3.7 Fundraise Operating Budget
The dYdX Foundation is requesting $30M in DYDX from the dYdX Chain Community Treasury for 3 more years of runway to execute on our roadmap.
The dYdX Foundation does not have a profit-making purpose and does not seek any profits in general. The funds will be used to hire and retain the best talent, to help scale the adoption of the dYdX Chain, and to continue further decentralizing the dYdX ecosystem such that it can propel itself forward.
The community treasury currently holds approximately 90M DYDX tokens (worth approximately $257M using 30-day TWAP of $2.86) and is expected to vest an additional 163M DYDX tokens (worth approx. $466M) through August 2026, which add up to a total of 253M DYDX tokens (worth approx. $723M). The Foundation’s funding request represents 1% of the total supply and 4.1% of the current total community treasury.
Below is our projected operating budget for the relevant three-year period (2024-2026). This budget represents our most informed forecasts, utilizing the latest available data and market insights.
OPERATING BUDGET
- Forecast for FY2023 is based on actual results for YTD October 2023 and estimates for November and December.
Notes:
- Personnel includes total employer cost, including salary, bonus, withholdings, and benefits. FTE projections include 4 new hires in the first year to support future growth. Additionally, this expense includes the vesting of DYDX tokens with a standard one-year cliff policy. Hence the increase in personnel costs can be seen starting from 2025.
- Marketing, BD & Growth includes the cost of marketing and growth initiatives including partnerships, affiliate marketing, event sponsorships, design, translations, dYdX merchandise, SEO, enhancements to the Foundation website, as well as other costs associated with business development.
- Professional services are primarily represented by legal costs, which are further divided into services and provisions. Provisions represent a reserve to cover legal fees and claims arising from any unexpected potential future litigations or regulatory proceedings.
- Contractors are costs of part-time additional resources used in supporting local marketing initiatives (8) and the user support function (4).
- Administration represents corporate and other overhead functions, namely compensation for Foundation Council Members, recruiting, and payroll administration.
- Other operating costs include primarily D&O liability insurance and banking and transaction charges.
In order to provide stability to our team members and sustain the Foundation, we may make a request to the community for additional funding in the future (which will be subject to a separate governance proposal and decision).
3.8 Treasury Management
Treasury management and asset protection have always been at the center of our Finance team’s attention. Our investment policy is designed first to ensure capital preservation, followed by maintaining liquidity and, lastly, generating additional yield. In 2023, we implemented several new approaches and policies. Notably, our $6M investment bond ladder strategy deployed in US Treasuries reduced our USDC exposure by >90%, 3x’d our previous APY, and significantly reduced counterparty risk. This move was partly a strategic response to the tumultuous events in the US crypto banking crisis with the collapse of SVB, Silvergate, and Signature banks, as well as the subsequent USDC de-pegging and freezing of redemptions. In a macroeconomic landscape characterized by high global interest rates, these strategies have enabled us to secure attractive, risk-adjusted returns on our fiat holdings. Despite these challenges predominantly impacting US entities, we have proactively fortified our asset protection measures and reinforced our safeguards, resulting in no loss of funds and a continued commitment to a conservative fiscal approach.
In alignment with our commitment to bolstering the network’s security, we have initiated a stake delegation program. Over 2.3 million DYDX tokens, constituting 88% of our current DYDX holdings, are now delegated across ten different dYdX Chain validators, adhering to our staking principles and best practices, as outlined in our blog.
Looking ahead, should the Foundation successfully raise additional funds through this proposal, our core objectives remain unchanged. Our strategy involves diversifying a portion of the newly acquired funds to ensure operational stability irrespective of market fluctuations. Concurrently, we aim to expand our stake in the delegation program using our DYDX tokens, thus earning rewards and contributing to further fortifying the security of the dYdX Chain network. Additionally, a segment of our DYDX holdings will be reserved for our compensation strategy, enabling us to attract, incentivize, and retain top-tier talent.
3.9 Fund Disbursement
We are requesting $30M in DYDX (10,581,228 DYDX tokens at 30-day TWAP of $2.86) of funding from the dYdX Chain community treasury to be transferred to the dYdX Foundation’s cold storage wallet to fund the Foundation’s operations for an additional 36-month term. We are proposing a one-time disbursement of the funds. Details on fund disbursement are included below.
*To calculate our final DYDX request we will use the 30-day TWAP on the day we put forth our Governance Proposal. $2.86 is approximately the 30-day TWAP as of 1/23/2024.
To enhance our financial resilience, we aim to diversify some of the DYDX into fiat and stablecoins to extend our current operational runway to 18 months, focusing on minimizing any potential market impact. In pursuit of this goal, we will actively seek out diversified funding avenues, converting relevant funds into fiat and stablecoins through various channels such as centralized exchanges, OTC desks, and/or brokerages. Our target audience for these transactions includes strategic buyers and investors who are aligned with a long-term perspective.
This strategy is crucial for the dYdX Foundation to ensure a stable fiat reserve, allowing us to maintain seamless operations regardless of market fluctuations or the DYDX token’s price volatility. It’s important to acknowledge that the DYDX token currently exhibits limited liquidity, making it susceptible to short-term volatility. Consequently, our remaining DYDX holdings will inevitably bear some degree of market risk.
We are committed to adopting an opportunistic approach, leveraging market conditions to diversify our funds further when favorable market opportunities arise.
The dYdX Foundation commits to, upon request, informing the dYdX Community of any additional sales of DYDX tokens ex-post and disclosing the sold amount and execution price. Finally, we plan to use our fiat and DYDX holdings to earn additional yield in line with our conservative investment principles and policies, as outlined above.
3.10 Benchmarking
Assuming a DYDX token price of $2.86, a $30M in DYDX budget would represent 1% of the total DYDX supply and 4.1% of the current total Community Treasury. Despite a significant increase in the size of the treasury as a result of governance proposals to optimize DYDX emissions, the dYdX Community has been conservative in approving new treasury spending, with only ~6% of total treasury spent or earmarked. We are confident that the proposed budget is both reasonable and comparable in scale to similar initiatives within the industry.
*Note this assumes a DYDX token price of $2.86.
4. Next Steps
We are excited to discuss this proposal with the broader community as it passes through the DRC phase. Should sentiment be positive, an on-chain proposal will be submitted on January 29, 2024.
5. FAQ
Funding Request Proposal
5.1 How will the final DYDX price be determined?
To calculate our final DYDX request we will use the 30-day TWAP on the day we put forward our Governance Proposal. $2.86 per DYDX is approximately the 30-day TWAP as of 23/1/2024. We plan to communicate an updated TWAP before the on-chain proposal is created.
5.2 What will happen to the DYDX tokens after they are sent to the dYdX Foundation?
If the proposal passes, the full $30M in DYDX funds will be sent to the dYdX Foundation’s cold storage, which is custodied by a large reputable custodian. The designated deposit dYdX chain address is disclosed under FAQ 5.5.
5.3 What is the strategy to convert DYDX into FIAT initially and over time?
To hedge our FIAT expenses for the next 18 months, we plan to convert progressively an equivalent of 12 months of runway in DYDX to FIAT. This, at the current DYDX price, represents approximately 30% of the total amount. We plan to diversify the initial portion shortly after the receipt of the funds and the remainder gradually over time to ensure and continue to maintain an 18-month operating runway. We aim to minimize any potential market impact through various channels such as centralized exchanges, OTC desks, and/or brokerages.
5.4 How does the dYdX Foundation plan on being sustainable over time?
This proposal would fund dYdX Foundation operations for at least 3 more years. In the future, and unless other more viable and efficient sources of funding become available, we plan to return to the community to increase our operating budget when we approach 18 months of runway.
5.5 What is dYdX Foundation’s cold storage wallet address?
dYdX Foundation’s cold storage address is dydx1he0e9veu60gmcry2d9yqhafm0t0cpmnq5hdytu.
5.6 Will the dYdX Foundation report on performance and use of the Budget funds?
As part of our commitment to transparency, we aim to issue an annual report and a semi-annual report that will summarize our progress and how the DYDX obtained from the community treasury in this proposal are used.
5.7 Will the dYdX Foundation participate in this governance vote? Who can participate?
The dYdX Foundation will not vote in the governance proposal and will not seek to condition behavior or contribute to any particular outcome for the proposal, and will limit its involvement to (a) acting as the sponsor and proposer, (b) promoting transparency and visibility, and (c) encouraging participation from a neutral standpoint.
Validators and DYDX Stakers are free to participate at their discretion.
5.8 Why is the dYdX Foundation asking for $30M in DYDX in one transaction? Why not divide the payment?
Our organization is fundamentally aligned with the success of the dYdX ecosystem. Unlike other entities requesting funding from the community treasury, our mission is to support and grow the dYdX protocol ecosystem by enabling communities, developers, and decentralized governance.
A single transaction is straightforward and clear, both for the dYdX Foundation and for dYdX ecosystem stakeholders. It avoids the potential confusion, administrative burden, costs, and time that multiple transactions might entail.
Receiving the total amount at once allows for more effective long-term visibility and planning.
5.9 Will the dYdX Foundation use any of the DYDX for delegation?
The dYdX Foundation may consider delegating all or part of its DYDX token holdings to dYdX Chain validators. If the dYdX Foundation decides to delegate DYDX tokens to dYdX Chain validators, it will seek to do so based on the Stake Delegation Principles.
Transparency
5.10 Where can I get more information on the dYdX Foundation and its past activities?
The dYdX Foundation’s past activities and thought leadership publications are publicly available on our website and blog.
5.11 What would happen with leftover funds if the dYdX Foundation has not used all the funds by the end of the 2024-26 period?
The dYdX Foundation does not have a profit-making purpose, and does not seek any profits in general. Upon a successful governance vote, any funds transferred to the dYdX Foundation shall become the property of the Foundation and may be used by the Foundation in its sole discretion, subject to the Foundation’s statutory purpose and duties.
5.12 How will dYdX Foundation provide transparency on the use of funds?
Moving forward, as part of our commitment to transparency, we aim to issue an annual report and a semi-annual report that will summarize our progress and how the DYDX obtained from the community treasury in this proposal is used.
Legal Disclaimer
The dYdX Foundation’s purpose is to support the current implementation and any future implementations of the dYdX protocol and to foster community-driven growth in the dYdX ecosystem.
Nothing in this document shall be construed by anyone and, in particular, by dYdX ecosystem participants (including but not limited to DYDX token holders and dYdX Chain validators) as a representation, promise, commitment or undertaking by the dYdX Foundation to perform any action or provide any services, and no person should derive any actual or potential expectations whatsoever or be entitled to any type of legal action or claim of any type against the dYdX Foundation as a result of this document or the funding mentioned in this document.
The dYdX Chain software is open-source software to be used or implemented by any party in accordance with the applicable license. At no time should the dYdX Chain or its software be deemed to be a product or service provided or made available in any way by the dYdX Foundation. Interactions with the dYdX Chain software or any implementation thereof are permissionless and disintermediated, subject to the terms of the applicable licenses and code. Users who interact with the dYdX Chain software (or any implementations thereof) will not be interacting with the dYdX Foundation in any way whatsoever. The dYdX Foundation does not make any representations, warranties or covenants in connection with the dYdX Chain software (or any implementations and/or components thereof), including (without limitation) with regard to their technical properties or performance, as well as their actual or potential usefulness or suitability for any particular purpose.
Any third parties mentioned in this document are independent from and unaffiliated with the dYdX Foundation, and the dYdX Foundation is not responsible for any action taken by them or any other third parties, including content set forth on any third-party websites, such as any links to such content in this document. The dYdX Foundation is not responsible for any actions taken by any third parties who use dYdX Chain software or any implementations thereof.
Nothing in this document should be used or considered as legal, financial, tax, or any other advice, nor as an instruction or invitation to act by anyone. The dYdX Foundation makes no recommendation as to how to vote on any proposal in dYdX governance, or to take any action whatsoever. The dYdX community is sovereign to make decisions freely and at its sole discretion, in accordance with the governance rules, principles, and mechanisms adopted by the dYdX DAO. The dYdX Foundation does not participate in governance decisions to be made by the dYdX community, including, without limitation, by voting on governance proposals. The dYdX Foundation may alter or update any information in this document in the future and assumes no obligation to publicly disclose any such change. This document is solely based on the information available to the dYdX Foundation at the time it is made and should only be read and taken into consideration at the time it is made and on the basis of the circumstances that surround it. Some information contained in this document has been obtained from public sources and not independently verified by the dYdX Foundation; therefore, the dYdX Foundation does not make any representations or warranties as to the accuracy or correctness of any public information mentioned or used in this document. The dYdX Foundation makes no guarantees and is under no obligation to undertake any of the activities contemplated herein.