when they see a sizable supply “waiting in the wings”. While these are not expected to be used or sold, their mere existence creates an overhang in the market—potentially lowering demand and increasing volatility.

Market data presented on various platforms used in research is not accurate

FDV is based on the assumption that all tokens will eventually enter circulation and while we know most treasury PDT will not enter supply, the market does not and data platforms do not have a means to present this due to rigid rules around how metrics are calculated. By removing surplus PDT, FDV becomes a more reliable metric and provides a more realistic picture of our actual value and scarcity.

We want to signal to stakeholders that we are aligned and acting in their interests

Due to recent team changes and a shift in strategy, the team wants to send a clear signal to the community that it still acts in the best interests and goals of its stakeholders. By implementing a token burn, we make the tokenomics more attractive to current and potential participants, signal the treasury is being efficiently managed and optimised for future growth and reassure our community that we are committed to a sustainable, controlled supply which continues to reduce over time.

Timeline

Proposal to be enacted within one week of satisfactory approval by the Treasury Council.

Costs

16,117,421 PDT tokens will be burned as well as associated gas costs for moving tokens and executing the burn. No other costs are expected relating to this proposal.

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Important Links

I’ve included a selection of other important links below, which might be helpful context:

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Deadline

The Paragons and Treasury Councils have already signalled their verbal approval for the plan. The deadline for public comments will be 7 February 2024 12:00 UTC, after which the on-chain vote will be set-up and go live for two days.

We will look to execute the transactions, subject to approval, immediately following majority approval.

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I suggest we target NEW SUPPLY as 142,069,000 because its NICE

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I say let them burn like the heathen kings of old

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Once again, Paragons team demonstrating its commitment to token holders. Burn away!

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Approved, burn it down jah mon!

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I see no downsides, burn it!!

Snapshot Live

The Snapshot vote for TIP 7 - Paragons PDT Treasury Burn Proposal is now live.

The deadline for voting will be 2025-02-10T17:15:00Z, i.e. in three days.