Mango Buyback & Partnership Proposal - Dual Finance

Governance
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Dual Finance is ready to launch an open discussion with the Mango community to align our interests around the following areas 1. Token Buyback 2. OpenBook Liquidity 3. MNGO Dual Investment Pools 4. Dual Partner Program.

Context:
Dual Finance has integrated onto OpenBook with its Risk Manager to provide liquidity directly for MNGO and currently is showing the tightest spread, but on limited size. The liquidity provided by Dual Finance is from options positions created via Staking Options(SO) and/or Dual Investment Pools(DIP). Staking Options allow projects the ability to incentivize their community in options, rather than tokens. Dual Investment Pools (DIPs) offer streaming, executable structured products for users to earn yield on their existing crypto.

The Mango DAO is considering conducting a buyback of MNGO. Rather than resting limit bids in OpenBook, the same end result can be achieved by issuing put options with a strike price equal to the desired bid price.

Proposal:
Dual Finance proposes minting & granting Downside Staking Options (Puts) to achieve its desired buyback, instead of resting a bid for MNGO. This proposed buyback via options serves MNGO holders & prospective investors by providing natural volume and liquidity to the OpenBook CLOB, rather than just directing volume motivated by liquidity mining rewards. We feel there is alignment already to support OpenBook liquidity in this sustainable manner and that it is key to the survival of this critical Solana DeFi primitive.

Integration:
The Risk Manager is integrated now on OpenBook and will execute its hedging and provide liquidity to any listed asset on Dual Finance. SOL, ETH & BTC (pending wBTC-SPL) are supported today, but as part of this proposal, development work to support DIPs on MNGO will be completed. This means in effect, a streaming option market for MNGO. Any MNGO DIP volume executed through Dual Finance will directly improve liquidity on MNGO via OpenBook.

Incentives:
The proposed MNGO Downside Staking Option would be granted to Dual Finance for continued development of the Risk Manager on OpenBook MNGO order books and the ongoing servicing of this component. Additionally, this incentive will support the MNGO DIP offering and the required streaming liquidity. Further by providing this MNGO incentive using Staking Options, Dual Finance will be able to provide MNGO token liquidity & reciprocate a partnership grant of DUAL options to the Mango DAO treasury.

Mango Receives:

  1. Buyback program to purchase 250,000 USDC total of MNGO with prices of $0.016 & $0.019 for 125,000 USDC each. If all exercised, 14,391,447 MNGO payment, if none exercised, 250,000 USDC collateral returned.
  2. Improved MNGO liquidity on OpenBook as a function of position gamma from DIP & SO
  3. Listing MNGO on Dual Finance DIPs
  4. Streaming MNGO options liquidity to offer sustainable customized yields to MNGO holders
  5. Potential to issue future grants & community incentives via Staking Options
  6. Partnership Grant: 10M DUAL 6 months from TGE $0.05 Calls (Upside SO). Eligibility to apply and receive additional Partner Program grant: https://forms.gle/jCbd87xZ5oQo27Zw5

Dual Receives:

  1. Downside Staking Options: 7,812,500 MNGO 30 day $0.016 Put & 6,578,947 MNGO 30 day $0.019 Puts
  2. First partner project :muscle:

Note: If there is no exercise and buyback is still desirable, we can propose a renewal of the Staking Options to be issued with new expiration & strikes.

Collaboration:
The intention is that on the back of the success of this option based grant that future Mango proposals may choose to utilize Staking Options. We feel it’s important that the Mango DAO has more tools at its disposal to align community & grantee incentives than pure token vesting.

We consider this just the start of many ways in which we can collaborate and further the MNGO token’s value proposition. In the future, Dual Finance plans to integrate on Mango V4 and offer some interesting ways to incentivize the community to achieve its goals & higher prices.

With the help of the Mango team, we have most of the implementation work completed, to be ready if approved, but appreciate that there is a lot to unpack here so please comment with any questions, concerns or support. We look forward to addressing any feedback and hope this is the beginning of a long and fruitful partnership to further Mango DAO & Dual DAO’s collective interests.

About us:
Dual Finance is building Sustainable Incentive Liquidity Infrastructure for Web3 Communities. The key innovation, Staking Options, aligns incentives of participants by granting those who provide services or value to projects the right, but not the obligation to purchase tokens for a future price. No more token rewards, instead token option rewards.

The Risk Manager component first composed on Mango V3 perps & was the subject of the winning submission to the Solana Summer Camp Hackathon DeFi Track. To learn more about the Risk Manager, check out the demo (Risk Manager: Solana Summer Camp Hackathon Demo - YouTube), medium post and repository (GitHub - Dual-Finance/risk-manager: Risk management for Dual Finance protocol DIP positions).

To learn more about Dual Finance’s mission to align crypto incentives and bootstrap spot & options markets, follow us on Twitter (https://twitter.com/DualFinance), join the Discord (discord.gg/P3uH9AvEp5), and review our medium articles (Dual Finance – Medium). Dual Investment Pools to earn sustainable, customized yield and fuel natural liquidity on OpenBook are live again on mainnet at https://beta.dual.finance/.

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Link to the OpenBook MNGO market: OpenSerum - Solana DeFi Market Data

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Proposals are live!

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@DonDuala could you give some details on the improved openbook liquidity, what spreads / value at risk could you provide?

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Definitely, hoping this answer isn’t overkill.

Dual provides liquidity only via the long gamma it owns. The protocol is not a hired MM in that sense. Gamma is supplied by virtue of the Staking Options being a grant & once Dual supports MNGO DIPs, any deposits will feed the position gamma and bolster the value at risk/depth provided in OpenBook.

The spread is function of the implied volatility & z-score. The target is set to receive a fill during 20% of periods (~10 mins). All parameters and logic are open source here: GitHub - Dual-Finance/risk-manager: Risk management for Dual Finance protocol DIP positions

Under the current parameters that ensures a bid/offer spread of ~1.7% with ~90K MNGO (1,850 USDC) on both sides.

Spread on OpenBook excluding Dual are ~2.5%. We can adjust the spread tighter but it would show less size. As we get closer to expiration the liquidity provided increases assuming the price is near the buyback strikes.

Useful to clarify that these Staking Options are mainly to achieve the buyback. Normally, the idea around Staking Options is any minted options would be distributed to the community for LM or gov or whatever else the DAO wants to incentive, rather than a grant. Dual would provide backstop liquidity for those options so that any community members who have earned them, can sell them.

Essentially, Dual’s role is minting & distributing option incentives for projects and a marketplace for users skeptical of earning option rewards to be able to sell them for cash. If there are no external MMs to buy the options (as is the case here - we are building to this) then, the protocol is capable of gamma hedging (aka market making) on chain to ensure there is option liquidity.

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Love this idea and think it would be great if Mango can support another defi project. I’m familiar with options vaults, but this differs from psyoptions/friktion, correct? Also, where does Dual stand on software audit? Taking $250M of risk requires confidence in the code or a bigger return, and possibly both. I believe that’s what #6 is about and I do think Dual partnership’s are a clever funding strategy, but it’s less attractive if Mango is the only partner. Getting traction?

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Similar in many ways to option vaults but our focus is using options as a tool towards community incentive schemes.

We have had the Mango team review the program, verified the build & authority is held in the Dual DAO Council of which @mschneider is on Realms

The Dual Partnership Option Grant (#6) is how we are approaching alignment between communities. Mango effectively will benefit from Dual’s success and vice versa. It also serves as potential fundraising to Dual DAO. We are a lean team, completely self-funded, no VC money and utilizing our own token launch as an opportunity to display the effectiveness of option based incentives. We prefer to live what we preach & lead by example to gain traction organically for other projects to adopt similar tokenomic strategies.

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Interesting proposal! Thanks for elaborating on the liquidity parts.

Since you’re also offering a DUAL token option partnership grant: Could you detail how many tokens you’ll mint, when it’ll happen and what your distribution plans are? The only thing I could find was that up to a total of 120M in options would go to your partners.

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No problemo & thanks!

In terms of Dual tokens, there is a cap of 1B DUAL. These were minted this week, but currently sit in Dual DAO treasury awaiting distribution via Staking Options.

TGE for reference will be when the first liquidity mining program is offered on DIPs and will set the expiration date for the partner options. The expectation is currently sometime in January for this.

Notably, the initial “allocations” (12% to partner projects) are actually just initial earmarked amounts, since the only way the tokens will be distributed is through option exercise. Therefore, it’s impossible to predict how much circulating supply there will be at any moment in time, rather it will depend on the success of the project and how the price reflects that success. If options go unexercised, those tokens remain in reserves available to be reused in further incentives.

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This structure allows the Dual DAO flexibility to reward participants that matter most to the project. It’s likely that will mean a portion of the 30% of the tokens reserved for future proofing will go towards partner projects.

I can go on here for awhile so please check out full token launch details on medium: Staking Option Fair Launch. Dual Finance is designing the next… | by Dual Finance | Medium

I’d encourage anyone with DUAL DAO/tokenomic questions to join our discord Dual Finance

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Thank you for the quick reply, love the boldness in your funding strategy and belief in what your team is developing! Ideally the Upside SO in #6 of the terms would roll a couple of times to provide more time value to Mango, in my opinion, considering the pioneering nature of the partnership and limited visibility/liquidity into DUAL’s market price. An arrangement that extends to 18-24mo at least.

Unfortunately it will be challenging to sync this time-value idea with the MNGO buys, which should happen soon-ish due to their current (extremely undervalued) price. Maybe $250K is small in relation to the buyback you allude to at top, which means time window is irrelevant?

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Certainly this is Dual’s hope as well to nurture an ongoing relationship and roll the partner option grants & the buyback staking options until prices return to a more normalized level. The options are currently mismatched as is, 1 month MNGO vs. 6 month from TGE DUAL. The shorter dated option is by design to get the DAO comfortable with the new product. Also as you mention since $250K is relatively small, it might be appropriate to scale up the sizes of the buyback for any following periods.

There also is a price at which the Mango DAO may want to offer Upside Staking Options (OTM calls) for v4 liquidity mining or governance participation etc. But one step at a time for now!

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Hi providing an update here towards our progress & deliverables on what has so far been a successful trial for month #1

Liquidity Provided to MNGO on OpenBook:
81.9% Market Share
$129,058 Volume Traded
~ $3,500 Avg Depth
~1.7% Avg Spread

https://status.dual.finance/ Liquidity tab for more details. If anyone is interested in contributing to improving these reports pls reach out :pray:

We will be looking to roll these Staking Option puts this week so that the gamma does not decay away completely and the MNGO buyback remains in place. Seperately, there will be a DAO vote required to withdraw any unassigned USDC after expiration on January 3rd, 2023.

MNGO DIP Listing is an active work-in-progress the main blocker seems to be robust oracle pricing.

Partnership Grant of DUAL options. Expecting to launch the token in Q1. Will be sent from the Dual DAO to Mango DAO then.

Please let us know any questions :mango:

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For continuing the buyback, proposing these new strikes & expirations:

125,000 USDC at $0.018 expiring 2023/03/01 & 125,000 USDC at $0.020 expiring 2023/02/01

Approximately adds $6,500 of liquidity within 2% spread keeping the OpenBook market healthier over a longer time & avoids any interruption due to expiration on 2023/01/03.

Depending if the buyback is completed each month, the next roll will be proposed after expiration.

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Update from the end of month #1:

Mango Buybacks 1 & 2 expired and the 0.019 Staking Option strike was partially exercised.

Mango DAO bought 1,052,631.58 MNGO for a price of 0.019 , net 20,000 USDC of the 250,000 USDC allocated as collateral.

Tx here:

The buyback has been rolled with Staking Options expiring in clips of 125,000 USDC each on 2023/02/01 & 2023/03/01, for prices of 0.020 & 0.018 respectively.

A withdrawal of USDC collateral back to the DAO will be proposed shortly. This should be a one-off tx as we are looking to crank the withdrawals and/or combine them in future roll tx’s.

As v4 approaches, the plan is to find ways to distribute these options to the community, rather than this grant style approach for liquidity improvements on OpenBook. Stay tuned!

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Update before end of month #2:

OpenBook trading activity remains limited but above zero due to the gamma from the buyback program being executed in Staking Options. Dual maker orders still account for ~90% of trades.

There is a possibility of another partial exercise (DAO buys MNGO for 0.02) but depends on the price over the next 4 days.

Plan following expiration will be to batch the USDC withdrawals to Buybacks 1, 2 & 3 and roll out to 4/1.

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Update for the conclusion of MNGO Buyback 3:

MNGO DAO buys 750K MNGO for 0.02. The Staking Option was partially exercised, 15K USDC net of the 125K USDC allocated.

Net for the buyback program the DAO has repurchased 35K USDC worth of MNGO < 0.02 while making the MNGO/USDC OpenBook trade-able with a lower realized volatility than SOL since beginning in early December

Going to propose a continuation of the buyback & increase the size to 250K USDC for 0.02 on the basis that MNGO is lagging the rest of the market’s recovery since the beginning of the year when it shouldn’t be and it would be even more favorable to repurchase at the current level. This will also provide more gamma to increase the depth of liquidity on OpenBook.

Proposal now live which includes the withdrawal of collateral from Staking Options Buybacks 1, 2 & 3. The DAO will recieve back in net 90K USDC (375K collateral - 35K exercised - 250K buyback 5)

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Thank you for keeping up the reporting, I appreciate that the process on your end is so transparent. We are somewhat lacking an easy overview over VSR vesting vs buyback speed.

I think that level of summary would be great to include on the MNGO-stats page of realms: Realms

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Update for end of February buyback:

The staking option for the $0.018 buyback expires tomorrow and will go unexercised. Will propose to withdraw the collateral & roll to 5/1 following that so that the gamma from the higher strike doesn’t roll off completely next month.

We are finishing building some DAO tooling to reward mango users so we intend on moving away from this direct grant approach on the next roll to something that rewards users. Current idea is to reward the alpha testers of v4, but open to suggestions.

Mango DAO will be sent its Partnership Grant of DUAL options this week of 10M DUAL $0.05 6 month Calls.

For continued support on a variety of fronts including on code reviews, we will also award a bonus of 10M DUAL $0.025 2 month Calls.

Both of these are exercisable any time prior to their expiry via realms.

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As a preliminary step towards rewarding users via MNGO Staking Options, the Dual DAO voted to airdrop DUAL Staking Options (SO) to all Mango v4 account owners to encourage them to become more familiar with the project and product ahead it being used.

Proposals: Realms

Eligible accounts:
https://beta.dual.finance/mango_account_airdrop.txt

Claim: DUAL

Total rewards: 5,000,000-DUAL-SO-04/20/2023-12UTC-0.03C-Physical

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Update for end of March for Buyback #5

Current estimate is the DAO will be buying 5M MNGO for March, which puts it roughly at about the halfway target for the total buyback, $135K out of $250K bought or ~6.8M MNGO, depending on the exact amount exercised in the next 2 days ahead of expiration.

Since initiation of the program in early December, naturally liquidity has been provided on OpenBook on the back of hedging this option. Dual Finance has accounted for 96.5% of maker volume on OpenBook trading ~$500k total volume. MNGO has realized lower volatility than BTC over this period, which is a feat in its own right, but a testament to the power that options posses to resupply liquidity to Solana DeFi. While the benefits of low realized volatility can be debated, the liquidity added to the instrument has been a 0 to 1 improvement that no traditional market maker would be willing to take on without a mammoth sized deal.

We want to keep pushing this experimentation and as promised, we’ve completed building out Realms DAO tooling, specifically an airdrop & proof-of-governance tool, to start having community members earn these options directly.

For the next phase of this program, we are proposing to utilize the proof-of-governance verifier to reward Mango DAO voters with half of the total amount Staking Options for the buyback. Anyone who has been active in governance since 2023 will be eligible to claim and exercise the Staking Options on Dual Finance

Currently, under development is the marketplace to allow users who earn these options to immediately sell them, if they so choose. This way the liquidity benefits still reach the spot market and Mango has an additional incentive tool to leverage for whatever future work the DAO finds valuable. We expect this to be available well before the expiration of this next tranche.

The proposal will mint half of Staking Options to the DAO treasury after which we will make the Proof-of-Governance proposal to be claimed by eligible DAO participants.

Net for the next tranche, we propose to drop the strike to 0.019 to shake out any remaining supply and reduce the size to $190K or 10M MNGO, expiring in 2 months. As we are continuing to see partial fills and since some may go unclaimed/unexercised by DAO participants even if ITM, it makes sense to over shoot the total target amount.

For more info on Proof-of-Governance and general info on Dual Finance check out:

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