MIP-6: Early Stage De-risking Mandate
The following page details the proposals brought forth in MIP-6, that are relevant to the operation, structure and strategy of Merit Circle Investments.
MIP-6 was proposed by the Sad Cat Capital and was voted on and implemented in December 2021. MIP-2 served as a foundation for the investment committee to begin utilizing the vast amount of resources raised by the DAO, through investments in tokens, NFTs, stablecoins and yield-farm operations. Building on this, MIP-6 created a structure to de-risk early-stage token and NFT investments, at the time that they would become liquid.
Based on the decisions made by the investment committee, the DAO takes part in many SAFT (Simple Agreement for Future Tokens) and NFT investments. These investments are usually made in the early stages of a project, where they are sold at a fixed price to early supporters, with a vesting schedule attached. At this point, there is usually no liquidity for the given investment.
In the second stage of a project, the investment becomes tradable as it is opened to the broader market. Given the vesting schedule that early supporters are bound to, they must wait until these locks have expired and their investment becomes tradable. When this takes place, it is common for the token or NFT to trade at high multiples of the purchase price. Therefore, a need was recognized in creating an early stage investment de-risking mandate.
Building on the foundations set by MIP-2, this mandate would govern when and how the DAO would take profits. This includes:
- the upkeep and maintenance of the DAO's treasury
- the diversification of the DAO's holdings
- the maintenance of relations with partnered games, by P2E revenue generation from productive, in-game assets
- providing enough capital for the DAO to take advantage of sudden opportunities in the market
Considering this in the broader scope of the DAO, the proposal sets forth a structure to balance its financial goals, made possible through the following sections of the MIP-6 mandate:
- 1.De-risk any investment as standard procedure when it hits a 10x multiple from the purchase price or more and the investment is liquid
- 2.Standard de-risk by selling up to 100% of the initial dollar value of the investment at current prices back into the market
- 3.A standard procedure where to take profit on another 100%, effectively taking back 200% of the initial dollar value that was invested
- 4.Take profit on a maximum of 20% of the total token or NFT position
This means that profit-taking could exceed 200%. This is up to the discretion of the investment committee, acting in accordance with the DAOs mandate and best interest. At this point, the DAO would have doubled its investment. The investment is now completely risk-free and the DAO has double the amount of capital it can put into new projects.
- For larger sells (or buys) of tokens or NFTs the DAO should issue a proposal and go through a form of discussion and/or voting process.