BUILD DAO Economic Strategy Review — October 2021

1. TREASURY MANAGEMENT:

Our recent treasury review (https://build-finance.medium.com/build-finance-treasury-update-october-2021-78fd17035bc9) showed the DAO treasury to hold around $1.6M in assets, broadly broken down as follows:

2. LIQUIDITY PROVISION:

BUILD token is available from two principle liquidity sources, Balancer and Uniswap, and from three pools (BUILD-METRIC-DAI, BUILD-METRIC-bCRED-UPDOWN-DAI & BUILD-ETH):

INTERIM SUMMARY

As the BUILD token represents a pro-rata share of the DAO assets it is clear that the primary obligation of the DAO is to maintain and grow the pool of assets it holds. This may appear self-evident but the actions of the DAO to date do not appear to necessarily hold this as truth. Key takeaways:

3. LIQUIDITY MINING:

As can be seen approximately 40% of the DAO assets are held in two Balancer pools on L1, providing much needed liquidity to the market and earning swap fees from trading activity. These pools have proven broadly adequate this far but the heavy allocation to these specific pools raises issues of systemic risk, and also leaves the DAO very exposed to changes in market condition and sentiment. There are also regular complaints that these pools do not provide deep enough liquidity to service all market participants adequately. However, without additional layers of incentive there is very little reason for other market participants to add to the existing liquidity, particularly in light of the enhanced offerings elsewhere.

4. INFLATION:

If it is considered desirable to implement a liquidity mining protocol then the DAO must secure a funding source for the rewards. As the DAO treasury currently holds a substantial quantity of BUILD tokens that it is actively looking to reduce it would seem sensible to use some of these tokens as short to medium term funding for the proposal. However, depending upon then desired quantum of DAO LP reduction and increase in overall liquidity then it is clear that the treasury funds would be unlikely to be sufficient for the long term, providing adequate funding for between 6 to 18 months perhaps. Therefore a sustainable long term strategy is likely to require an inflationary model for BUILD token.

SUMMARY:

It is clear that the present model of funding and liquidity provision operated by the BUILD DAO has a number of issues, in particular a tendency towards lack of participation, hoarding of assets, high-risk allocation of resources and constitutional inertia. The above article sets out a case for the reduction of DAO LP allocation whilst implementing a programme of market participant LP rewards funded through a low-inflation policy. It is proposed that a working group be formed to model a wide range of outcomes in order to develop a thesis as to the most efficient means of incentivization, and that fully developed proposal is brought before the DAO members for a formal vote in December 2021. We welcome all comments and thoughts at this stage — please join in the conversation in our Discord governance channel.

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