The Permafrost test

Howdy High Fryers.

TL;DR We’re planning to sell 1,000,000 $FRY in exchange for ETHFRY liquidity in a 1% balancer pool. This won’t guarantee a sustained price spike but it will guarantee long term liquidity.

Here’s my latest thinking on the first liquidity experiment we’re going to conduct with $FRY. Some details are still up in the air but as it stands now, I think what I am going to describe is good enough as an experiment.

The desired outcomes of the project and the $FRY holders in the long run are very well aligned in my opinion. As the rest of the system is built, this should become abundantly clear. However in the short term it is entirely possible for these to diverge from one another. Most notably is a $FRY holder FOMOs into $FRY because they saw a green candle, only to have the green candle followed by 90% drawdowns, that of course is understandably distressing. The problem is that in the short term weather other the market will fluctuate beyond anyone’s control, during such times the critical thing is to stay the course and not feed the noise of the system back into itself.

So the desired outcome of this experiment is not to raise the price and keep it high. Ultimately the only thing that can accomplish that in the long run is profitable investment in useful products. In the medium term, as we build, only longs can buoy the price. (Longs being holders who believe more in the long term vision of viable products than just short term gains).

Desired Outcomes:

  1. A higher $ of $FRY in the hands of longs.
  2. Permanently and continuously increase a pool of irrevocable liquidity. This does not mean the price will remain high, only that we establish a permanent market for $FRY.
  3. To see what happens To my knowledge something like this hasn’t been done before and how the market responds will be interesting.

The permafrost test mechanics
1 Million $FRY is authorized for the experiment
2. A community member builds a ETHFRY pool on Balancer with a 1% fee
3. The current bucket sale contract is cloned such that:

  • It accepts ETHFRY balancer liquidity tokens instead of DAI
  • There are only 4 buckets of 250k $FRY each
  • There is no referral code system in this clone as it doesn’t make sense with only 4 buckets
  • Each bucket lasts 24 hours

What the above accomplishes is that there will always be, an ever growing pool of liquidity to buy $FRY from or sell $FRY to. This means that newcomers cannot be rug pulled, there will always be a market. This doesn’t guarantee the price.

Because this guarantees a market for $FRY, it means that the $FRY in the treasury immediately gain more utility as they can be used more reliably to pay contractors. This greatly increases the reach of the treasury.

Note on why the permafrost would grow over time
With a 1% balancer pool, every time there is a trade in or out of $FRY on the pool, the pool will grow with 1% of the trade amount. This means that in both manias and panics, the liquidity for $FRY will deepen.

Testing the result of the permafrost experiment

For any approach to be scientific it needs to be falsifiable, IE it needs a set of conditions that can be checked for validity. If these can objectively be shown to be false if certain outcomes are observed, the theory is held to be “falsifiable”.

Outcome 1: Increased treasury
If we see an increase in the rate at which the treasury is filling soon after the permafrost event, we can conclude that this aspect was a success. There might be some lag here as many participants arbitrage the secondary market into the sale.

Outcome 2: Increased liquidity
If we see the total liquidity across all markets being higher than it is today, we can view this as having succeeded. This is very useful to the treasury’s 10,000,000 $FRY as it means Foundry can use that to pay contractors more reliably.

Outcome 3: Increased visibility
There are several metrics to use here. Twitter followers, telegram members, total holders and website metrics as well as Twitter trends are good ways to see if we saw an increase correlating to the permafrost event.

Outcome 4: Increased hodlers
If we see the number of holders 1 month after the permafrost event significantly higher than before it, we can assume that we have gained some long terms hodlers. Depending on the price dynamics, this might be a dubious measure as some people may have bought at above the eventual price.

Outcome 5: Increased volume
This is good for the permafrost as it means the fees as deepening the liquidity. We can test this by seeing is the for the month following the permafrost event were higher than the month preceding it.

Dealing with success

This program is partially a response to an influx of users we got when @fonship tweeted us out to his network. The result was that there was a 100x temporary increase in the price of $FRY. $FRY does currently have a 1.23% daily inflation rate, which means such a violent spike cannot be sustained.

To protect new buyers from a repeat of this phenomenon, as much as we can, I recommend that we update the pinned post to include a guide on “how not to get fried”.

Major points to hit would be.

  1. Never board a launching rocket. There is always another opportunity and FOMO and FOLE are dangerous to your health.
  2. Please understand the project before you put a cent towards it. If you buy without understanding you are risking all your money and you’ll most likely get hurt.
  3. Providing liquidity during quite times is the best way to capitalize on these crazy spikes as you most likely won’t time them correctly. Providing liquidity sells as we go up and buys as we go down and makes a small fee in both directions.
  4. If you believe in what we are doing, go to the sale page, scroll to a few quiet buckets into the future and bid in 2 or 3 of them. This is likely going to get you a fairer price after the craziness has died down.
  5. Whatever you do, don’t blindly buy until you understand what you’re getting into! This bears repeating!

Where will the 1,000,000 $FRY come from?

Team members have asked me where we will be getting the 1,000,000 $FRY from to run this experiment. The bucket sale contract can mint them if given a minting key. The treasury currently has 10M $FRY in it. One option is that we burn 1M from the treasury to compensate for the minting of the additional 1M. This would protect the 100,000,000 post-sale supply target.

I would however recommend we simply dilute the supply by 1M $FRY for now and regroup after the experiment has been concluded. My reasoning here is that if the experiment is successful in creating a deep liquidity pool for $FRY, the 10M in the treasury might become disproportionately valuable to Foundry over the longer term, in that it would be a reliable means of paying contractors.

If the liquidity experiment gets good traction, the actual circulating supply of $FRY could actually decrease due to the locked liquidity. Seems like a sensible token burn process to me.

I understand the need for the Treasury to remain strong but I think just minting an additional million FRY without burning from the Treasury is a dangerous slippery slope. It means that the FRY bucket sale supply cap is open to manipulation. It is definitely not a decision to be taken lightly.

Currently Team Toast maintains a minting key, which is intended to be seeded to the governance reward contract and then burnt, once the governance system is up.

If the experiment didn’t generate much liquidity or funds, burning the treasury funds will leave Foundry around 28% poorer. If we as the investors take the hit, it leaves us only 1% poorer. That’s of course with today’s numbers assuming no slippage.

Why 28% poorer? Doesn’t the Treasury contain 10M FRY? That would make Foundry 10% poorer.

But the larger issue for me is that if the total bucket sale cap can be manipulated during the sale it might scare of future investors.

Sorry calculation error 7.2% poorer.

What are your thoughts on SNX being the single best bear market performer as a direct result of what they did with their dilution strategy?

I’m not very familiar with SNX but from what I’ve quickly read up it looks like they implemented a Staking mechanism whereby the increase in supply is fed back to the SNX stakers(hodlers). My issue with the 1M FRY being created additionally for the Permafrost test is that it doesn’t directly feedback to the current FRY holders and it sets the precedent for Team Toast holding the minting key to just mint new tokens whenever they see fit. I don’t believe you guys would do that, but it does set a dangerous precedent.

I agree that the ability to mint more $FRY is not ideal, however, I believe Team Toast has put in too much personal money and time to consider just minting without cause.

Considering a total supply of 100 million $FRY, an additional 1 million $FRY minted constitutes just 1% of that.
If for instance 1 million $FRY is locked away by the permafrost sale, the net effect would be 0% inflation. If more is locked away the $FRY is effectively getting burnt, which will then reduce total supply to below 100 million.

https://dashboard.foundrydao.com/#/sentiment

I’ve added a sentiment poll about it

Thanks for the honest feedback. You are right in regard to this probably not being the only time we push for a small dilution. There is at least one other experiment in yield farming with the 2% $FRY pool for which we would want to create 1M $FRY to see if people are interested in providing us liquidity that will indirectly support our treasury.

Again, the irrevocable burning of the minting keys, even from fully decentralized governance one day, is very likely. We need to get this space ship into orbit first though.