Psy-Options Buyout

Dear members of the DAO,

I’d like to propose a bold step forward. Mango has been incredibly successful in executing a vague roadmap, that was loosely defined as “let’s beat binance”.

The truth is that becoming the number one crypto exchange is a tricky battle that might take a while. The current contributors are well motivated, and new contributors are onboarded regularly. The core problem with our growth is that we can only grow so fast by extension on the surface.

One idea that has been proposed by different people in the DAO is that Mango can grow by acquiring whole teams that have:
a) a product on main-net and hence proven their ability to independently execute

b) not launched a token yet

Psy-Options is such a team. Since starting in the same hackathon, I have become intimately friendly with them, even more so after sharing a co-working in Lisbon. They have been building a product, hired liquidity providers and started to attract a few teams building structured products on top (Friktion, katana, tap & vovo) 2 of those won in the last ignition hackathon.

Their current team consists of the following members:

  1. Tommy: Full-time Senior Fullstack-Dev >5Y
  2. Taylor: Part-time Senior Front-End >5Y
  3. Jason: Senior Front-End Dev >15Y
  4. John: Protocol Dev, Ex Cyber-Security Professor >10Y
  5. Taylor-Wall: Part-time CM
  6. Stockmart: Full-time Shitposter https://twitter.com/stockmart_

I’d like to propose that we as the Mango DAO make the psy options team an offer:

Join the Mango DAO as a team of contributors, continue the development of the best options platform and most importantly work with the current contributors towards making Mango the best platform for traders, not limited to purely a close integration of the products.

In return they should receive an adequate grant, up for discussion, but let’s start with 100M MNGO locked for 5 years, that they can freely distribute between themselves. In addition they should receive up to $1.5M USDC for the next 12 months to continue paying salaries and grow their team.

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yescap

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As someone who has been building and growing teams for the most part of his career, I’d like to advise you to be careful when planning a sudden increase on team size. There will be lots of growing pains, and chances are that a sudden influx of team members might send you back to the “forming” stage.

Has there been a discussion or poll about what do Mango holders think Mango Markets needs the most? This would get Mango more developers from what looks to be an experienced team (I am not that familiar with PsyOptions myself), but personally I’d say pain point #1 are market makers.

I’m personally a big fan of solving one huge problem at a time, then moving on to fix the next one. While I see that both are orthogonal, and can likely be pursued in parallel, it will still take time and attention to discuss, vote, sort out the compensation, and then from the core team to onboard and integrate them.

@Daffy’s Mango Labs suggestion seems to me as a cleaner path to growth, since it encapsulates this on a parallel org.

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tldr: +1

here are my detailed thoughts or rather mostly questions

pros

  • one of the earliest team to develop on solana, not sure how much they wish to take part in mango community, but they would bring in tons of programming-on-solana knowledge
  • a successful options platform will drive more attention to mango in general, and hopefully more attention to mango’s perp product
  • as crypto grows in market cap and drags in more sophisticated investors, options would become the natural financial instrument to trade if executed well (tradif has significant/comparable options to futures volume, crypto yet less so)
  • from some of the brief interactions I have had with them I have a feeling that they would fit in very easily into the mango ecosystem (in a cultural sense), e.g. they have very clean code, mostly open source, very open and eager to onboard new technical people and easy to get along

open questions, in order of importance

  • going forward, would mango+psyoptions have shared concrete product goals?
  • do they have mango style BI dashboard to get a quick overview of platforms usage over time?
  • how successful has the product been? how many active users have they had?
  • how about splitting the funding into 2-3 steps depending on execution? I have to admit, I am not upto-date on their user base’s current feedback
  • branding, does it make any difference if they rebrand/dont-rebrand?
  • how about future fundings? how could these look like?
  • more volume/money will stay within the mango ecosystem - are there any ideas on how this could be executed already?

slight unrelated

  • mango has x amount of treasury, how fast (in terms of years) and how much amount should be dispensed with? lets discuss concrete numbers, a dominant decetralized product (or foundation with umbrella of products) will definitely emerge imo over next few years, and how can mango ensure that it will be this foundation

@PlayerOfBits mentions growing pains, I agree this is an important point to consider, viz. a sub product organically growing in-house, vs acquiring something already at a mature stage

Update: acquiring seems like a good example to set, and psyoptions would be one of the better products to be mango’s first acquire

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Hi all, I’m the aforementioned Tommy, a core contributor to PsyOptions.

TLDR: Open to this proposal, need to discuss with PsyOptions contributors, community, advisors, and investors (I’m sure many will chime in here)

Very quick background:
PsyOptions was born when TradFi denied Taylor and I API access to automate an options trading strategy. We set down the path to building the infrastructure on chain so everyone could have all levels of access to these products and data. After winning the hackathon we knew the biggest pain point for crypto and DeFi options was liquidity, so to solve the problem in the short term we stacked a private round with market makers, which closed in September. Stockmart and T-Wall were contributing prior to the round, with Jason and Jon following on shortly after the close. We have an incredible team building AND incredible teams building around us.

I’m open to this idea because I believe for DeFi to achieve its true potential, and realize our original goal that TradFi’s rejection ignited, there will be a convergence of all these puzzle pieces. More importantly a convergence of incredible developers, teams, and communities. The combination of two teams, winning the hackathon together, would set the precedence of where great developers go.

I’ll keep this initial response fairly short as I feel the need to discuss with the team, community, advisors, and investors as well as let the Mango community gather additional questions before we dive further. I look forward to seeing this discussion progress and addressing both organizations.

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Not a fan of such a large acquisition and package deals.

From my view, they started a project which has been launching for a really long time and never really caught traction after it’s recent launch. I understand it’s in prod now but now getting abandoned? The Mango team is adequately sized, maybe 1 more rust backend and 1 more frontend would flesh out the team, not a 6 person package.

If the proposal does go forward, the pay package seems extreme. 100M MNGO = ~30MM USD = 5MM PER PERSON = 1MM USD per year. Very steep.

Consider adding 1 or 2 engineers ONLY would be my input.

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I’m a casual user and follower of both mango/psyoptions and my reaction is the opposite of this. While a buyout might make sense, this is a lowball offer. Given the extreme imbalance between the tons of capital sloshing around and the relative lack of qualified devs, $1m/yr for elite devs is very reasonable. But your analysis misses two important points:

  • The proposal isn’t just paying for contributions going forward, you’re also acquiring a working protocol that’s been tested and has a user base and has integrations with other protocols. The psyoptions platform alone is worth more than the offer imo even without any dev support.
  • The 100M MNGO comes with a 5 year lockup, for a token whose float is 10% of the total supply.
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Just to support my point about the current environment, see this article BetDex. This team raised $21 million (amount of the raise not amount of the valuation) with:

  • No product and two engineers.
  • At least 3 direct competitors who have released or are close to releasing products.
  • As far as I can tell they don’t even have a discord!
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I believe it’s a great idea

There will be continued competition in derivs DEXs market (not just on Solana but among all chains) so I support focusing on growth by onboarding experienced ecosystem developers and their own product (by combining it with Mango futures with the same expiries, could help onboard more MMs and further grow the options product)

With regards to the 30m valuation, it would be great to have more colour on the Psyoptions’ previous private deal and what this would mean for the firms that backed them / implications for Mango going fwd

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I think I’m in favor, seems like a very good idea. I think a common failure mode at this stage in Mango’s growth is not being aggressive enough–being complacent. I’m glad to see that the team is avoiding that failure mode by making use of the DAO’s warchest to acqui-hire a solid team of devs.

To emphasize, I don’t think the PsyOptions product is worth nearly the amount offered, but the team probably is. Acqui-hiring is smart.

But only if the PsyOptions team all buy mcaps :slight_smile: (jk jk)

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To me the obvious next step for Mango is to add options support and implement the first defi protocol on any chain to do proper portfolio margining across spot/margin/futures/other derivatives.

That said, I do not like the Psyoptions product:

  • Underwriting requires full collateral
  • Even the UI has been very buggy for me
  • It doesn’t seem to be tackling the bigger (more interesting) problems in options, eg., capital efficiency and implementing robust risk management systems to handle it

As such, I just don’t know how useful they will be in taking Mango to the next level. There’s little benefit IMO for attaching the existing product on the side of Mango, if anything it needs to be fully integrated and the mango risk sytem rewritten to have one big harmonious experience across products. And then I’m not sure what the purpose is of having some capital inefficient basic options product separate.

One curiosity for me also is their investors – what they would accept in such a scenario – they invested what, $3-4million, and they will want a piece of the $30-40m worth of MNGO. Also, NFT options? Idk, seems buzzwordy and not really practical in terms of the goal as I see it above about powerful platform with portfolio margining across liquid options markets

Finally, I want to clarify that I do like the idea of quickly getting a dev team on to do a big new piece of Mango – I just don’t know if the Psyoptions team is the right one. With more information I could certainly be convinced.

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Regarding market makers, we are working on it: Mango integration for Hummingbot

Also regarding the topic: Unless there will be an increase in available markets (which won’t be in the near future due to limited oracle slots), the best way to make the product more viable is to include more derivatives. Big like on PsyOptions, their project is what motivated me to learn about Solana and market making in-depth.

It would be helpful as well to get more concrete details / clarity on what it would mean if this proposal went through?

For what it’s worth, my understanding is that Mango could move to 31 markets without a major smart-contract move. That many markets in my opinion would be fine for the next ~6months and give the platform runway to v4.

In terms of PsyOptions, I think it’s a reasonable move if the mango team believes the PsyOpts team is the right team to help them build.

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Oh, I thought it was 16. Well then, I would also welcome this and agree with your standpoint.

Wow. A $33million deal (Buyout? Merger? Acqui-hire?) is huge. I don’t think many deals of this size have ever been done by a DAO so we’re again in uncharted territory.

I called it a $33million deal and that isn’t quite correct, though (sorry). This is an important detail. It’s not the $ that matters (to the DAO), it’s the release of MNGO tokens from the DAO treasury, since it will increase the circulating supply and dilute the holdings of current MNGO hodlers.

The critical question for the DAO is: is this the best use of those MNGO tokens from the DAO treasury? Other possibilities include: not doing anything with them, burning them, using them for incentives elsewhere, hiring other developers, buying other projects… That’s a non-exhaustive list - there are a lot of other possibilities.

So is this the best use? Maybe! I don’t know, but I do have some high-level questions I want to work through.

  1. Do we want options on the Mango platform?
    Mango started as a leveraged spot platform, then included perps. Are options the Next Big Thing to add? Why? Is it because the volume it would bring is huge (and so the fees sent to the DAO make it worthwhile?) Is it because it’s important for a more-complete platform? (Come for the options, stay for the cross-margining for perps?) Is it a combination of those two things, or something else?
    Also - importantly and often neglected - what is the cost/risk of doing nothing? It’s rarely a continuation of the status-quo in crypto, and a platform lacking in one area could easily mean users go elsewhere.

  2. If we want options on Mango, is this the best way to do it?
    If we didn’t have the possibility of this deal with Psy-Options, how would we go about implementing options on Mango? We’d have to bring in some outside expertise in options, and probably bring in some outside programming expertise too. (We could wait until the busy developers have time to dedicate to it, but waiting in the current crypto world seems a terrible idea to me right now.) Are people with the right expertise available right now, and what would be the cost to the DAO for that?

  3. 3. How do we know what we’re getting?
    In the non-crypto world, a $33million deal would have a lot of effort spent on ‘due diligence’. There’d be meetings with previous investors, the team, and an inspection of the accounts and maybe visibility of private deals. I’ve never suffered through it, but it sounds like quite a painful process.
    What’s the process for a crypto deal? Or - better - what should it be? We’re in uncharted territory, as I said earlier, so we don’t have precedents to build upon but that means we are also in a position to set precedents for future deals. How much openness should there be for a deal like this for you to be comfortable on either side of the deal?

  4. How do we ensure we get it?
    A lot of legalese seems designed to deal with things going wrong. What happens if things go wrong here, after the deal is concluded? Do we even need to worry about this or is it enough to just trust a properly incentivised team?

I don’t know much about options or the Psy-Options team, but Maximilian proposed this and I trust him, so for me that deals with 1) and 2). A lot of folks smarter than me have chimed in on incentive structures so I’m happy to sit back and watch what happens with 4)

But what about 3)? How do we know what we’re getting? What due diligence has been done? What due diligence will be done? Should we be getting outside expert advice on this?

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So I think from the call it’s clear that there is an intention from psyoptions that this should be a more tight integration with the mango v4 or v5 program.
And with that in mind I don’t know if that’s the right path to go down immediately. I would prefer to see a longer term structural plan for integrating and onboarding more financial products (beyond just options) to the mango ecosystem, or some sensible idea of how this could work in practice and be scalable. Otherwise what you’re left to deal with is a very tightly coupled design of an options and perp futures market which is a bit messy and hard to deal with conceptually on a program level.

If I’m wrong with this assumption please correct me. Maybe the timeline for integration is intended to be longer and could be the eventual goal. But I just don’t know if it’s a sensible short term goal.

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hi all

@mgnr_io here

we have strong presence across quant trading, market making, general defi, and seed ventures

we are one of the investors in psyoptions and thought makes sense to add to the conversation

thoughts (no particular order):

  • think both teams are strong and genuine builders. we like max, we like tommy, have chatted to each and believe both to be intelligent operators. from that perspective, would support the acquihire

  • we were disappointed to have to pass on MNGO ido primarily due to lack of founder lockup. not sure if that’s been addressed, but imposing a 5 yr lockup on psyoptions acquisition only makes sense if MNGO founders have committed to >= 5 yrs

  • seems broadly true that single highest valuation jump in crypto protocol lifespan is token launch. between private → public valuations tend to 3x - 100x…from that perspective trying to complete the deal pre-token seems like an uphill battle…psyoptions team may forego some upside?

  • corollary to above: in current crypto mkt, the more tokens launched , the more value ‘created’. thus would think the sensible tactic is to try to spin off businesses into many small subs (sbf style) rather than compounding / rolling up (valeant style)

  • counterpoint to above: assuming token launch pop == long term value capture is fairly myopic / bull mkt thinking. while true in the short term, the inflated prices may not endure all the way through protocol maturation / founder unlock

  • back-of-envelope numbers (please correct me if wrong data here - had to make some assumptions):
    – MNGO bidding on [20%] of psyoptions original cap table (15% contributors + advisors, 5% private raise)
    – bidding 100mm MNGO tokens @ $0.32 = $32mm
    – implies PSY fully diluted valuation @ $32mm / 0.2 = $160mm
    – PSY private investors would be looking at a 2.14x multiple on the raise, with an extended lockup

  • re: implied ~$160mm FDV above how does this comp vs other options protocols with live token?
    – DPX $1bn
    – RBN $2bn
    – HEGIC $360mm
    – PREMIA $240mm

bid is probably low compared to most other major live derivs (esp solana) tokens?

  • as a fellow founder + operator can empathize on a human level that it’s important ppl enjoy what they’re doing, esp in crypto where we’re all having a lot of fun! if 2 groups of builders wish to work together and think they’d have more joy + success waking up every day and collaborating, we’ll 100% support the decision. no point getting caught up in corporate / numerical bullshit if everyone’s sour on life

good luck team[s] and thanks for the novel suggestion @mschneider

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Some thoughts on this from CMS —

For some context, we invested in both Mango (IDO) and PsyOptions, and think they are both fantastic teams. The idea of them coming together to build these protocols under one roof is definitely exciting to us.

We talked a bit on the Mango dev call the other day about the synergies this could bring, from capital efficiency with cross margining to simply being able to bring on some badass Solana native devs who above all, just want to build cool shit for everybody to use. For a bit of context for those less familiar with trading options, having liquid perps and similar products to use for hedging is hugely important for market makers, and many more advanced options traders in general. And options trading is very popular with retail degen traders (see r/WallStreetBets). What I’m getting at is these products fit together extremely well, and it’s very compelling to have them integrated into a single venue.

rough thoughts:

  • We think it’s worth giving up some short term incentive from a separate PsyOptions IDO/IEO in order to build towards a sustainable and ultimately more powerful long term vision for these protocols

  • We think the implied valuation here is too low however (~160mm) — ultimately we cannot fully ignore public market valuations that recent IDO and IEO projects fetch. There are a few comps you could make in the market right now for pure options protocols, largest of those probably being Ribbon (and this is really a structured product wrapper on top of Opyn) at ~2B, with a handful of others floating around below that

  • Other Solana projects public valuations:

    • MNGO $3bn
    • AURY $1.5bn
    • JET $750mm
    • PRT $265mm
    • Mercurial $320mm
  • Plenty of other examples here if you want to do some digging. These obviously span a bunch of verticals, but point is — an IEO is likely to value PsyOptions significantly higher than the proposed amount here.

  • We don’t think the goal should necessarily be to beat a theoretical post-token valuation, there are enough benefits to the long term value of a combined project to warrant a discount

  • 5 year lock should come with significant discount in Mango tokens value - approach investors offering Mango at spot price with a 5 year lock, and watch them laugh at you. This is also significantly longer than the typical lockup for founders and investors (Mango doesn’t have any lock)

  • Treasury deals (post token launch, selling tokens to investors from protocol treasury) in the market regularly price at a 30%+ discount for ~1-2 year locks and maybe some vesting — not saying this is optimal just anecdotally how the market has looked

Above all we just want to make sure both teams are pumped to be building, and we’ll be here for the ride either way. The strong opinions we’ve heard so far are just a testament to the community that has been built, and it’s awesome to see.

– CMS fam

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we stacked a private round with market makers, which closed in September.

Small Recap:
Last round was closed 2 months ago. Market makers were preferred, because they are needed for psy options to work. Valuation was $14M. Comparing to market prices of launched tokens is of course desirable but a little bit more difficult. Low float, high FDV y’all know the issue. Let’s 20x return on behalf of the DAO treasury, because that’s how value is created.

Here a few tougher questions:

  1. All comparison options products that have been mentioned do use an AMM, PSY needs highly technical market makers to provide liquidity on its CLOB. Which quality level wrt. the market making service has been delivered or committed to for the future? How sure can we be this service is needed, while every other team seems to work towards a different goal? @tomjohn1028 @mgnr_io @cody

  2. What’s a reasonable ROI on two months of capital deployed + service? I’m aware of roughly $200M in capital bidding to buy more MNGO. Some of these bids were made by great market makers. Can we make an offer that is good enough to buy the people out that can’t commit for 5 years?

I see a path forward here that seems reasonable to me:

  1. make sure the psy options team is happy
  2. acquire service agreements happy to pay a good price, but we need to know what’s offered
  3. repay unhappy investors, in locked MNGO or USDC whatever is preferred, don’t want unhappy people on this boat and the line is long

about lockups: we are working on allowing locked token voting. can only speak for me but i’am sure most of us, are ready to lock up our tokens to retain voting power.

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