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A new way out for DAO in Deep Bear: Closing down is more profitable than surviving
Author: IGNAS, DEFI RESEARCH Compiler: Katie Koo, Odaily Planet Daily
When a DAO dissolves, the remaining funds are distributed to token holders, and some DAOs will be more valuable than closed DAOs. The dissolution of the MEV project RookDAO is exactly that. ROOK token holders voted to close and allocate $25 million worth of the treasury. According to this decision, its token price increased by 5 times. This price surge was mainly due to the treasury value surpassing the total market cap of ROOK tokens.
Keep in mind that not all ROOK token holders will redeem their tokens. The example of ROOK is only part of the "new gameplay" currently being staged by DeFi DAO in Deep Bear.
In this article, we will explore the profitable strategy of disbanding DAO, and analyze the potential risks of DAO in such events. The strategy is controversial, DYOR.
What is "Slow Rug"?
Insiders should be familiar with "rug pull" (run away). "rug pull" refers to an exit scam where developers suddenly drain project funds for personal gain. But there's also "slow rug," which is a more subtle version where funds are slowly siphoned away over an extended period of time, often disguised as legitimate operating expenses such as salaries.
For example, Rook Lab, which consists of 22 DAO contributors, receives $6.1 million per year ($300,000 per contributor). However, the team has been unable to provide a roadmap or goals, even as the protocol’s transaction volume has dropped by around 78% in just six months.
"Slow rug" is more complicated than it seems, because in this case DAO faces several problems:
How do we monitor teams that are not adding value to token holders?
Some DAOs take responsibility by "dissolving in situ". For example, the Fei core team (Tribe DAO) decided to disband and distributed $220 million from its treasury to token holders. At the time of the vote, TRIBE was valued at just $66 million, but is now trading at $128 million.
In both the Rook and Tribe cases, the dissolution of the DAO was beneficial to token holders. But what happens when core team members boycott governance votes? This is where things get interesting.
Aragon DAO was attacked and faced the risk of being "disbanded for making money"?
The most recent Aragon DAO was 51% attacked by a coordinated group known as “No-Risk Value (RFV) Attackers” who were involved in the dissolution and liquidation of Rook DAO. Aragon pointed the finger at a large asset manager, Arca Capital Management. Evidence suggests that Arca's involvement was for financial gain from Aragon.
On May 2, a large number of new members flooded the AragonDiscord channel and sent private chat messages to several contributors, exerting pressure to transfer funds from AragonAssociation to Aragon DAO as soon as possible. The members, allegedly involved in RookDAO’s takeover, spent months accumulating ANT tokens, which gave them voting rights in AragonDAO. Eventually the AragonAssociation banned suspicious Discord users, and every banned user CoinDesk interviewed was a member of Rook. Rook dissolved its DAO last month after activist investors called on the Rook project to return capital to its token holders.
The "RFV Attackers," who describe themselves as "crypto vultures," are reportedly a sophisticated, well-resourced, and coordinated group. They were allegedly "responsible for the destruction of Rook DAO, Invictus DAO, Fei Protocol, Rome DAO, and Temple DAO." Notably, a member of the group was jailed for his involvement in the Mango DAO exploit. **Most recently, the group led the financial takeover of Rook DAO, using social engineering tactics to attack the organization, successfully disbanding the DAO and liquidating half of the treasury for financial gain. **In response, the Aragon Association announced plans to "reposition" AragonDAO as a funding project for emerging DAOs. The Society will now transfer funds in batches rather than the entire treasury at once.
The “RFV attacker” was motivated by the discrepancy between the approximately $189 million worth of assets in the Aragon treasury and the lower market cap of the ANT token. Its ANT token has a market capitalization of $128 million, below its treasury’s roughly $189 million worth of assets. In a DAO, enough tokens can be purchased and voted as one wishes. DAOs at risk are those whose tokens are trading below the value of their treasury assets. Conversely, if the token is trading at a premium, the risk of asset takeover is lower.
In an interview with DL News, Arca co-founder and chief information officer Jeff Dorman said that this is a clear signal from the market to the company or project that "the market believes that Aragon is not properly managing these assets." Jeff Dorman further explained: “If you don’t issue tokens, you have complete autonomy. When you issue, airdrop, or sell tokens and trade them publicly, you have a fiduciary duty to those token holders. "
Profit by taking over assets
Is it to take over or seize? Different beneficiaries may have different views. The "tactics" of the RFV attackers ended up attracting a lot of criticism.
However, it also offers DeFi a unique way to arbitrage, and here’s how the strategy unfolds:
In the case of Aragon, the last part is very important. If you buy tokens and the core team ends up ignoring the majority vote, then you may have governance tokens, but no governance rights, which effectively have no voting rights.
**Also, achieving a true takeover is much harder than it sounds. You have to buy tokens without causing the token price to skyrocket, especially when faced with issues like slippage and liquidity. Then there's the due diligence process and governance advice to deal with. **If this is not enough to complete the takeover, a PR campaign must be done to convince other token holders to support your proposal.
Although the name "Risk-Free Value (RFV) Attacker" might imply low risk, it's not a risk-free strategy at all. But the 5x surge in ROOK's example also shows that it can deliver big gains.
How to identify risky DAO?
**Assuming the trend of making money off of disbanding DAOs persists, and that RFV attackers and Arca continue to target new DAOs, our first task will be to identify DAOs whose treasury assets are worth less than the market cap of their respective tokens. **
There are some tools that can be used to identify, such as Token terminal and DeFiLlama. Tokenterminal has a treasury database of 67 projects. We can even increase the float (or fully diluted) market cap to instantly see which DAOs are at risk.
At the time of writing, I found that out of 67 listed projects, 23 had treasury values higher than the circulating market cap of their respective tokens.
Here are a few of them, along with their treasury value and market capitalization:
The situation changes if we take into account the fully diluted valuation, but the tokens are not in circulation and therefore cannot be used for voting.
The problem with TokenTerminal's data is that it takes into account the project's own tokens in its calculations. Whereas DefiLlama provides the total funding value excluding the project’s own tokens.
Here is the most recent list of those with at least $10 million in treasury assets:
However, one key piece of data is missing from this list. We need to take into account the proportion of tokens owned and vested by users, as usually a large percentage of tokens belong to the team or VCs. Therefore, the final list of potentially risky DAOs is even shorter than the above list. Interestingly, DCF GOD recently mentioned OHM on Twitter.
Note that further due diligence is required when analyzing a DAO at risk of dissolution, taking into account factors such as token slippage, tokens held by the actual community, governance structure, etc.