A new strategy for profiting in bear markets: buying through rights protection.
In the 17-year currency circle, what do retail investors rely on to protect their rights when the behavior of a project does not match its contract or commitment?
Relationships, police, rights protection groups, nemesis, and the conscience of the team.
But since DeFi Summer, governance tokens have become the main use case for new issuances of tokens in the crypto market, riding the bull market wave and accompanied by the rise of the DAO concept. What is the reality of governance? Each participant has their own answer.
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Interestingly, in the bear market, with the continued low price and community activity of cryptocurrencies, a trend of “acquisition-style” governance using RFV (risk-free value) strategy has begun to emerge.
Rook skyrocketed by dissolving the proposal
Everything about Rook’s recent explosion started with a proposal worth $6.1 million.
Rook’s core team submitted a salary proposal to the governance forum. As soon as the proposal was released, it sparked community dissatisfaction. The community believes that, given the team’s previous actions and the current market background, the team should not receive such a high incentive.
Coincidentally, a community member who had been following Rook based on the RFV strategy took advantage of the team’s dissatisfaction. On March 22, Wismerhill, a clever community member, began a governance counterattack. He carefully listed the reasons for dissolving Rook DAO, including:
The mismatch between the interests of the project team and the DAO community;
The team has the power to reject all unfavorable proposals from the community;
When the token trading volume is sharply declining and the product development speed is slow, 22 community members need to take $6.1 million from the treasury, of which only 10% is ROOK tokens, and the rest is mainly stablecoins;
The community treasury holds about $44 million in tokens, but the current market value of ROOK tokens is only $10 million, mainly because the team is doing nothing.
Therefore, the proposal calls for the dissolution of Rook DAO and the proportional distribution of the treasury to ROOK token holders, with compensation of about $54.9 per token. At this time, the price of its token ROOK was only about $13.
After 3 weeks of multiple debates between the community and developers, a preliminary agreement was reached around April 5th, during which time the ROOK price also saw a significant increase. Ultimately, the “freedom” movement initiated by Rook DAO holders was declared a success as the core proposal for the establishment of the RFV entity Incubator DAO was passed. Incubator DAO stated that token holders could unlock their ownership of the treasury, while the Rook Labs team could continue to benefit from their project without the burden of worthless governance tokens.
From the proposal for buyback initiated by the community on March 22nd to the final DAO proposal approval, ROOK’s increase was about 230%. At the time of writing, the increase was 329%, and the successful reflection of the value of the treasury was reflected in the ROOK token.
What is the RFV strategy?
RF stands for “risk-free”, and RFV stands for “risk-free value”. According to the actual situation in the industry, the RFV strategy can be simply understood as: when the project treasury is not limited to its own tokens and the market value of the treasury is significantly higher than that of the project tokens, the use of the treasury funds can be decided through governance proposals. These uses mainly include: direct repurchase of tokens, issuance of dividends, or dissolution of the project.
This governance-based purchase is not new on Wall Street. Carl Icahn was one of the earliest activist shareholders, who established his position as a master of hostile takeovers through the 1985 Global Airlines acquisition and asset divestiture event that shocked the United States. In these years of his career, he never gave up using hostile takeovers as a method.
Although the market has mixed feelings about his approach, his actions have indeed improved the capital efficiency of some companies and also dealt with some management teams that were stagnant. Fortune magazine once evaluated him as “he may have made more money for shareholders than any other activist investor on the planet.”
Based on Carl Icahn’s hostile takeover, Hollywood once created the classic movie “Wall Street”. In the movie, Michael Douglas’ character said the classic line: “Greed is good. Greed is right. Greed works.”
When it comes to the application scenarios of the RFV strategy in the currency circle, it is generally mainly aimed at projects that have had large public financing and can truly be governed. Users can query the project’s treasury situation through Token Terminal.
Failure is the norm
If you think that retail investors in the secondary market can easily dissolve projects through governance tokens or make protocols return funds, then you are completely wrong.
As cryptocurrency veterans who delve into each potential project, focus on project progress and governance proposals, RFV hunters are also just losing more than they are winning. The main reasons include: the founding team does not recognize DAO and turns DAO funds into their own “small treasury”; the founding team obtains absolute control through various implicit conditions; and excuses proposals for various reasons (such as legal issues).
Solana lending and stablecoin issuance platform Blockingrrot raised more than $69 million in public financing during Solana Summer, and the total funds in the community treasury reached $85 million. Its treasury funds far exceed its token market value. CM (9.5) introduced to us why using RFV to profit cannot succeed in Blockingrrot:
During this year and a half, the project party lost 8 million U.S. dollars due to bad debts, bad investments, and hacker attacks;
At the same time, the founder also invested 10 million in Ethereum’s multi-signature wallet, but the team not only refused to disclose the specific situation of transferring this amount as an investment, but also refused to disclose the address of the multi-signature;
The founder bought a large amount at ETH’s high point without the approval of DAO using the treasury;
On April 2, 300,000 US dollars were transferred out without the knowledge of the community.
At the same time, communication between team members and founders is also very difficult. They only have one hour of communication time per week, and all actions require the founder’s instructions. This has led to an absolute disconnection between the community treasury and the token price. It can be said that the community’s funds are completely at the discretion of the founder. Similarly, the Olympus fork project Hector on the Fantom chain also faces the same situation.
The most controversial RFV governance event recently is the attempt by Aragon to transfer governance power. Given Aragon’s historical status, token market value, and activity in the DAO field, this has attracted widespread attention. Not only have all the RFV hunters mentioned in the previous paragraph appeared, but also, a proposal led by the well-known asset management institution Arca has been launched, which mainly provides partial funds based on RFV to token holders.
Aragon is a pioneering DAO governance project that began in 2017. Its initial response was to blacklist the relevant proposers and active users, attempt to transfer governance from tokens, and suspect that it was under a 51% attack by the RFV organization.
For the project’s overreaction, some community users describe it as: Arca and other ANT token holders walking into Aragon with a note that says “We are considering withdrawing $80”, and the Aragon bank teller’s response is to call the police, steal money from the vault, ignite the bank, and threaten to open a new bank in a new country, but the original clients cannot access it.
Aragon’s announcement has sparked strong dissatisfaction in the community. So much so that Aragon had to issue a further statement showing its basic principles guided by DAO organizations, lifting all blacklists to appease the community, and engaging in further communication with all parties. Not only that, Aragon founder Luis Cuende has also released a preliminary proposal for a $30 million buyback, and the community is in close communication.
Ironically, projects that can use the rfv strategy are, in a sense, already “conscientious” projects. Compared to the teams of well-known projects Rook and Aragon, there are more projects that are already dead and gone in the market, as well as teams that firmly control the community treasury, gradually eroding funds in one way or another, and many users are accustomed to it.
Not defending oneself is naturally a situation where everyone is happy, and it is natural for project teams to focus on development without paying attention to prices. But when it is necessary, is the team willing to fulfill their promises that governance tokens are an important part, or do they see them as nothing?
No industry or startup can guarantee 100% success, and when a project fails, how teams can balance the interests of all parties properly and gracefully let go is what the industry should actively explore under the current market conditions. It is obvious that tokens bring huge wealth to various project parties, but the accompanying responsibilities are rarely mentioned. A large number of homogeneous projects go online in batches during the bull market, and after multiple rounds of market baptism, whether it is worth continuing to operate has become obvious. It is regrettable that the governance tokens that have emerged as a result rarely decide the major development directions of projects.
Whether you are a degen who charges forward without asking for the source, or a rational buy-and-hold investor, how can you ensure that your team can continue to implement the roadmap and fulfill the promises made when the token is released, rather than starting all over again after the boom and bust? What should secondary market users rely on to protect their legitimate rights and interests?
Currently, for unarmed secondary market retail investors, it may not be the best choice to emulate Carl Icahn by “governing” through governance in terms of the number of tokens or personal voice.
During the dissolution process of Rook, the comments left by community members under 0xWismerhill’s Twitter post. Can it represent the real voice of the holders of the autonomous governance token?
Aragon Open Letter
「That’s Our 2 Satoshis」 — DAO Dilemmas: Unraveling Aragon’s Governance Controversy
Aragon Association Takes Action to Safeguard the Mission of the Aragon Project and its Community of Builders
Carl Icahn Wikimedia
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