Shade Protocol - Strategy, Moat, Sustainability, & Protocol As A Service (PaaS)

This is why I’m saying we should focus on some apex assets. I think most of crypto will get weeded out by simply not being adopted. Attaching yourself to winners (and owning them) will make us succeed as well. I think product + this are both important.

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Alright so I understand your thought process better and it makes sense, I guess what we disagree on is that I think the value of SHD should be purely based on equity. I don’t really care about the price of SHD in the sense that I would never be in favor of taking an action for the sake of the price. I think our job is to create positive cash flows into the DAO to be distributed to holders, and the price of SHD should be a function of market demand for our equity. Making good decisions as a business that create value for users creates value for the DAO and the price of SHD should be a direct consequence of how effectively we do that. The reason I think this is important is because this necessarily forces all decisions to be framed in the context of how we create value, and fundamentally, value comes from users who find our products useful and use them. One of our products can be a crypto index fund, and we can even vote to spend some protocol funds on acquiring tokenized shares of that fund, I just don’t think it makes any sense to turn our equity into also a separate financial product.

And obviously, the market forces that drive SHD price up when SCRT goes up drive it down when SCRT goes down. Even if the average return over 40 years of a BTC portfolio might be better than the alternative, it doesn’t really matter. It’s the difference between buying shares of the S&P 500 and putting your money in a managed fund. Nobody beats the S&P long term, so why is there a whole financial industry with trillions of dollars going into investment vehicles that aren’t the S&P 500? Portfolio management is more about management of volatility, not maximization of returns (or i guess, achieving market rate returns while minimizing volatility), and for a protocol treasury that is meant to be a source of funds for us to use to grow and create things, low volatility and high liquidity is important. A bespoke portfolio of coins is an extremely high beta and, if we are hoping to use protocol funds to liquidity on our dex because we believe the market won’t do it for us, that makes those funds illiquid too, since if we pull our liquidity to realize any gains, we will fail at the goal of owning liquidity. Of course, i don’t agree with that goal either, but i am saying that “we need POL so people will use our dex” and “we should speculate on a portfolio because if the value goes up our value goes up” are mutually exclusive. Although, I believe your point Ranger is only the latter, i’m not sure how you feel about the POL narrative.

I just think of a company like Invesco. IVZ is their equity, and if you want to purchase their equity, you buy IVZ. If you want exposure to one of the many ETFs they manage, then you buy ADRE, or QQQ, or PKW, or whatever. Management fees from those products create cash flows that create value for IVZ holders, and the people who were interested in a specific type of exposure granted by the ETFs get what they wanted, too. Although of course IVZ does have investments on their books, even they’re not stock picking, they have an extremely small equity position relative to their total assets, and most of their investments are bank loans and bonds.

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For me we need to take the things we know about traditional finance and blend them with what we know about crypto markets. If we try to look at traditional finance for everything then I believe we will ultimately get swept aside when they enter the arena (since were just trying to replicate them on chain).

We cannot build on blockchain and expect fundamentals to drive price. This is one of the most irrational markets. So as a baseline for me we have to accept volatility will occur. Within that logic we have to decide what type of volatility we would like. If we dont decide someone else will decide for us.

Edit: I actually do believe in both it is good for our dex, and the anchoring of our price to them is positive. We should be thinking how we can differentiate from other dexes, so if we can anchor our price to BTC/XMR/ETH and provide deeper liquidity than other dexes that’s a win win.

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We cannot build on blockchain and expect fundamentals to drive price.

That’s true, but i’m pretty sure that the price increase you’re talking about is still based on fundamentals, it’s just you’re optimizing for book value and i’m optimizing for net income. In my opinion net income is more important even in a regime where you want to accumulate crypto assets, because you need money to in order to buy them. If we spend our early capital on just acquiring assets, we sit on our hands until either 1. vc money dries up and the protocol dies 2. bull market comes back and we wasted the last X months waiting for it or 3. the assets we bought never go on a run again and the protocol dies. At least if we try to maximize cash flows right now, we have more authority over our own destiny. In particular since spending the money on acquiring tokens forces continued development to be funded by external VC money, and if we aren’t showing sufficient growth (because we aren’t investing back into ourselves) we don’t get more rounds of VC money.

Within that logic we have to decide what type of volatility we would like.

This is true, but I believe the volatility should be near zero for now, I don’t think that’s a tradfi way of looking at things, I think that’s just basic fiscal responsibility for management of an organization’s treasury.

I believe the #1 priority, above everything else, is for the protocol to become entirely self funded. The only way there is cash flow.

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I def agree with focusing on cash flows but not exclusively. When I say fundamentals wont drive price I mean that no one is sitting down doing discounted cash flows with growth assumptions. Cash flows are very very important in reality and almost completely irrelevant to the crypto market. The anchoring of shade to btc (or another token via lp) is real and tangible because its literally coded in.

On volatility what currency are we talking about it in? If its volatility in the price of shade in btc then anchoring to btc would reduce volatility. If its volatility in the price of usd how do you achieve that when were currently correlated to the price of secret? You cannot gaurantee zero volatility unless your holdings are your benchmark. Example: if you hold a portfolio of 100% USD then youll have zero volatility in that basis since theres no market movement. So im trying just get us to say volatility exists. Its not dangerous to say it and help shape how we want it to manifest.

if you put profit streams toward a buyback and burn of SHD then profit streams = price action. Its literally coded in… REALLY not liking this coat tail ethos emerging.

I’m not sure I agree with you here, I mean you’re definitely right that the crypto market doesn’t care about cash flows, but I don’t think an organization focusing on their cash flow is a bad thing. Again I’m totally ignoring token price, I will never be in favor of doing something simply because it increases token value. The token price will go up when people believe the token is worth buying, I don’t consider it beneficial if the token price will go up because bitcoin will go up.

The anchoring of shade to btc (or another token via lp) is real and tangible because its literally coded in.

I guess this I don’t totally agree with either because I don’t think SHD should be anchored to anything except the value it accrues as a result of creating value for others, although you’re right that was written in the original whitepaper. I just think if people want exposure to e.g. BTC and ETH, they can go buy it, so what value are we adding exactly by giving people a vehicle to gain price exposure to tokens they can just buy themselves?

Example: if you hold a portfolio of 100% USD then youll have zero volatility in that basis since theres no market movement.

This is what I’m advocating for, really. And I don’t totally disagree with the protocol owning managed portfolios, I’m against it in the current market conditions and current protocol health. Every dollar that we choose not to spend with the sole focus of achieving a stable, self funding cash flow reduces our chance of success as a protocol simply because when we run out of money, the protocol dies. I kinda see it like taking out a loan at 15% APR and then spending that money on bitcoin. Yeah, if bitcoin goes up, you might make more money. But if it doesn’t, you’re in a race against the clock, and if you run out of money to meet the payments on your loan before BTC goes up, your only option is to take out another loan to stay afloat, and you can only do that so many times before nobody gives you a loan anymore. It would be financially irresponsible to take out a loan to speculate on bitcoin regardless of ethos, expected upside, etc. But it would not be totally financially irresponsible to do that if you were willing to take on the risk of paying interest until your returns come in and had the cash flow to meet those payments - you might be wrong and lose money, but you won’t become insolvent. I’d personally like us to approach protocol spend by first focusing on achieving that stable cash flow, and then we can take measured risks like funding protocol owned managed positions. If we aren’t able to sustain ourselves there is no protocol, I think that’s what it comes down to, and speculating on token price movement is not how you sustain an organization that has expenses and has significant growth to achieve.

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If you invest in crypto youre already riding coat tails regardless of which project youre invested in unless its bitcoin. Everything else is just degrees of cascading effect.

I am gonna weigh in here. So I have been trading, investing, and degening for a good while now. Seen many launches, failed and successful. I play IDOs often, usually to very good results if i do say so myself…

And with any launch that was successful. The project adds its own liquidity to the initial pool in order to set a minimum liquidity. Any IDO or initial listing on a dex does this. This is before user owned liquidity options start. And yes, user owned luquidity is a part of it too. LP farms tend to start with a nice incentive, and that brings the rest in.

Every project I’ve seen that didn’t add a decent amount of liquidity fails. A few do try to bootstrap without any initial liquidity and depends only on users to lp the launch pool. Those are alnost always the straight down charts. And they almost never recover. There is a lot of cool roadmaps out there that died at launch, lets not do that.

No matter what side you lean in the conversation, There must be some liquidity provided by the protocol on any listing. Including on its own dex. Shade is not exempt from this.

The only question should be in how much. Not if. Imho

I have played many idos, i am a trader. I’ve seen this. Experienced it.

The only way to attempt a fully user based launch LP if it hype is at rediculous levels. What I mean by that is, the project is trending across all media platforms. High anticipation. Everyone talking and psyched about it. Amd everyone can not wait to throw money at it. (Yes some have made it work. But is few and very far between) I think we can all agree that this market is not gonna give the hype factor to those rediculous levels.

That leaves providing a protocol level liquidity, and a user LP option in combination for bootstrapping.

Now, most projects will take a set amount of the TGE plus an allocation of seed round funds to add this LP on a 3rd party dex for their IDO. They choose a listing pair as the primary pair, and add liquidity. (We should too)

Bonds are not much different in utility in that regard, by offering SHD at a discount (kinda like a seed or public round, there is even vesting.), we get some extra initial liquidity, add it to our own dex instead of 3rd party dex, and keep it LPd instead of pulling it. Letting it grow via fees, etc over time. The difference is it is owned by the DAO.

Now if we are talking about how much should be allocated to such a thing, i am very open to talking about the finer details. That can be done different ways. Perhaps a limited amount specified. Perhaps something else.

Ok so. We need to make initial liquidity. I hope we can agree on that.

Why not keep it there? Why not grow it over time? It will do that with very little maintenance if we are in the right pair.

I do understand the argument that it is not the protocols job to make the market. But there is at the same time, a certain level that is is absolutely necessary to have liquidity added by the protocol, and I can see real value in keeping it there. Using some of the various revenue streams over time to grow it.

Trying to get all of the liquidity needed at launch in one go, is probly reaching a bit too far, but starting the position? I say we should start it. Long term remember?

I agree with keeping it focused. And the focus should be the utility of the protocol. We as a protocol care about SHD and SILK because those are the life blood of the protocol.

If we are ever talking about adding funds to something that does not improve the protocol on a fundamental, dynamic, or utility level. I will likely be against it.

We need SHD and SILK to be usable. For short term only that needs to be the focus. If it becomes relevant to add something later, we can vote on it in governance when the time comes. I am sure the time will come, because we will be growing and upgrading consistently. For now, lets focus on bootstrapping the basic usefullness of the initial utility. Lets make SILK useful and available.

Ok so what is the primary entry to SHD and what is the primary entry to SILK?

I think Carter covered that well. I agree with what he said above. USDC/SILK is the LP to focus on. It’s easy to obtain many places, CEX and DEX alike. It allows entry to the protocl with low friction. It offers an LP with no real IL concerns, yet gains fees for the protocol at the same time.

There should maybe be some focus on SHD /SILK but SHD staking does a lot of the heavy lifting there. Bonus.

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I would say I agree with AnewbiZ. Liquidity seems necessary to me and focusing on a stable coin pair is low risk. Shade staking also puts some of the risk on holders, which is also by design, and also why Stakers are rewarded.

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yes but why not try to separate from them any time you can. you gain absolutely nothing but the off chance your gamble is correct. liquidity could be the same (or even way greater with leveraged LP)with a silk pairing. If you want to stay above rising water don’t chain yourself to the ground in the off chance it becomes a mountain.

If Silk has no liquidity on any DEX, it means it is not being traded anywhere. As a result, no one will use ShadeLend because minting out Silk will be useless. There is nowhere to convert it into other assets at a reasonable rate.

@CarterWoetzel its troubling that you think the main utility of silk is to exchange it to other assets. This is probably the worst quote of a silk maxi in existence. CANCELLED

Actually, i see it directly in line with the vision. Silk is to be a true currency. The point is to be useful to buy other assets, commodities. Day to day items. And billpay.

He is exactly right. If it’s not useful to buy other assets, it won’t be useful to buy other things. We want it useful to purchase anything.

That said, as a defi primitive, it needs to be useful for defi.

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Thinking we are going to go straight from launch. To people minting silk to pay for coffee without first testing it out in defi is not realistic.

Personally I would never consider using a stable of any sort to pay IRL without it passing the defi test. I need to know it works quickly. Doesn’t lose value when using, and does not have friction.

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If money isn’t available to use as money, nobody will use money.

I think this is a fair statement.

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Currencies are…mediums of exchanges for goods and services. If there is nowhere to exchange it for other value, it isn’t a currency.

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you said useless. you would have called bitcoin useless before the first exchange 100%

storing value while utility is built out is a use case

one that I would hope someone with enough equity to REALLY cause damage to the protocol would recognize

i demand an apology

The utility is the ability to exchange it - bitcoin had 0 value until someone was willing to trade for it (i.e. famous pizza for bitcoin example). If bitcoin was never exchanged, then it never would have obtained value. In the same way, if no one ever desired to exchange anything of value for Silk then it has no value as a currency.

Now, to play devils advocate to the pragmatic description above, if you want to go really deep with it (Austrian Economics):
Value = scarcity + desiredness

Is there a subset of people that could value Silk before it ever exchanges with anything? Sure. But it won’t have any type of meaningful exchange value until a market exists to define its value between a set of participants.

So when I use strong language like “useless” I am talking pragmatically, not ideologically. Without a market of partipants to define value, then Silk is unable to provide its primary service as a currency. That isn’t anti-Silk, it’s a basic understanding of how markets assign value to currencies, items, and services. Thus the importance of ShadeSwap.

On a sidenote, you’d be hard pressed to find a greater Silk Maxi than myself. I wrote the Silk whitepaper, pulled the team together, and have devoted the last 1-2 years of my life to this project. Your usage of language such as “CANCELLED” and “i demand an apology” is not appreciated and falls outside the decorum that we should expect from ourselves as a community.

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I apologize for using cancelled :smiley: