Bear Buy Back Program

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Status: Draft Proposal Author(s): Jimpson, n00bleLAND & CryptoChicca

Discussions-to: Bear Fund - Proposal

Created: 6 December 2021

Requires (optional): BIP

Implementation (optional): Proposal to be discussed for a week, then proceed to BIP vote if supported. ‌

Buzzed Summary

This proposal is to implement a system which enables the BBH DAO to gain upside from a Bear buyback and also provide an avenue for those Bear holders seeking to sell their Bear for immediate liquidity.

Abstract ‌

BBH DAO currently does not own any bears, so it does not have exposure to the DAO’s upside. As a long term project, BBH DAO should invest in its own success.

Further, there has been listing below the mint price, and undercutting, causing a drop in the floor. Many bears have requested the BBH DAO buy floor bears to fix the floor.

This proposal is not suggesting a buyback program to fix the floor, but instead a sustainable long term program, to both reinvest in the Bears, and provide an avenue to enable those wanting quick liquidity to get a guaranteed minimum value. This shall be known as the Bear Fund, as coined by @Jimpson.

The Bear Fund will be made up of two “parts.” One part will be where floor bears are accumulated, and the other will be a liquidity pool that will hold Ethereum used to purchase bears from those looking to sell. The buyback price of the bears will be calculated based on the equity value of one bear (defined as Total Value of the Honeypot/9,999).

Motivation

  1. Providing liquidity to Bear holders that require it quickly.
  2. Providing an avenue for the BBH DAO to accumulate good value bears to either sell at a higher price or hold for future
  3. There have been multiple proposals prior to this shoing considerable support. Earlier proposals reference here:

Specification ‌ Overview ‌

Buyback Price Calculation:

There will be a Maximum Buyback Price that will be calculated as 20% below the equity value of one Bear.

The following is an example of how the repurchase price will be calculated.

If the current valuation of the honeypot is approximately $1M and there are 9,999 Bears, that means each Bear’s equity value is $1,000,000/9,999. This comes to approximately $100 per bear or .024eth at a valuation of $4,150/eth at the time of writing. At a 20% discount of the equity value, that would mean that the Hideout would repurchase Bears for .0192eth.

By this logic, any Bear purchased under the designated value (i.e. 0.24 Eth) would be purchased at a discount, and thus profitable for the Honeypot. Although this would mean that the seller would take a slight loss, that loss would be equivalent to the convenience of having the ability to immediately liquidate their bear holdings. The strike price will be regularly adjusted to reflect the total value of the honeypot.

Listing fees:

Listing fees will be paid by the seller. So, in the case of the Hideout purchasing a floor bear, the seller will pay the gas fee. In the case of the Hideout selling a repurchased Bear, the Hideout will pay the listing fee.

Liquidity Pool:

The Honeypot currently holds 92eth.We can expect that a large portion of this may be eaten up after the initial passing of this proposal. Moving forward, we will be able to have a more accurate forecast for expected redemption of this offer. This will enable a dedicated allocation of ether to be reserved for this mechanism.

*In the extremely unlikely event that all Bears want to liquidate, investment positions will have to be liquidated in order to accommodate all requests. However, with the 20% buyback price discount, 20% of the Honeypot will remain, minus listing fees.

Buyback Mechanism:

It is proposed to establish the Bear Fund as an automated platform that can be accessed at all times. A mechanism of this kind is expected to be available to the Bears in late January 2022.

Selling DAO-Owned Bears:

The bears re-purchased by the Hideout could be resold on OpenSea at a 50% premium from the re-purchasing price or the original mint price (.05eth), whichever is larger. This would cover gas costs, offer the Honeypot an economic gain, and raise the floor price of the Bears.

Formula with example:

BBH DAO-owned Bears:

Bears purchased through this arrangement would sit in a DAO owned wallet. These bears would not be eligible for voting thus affecting the voting quorum. This will be adjusted to reflect 10% of the total number of Bears that are held by the public, not including the Bears held by the DAO. (Example: if the DAO owns 200 bears then the amount in circulation will be 9,799. That would mean for a proposal to pass it would require that 979 votes be counted, which is 10% of the outstanding bears.)

Quality Assurance:

It is proposed that the Honeypot Manager will periodically monitor this process to ensure quality assurance of all processes.

Rationale ‌

  1. BBH DAO should invest in its own success and currently does not have exposure to that success.
  2. Bear holders sometimes require immediate liquidity so this program enables a quick exit for holders should they require.

Technical Specification ‌

  1. A platform is currently under development for release in late January that would enable this proposal to be implemented. Further details of that project will be advised in due course. This proposal should work through governance protocol and get feedback and refinement with the view to commencing upon the project’s launch in late January.
  2. A liquidity pool must be maintained in order to fill all sell orders.
  3. Honeypot Manager to periodically assess accuracy and integrity of mechanism.

Test Cases ‌

This is a new proposal initiative, which takes into account the past success of projects like NFTX.io, and also the great feedback received via Jimpson’s governance proposal Bear Fund buy back scheme.

Copyright ‌

Copyright and related rights waived via CC0.

5 Likes

I’m all for this to happen, specially when we couple this initiative with the new NFT AMM coming out from xmons.

3 Likes

This is a great idea. I can tell you put a lot of thought into this proposal. It provides a safety net via guaranteed liquidity based on the intrinsic value of the bear, rather than potentially volatile secondary market prices, while also bringing more value to the people who hold their bear.

2 Likes

If we do this, we will also need to institute a buyback program from the open market or introduce another mechanism in order to prevent any arbitrage opportunities. In other words, we would need to make sure that the value that we’re offering in the buyback isn’t more than the price that someone could buy one for on the open market or else people will take advantage of this loophole.

This is a gret point that we missed. We would need to do an inital sweep of everything below the re-purchasing price at the onset of the program, and then periodically do this process manually (I think?) for anyone that is not aware of the buy back mechanism. Ideally, we will be able to communicate this effectively so we can avoid this happening.

However, even if there is arbitrage, that responsiblity will fall on the owner of the bear selling for less than the buy back. In the end it would really only benefit the hideout because of additional revenue to the Honeypot from additional sales.

1 Like

I disagree. If you’re foolish enough to list below bear buy back value, that’s on you. If arbitrage can be captured within the parameters of the program as laid out, so be it - will benefit those that pay attention.

2 Likes

I’m not advocating for a method to protect bear holders. I’m merely suggesting that if we were able to automate the process of the honeypot buying back everything below x value, we would ensure that the honeypot captures these gains. If the fund doesn’t capture this, we leave the door open for anyone to write an arbitrage script that would effectively capture gains that we had left on the table.