Psy-Options Buyout

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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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?

Like Mango we took the CLOB approach as we believe over the long run it will provide the best venue for efficient pricing. Whether our gut is correct is something to play out in time, but I imagine you all feel similarly about perpetual futures traded via CLOB vs vAMM.

Our market makers have token incentives. There no hard commitments on liquidity provisions, or spreads when quoting two ways. But I’m sure a few would be willing to create hard commitments.

On the roadmap within the PsyOptions ecosystem are protocols (vaults/pools) that provide liquidity to the order book and have a pricing mechanism built in that play various strategies.

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’ll leave this one for investors/others to chime in on. The team is on board long term.

How can we proceed?
As I mentioned on the developer call, the PsyOptions team is not taking its foot off the gas. I’ll spare the product pipeline details and focus on the high level. I have been building in this ecosystem for over a year now, with PsyOptions being nearly 10 months old. We have set up the infrastructure to raise on a future token and are now at the point where 2 very prominent exchanges are ready to support a December IEO.

For this buyout to happen it would need to happen quickly as we cannot delay our plans for endless back and forth discussions or the locking infrastructure to be completely built on chain. Given the locking infrastructure is not handled on chain at the moment there would have to be a bit of trust where, upon successful vote, the MNGO was transferred to a wallet controlled by the PSY Foundation. When the vesting/locking infrastructure is adequate then the PSY Foundation would lock the MNGO.

This is where things get tough… the agreement, vote, and transfer would have to be done by December 1. Otherwise we delay our plans more than we can allow.

If that is all acceptable then the last thing would be settling on an agreeable price.

At the end of the day
We are all humans and not bound by tokens. If we end up launching the PSY token and continuing down a separate path for a bit, I would still be happy to meet up, collaborate, and shape a future where these products work together for the betterment of both communities and the world.

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Let’s hurry up then, here’s a rough schedule, of how this can work out:

First, please make a proposal for a full amount of MNGO locked for 5 years as well as USDC budget for 6-12 months the DAO should vote on (i’ll handle the technical bits, just need you to write here on the forum). Transparency is key to getting the DAO to buy into this deal. Hence I believe it will help to break down the amount of MNGO roughly into the following categories:

  1. Tommy, how much voting share do you claim, you should have a strong influence in the DAO going forward
  2. Team, how much share do they get? Here are some reference numbers for cash vs voting power tradeoffs offered: Big Compensation Round future team growth should be paid for from DAO treasury
  3. Service Providers like market makers, quid pro quo. Who does what and how much MNGO do they get.
  4. Investors, biggest question: how much ROI on their initial contribution do they get? Needs to stay below (3,3) rates. Long term planning VCs should agree to a 5 year vesting and market rate conversion, this is a great opportunity to acquire a size-able MNGO position without buying on the open market.
  5. If people were only interested in a quick flip on the token sale, that’s fine, we all know the game, but let’s return their funds + bespoke ROI in cash. Please find out how much budget you need ASAP, I already made potential buyers aware of the opportunity to buy in size at market rate yesterday. Alternatively the DAO could pay out from it’s USDC treasury, all depends on the size.

I would also appreciate a verbal commitment to execute on your current roadmap, and lead the effort of developing a design by Q2/22 as well as execute it by Q3/22 to effectively cross-margin psy options strategies with positions on mango’s perpetual future order books. Which is still in active development by the current core-contributors of the DAO and we really don’t want to slow down on it as there’s a huge opportunity to compete with dydx head on head without expanding scope towards options.

Next, we should host a community call on our discord to have people ask final questions to you and the team. We had the last call like that before the token sale, this is an equally important milestone. I’d like to propose 5PM UTC on Friday.

Lastly, the vote. It’s unfortunate, but we can’t vote on locked tokens right now and it’s slowing us down. So here’s the compromise, we will setup a new 2/3 multi-sig with the following holders:

  1. Myself
  2. Tommy Johnson
  3. Sebastian Bor (solana labs’ governance lead, who can verify that everything is setup correctly and arbitrage disputes)

We will have all related votes transfer MNGO into this multi-sig. They will stay there until ckds (whose MNGO will also be in the multi-sig) finishes the program for locked MNGO voting (discussion is here Discord).

The multi-sig holders bind themselves to act in good faith and transfer the funds at the appropriate time. The funds will not be moved before to avoid any extra overhead, hope everyone understands, that we want to build products and not waste time moving funds around, knowing that it adds a bit of uncertainty and cliff to everyone’s vesting.

The locked token program is still in development, but here’s a quick spec:

  • token grants vest linearly in monthly increments
  • token grant vesting can be optionally frozen at will of the DAO, we will enable this for compensation / service grants. don’t think it makes sense for your investors but definitely for contributors.
  • vested tokens need to be voluntarily locked again to retain vote weight, this applies to the current holder of unlocked MNGO

Always keep in mind, even if you work for the DAO, no one can stop you from forking and launching your own token. So this is all soft power, we do need to work hard and steer the ship towards a shared goal. I’m super stoked and looking forward to set sails together.

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Just wanted to pop by and say lol @cms and @mngr saying that valuation is too low when they invested just two months ago at a $14m valuation

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Re. peer-based valuation metrics:

  • The order book won’t support any of these valuations in the foreseeable future, i.e. possible to add a progressive safety margin / discount for relevant quantities. Can go further & time adjust.
  • Token price is a FOMO-driven & reasonably random walk; possible to adjust for launch & marketing costs as a share of treasury at launch point upscaled vs. market cap.
  • In the DAO-spirit, institutional seed prices are out of reach for the community, i.e. the multiplier for most participants is way lower, i.e. perceived value transfer per MNGO awarded is way higher.
  • An investor in both should probably be OK with receiving the upside in MNGO post-merge without an implicit discount.

mgnr and cms are known good guys with known incentives, just some thoughts re. valuation (–> not too low, probably).

PsyOptions is fortunate to be in a position where we have two incredible options on the table, whether that is join forces with Mango DAO or launch our own and scale up quickly. We’re extremely thankful to be in this position, this ecosystem, and building with some of the worlds greatest. If the Mango DAO does not agree with the deal proposed here then the PsyOptions community and contributors will launch their DAO and continue to scale vertically and horizontally to achieve our vision. There is no need to waste anyone’s time in a space that moves a mile a minute.

I believe the execution plan Max has laid out is acceptable. Below is a deal with the Mango DAO I think would make our team comfortable and happy, which is fair to all parties involved. As asked, I have broken down the split and listed out some contributions. Note the USDC component is here to alleviate tax burdens that may come from this deal and the unlocking MNGO. It is here to help long term hodlers hodl.

I am writing these numbers without much input from investors, but most have said they will support the contributors in whatever decision is made. So I focused on what will set this unit up for success. Any investors that strongly feel differently may fall under category number 5 and can reach out to form an OTC deal for another group. There are many groups, with aligned background and visions, that have made verbal commits for PsyOptions. I’m confident they would buy anyone out.

Total MNGO: 260m
Total USDC: 4.5m

Breakdown
Tommy: 71.5 MNGO

  • 9 year full stack engineer. Building on Solana for over a year

Taylor: 19.5m MNGO

  • 9 year full stack engineer. Built out Psy American V1, contributes part time on frontend

PSY team: 90m MNGO

  • 1 derivatives Quant
    • Building open sourced market making bot
    • Aiding in architecture and protocol design, allowing the protocol devs to translate to Solana architecture
    • Managing relationships with market makers
    • Actively interviewing incredible candidates that will help us achieve the Q2/3 targets and help scale the platform(s) vertically after
  • 1 protocol dev
    • Currently building out the under collateralized European protocol
  • 2 frontend devs
    • Maintaining and improving the Psy American trading UI
    • Building the non-trading option/wallet management UI
    • Building the under collateralized European protocol UI
  • 1 community manager
    • Driving community engagement
    • User support
  • 1 marketing / BD
    • Focusing on building our partnerships with protocols for Option Liquidity Mining
    • Managing the Twitter

Psy Community: 4m MNGO

  • The community has voiced concern about not getting anything if PSY did not launch a token. There should be some allocation for our most vocal supporters. They deserve to join us on this ship.
  • Our incredible translatoooorrrrss

Psy Advisors: 10m MNGO

  • PsyOptions has a few advisors that are or were vol traders. They bring expert knowledge with past employment at top institutions.

Investors (in order of investment size): 65m MNGO

  • Alameda
    • Actively quoting two sides
    • Incredible dev and liquidity support
  • Solana Cap
  • CMS
    • Some click trading, actively integrating but seems like it’s a lower priority
    • Provides incredible high level support around strategy
    • Strong advisor from the volatility trading background
  • FolkVang
    • Integrating
    • Strong advisor from the volatility trading background
  • Wintermute
    • Not integrating yet, but ramping up on Solana + Serum
  • GBV
  • Solar Eco Fund
  • MGNR
    • Not integrating yet, still ramping up on Solana
  • Ledger Prime
    • Actively integrating for two sided quoting, has green lit some new listings
  • Others

Thank you for being so transparent, I think this answers a lot of the questions people have about this proposal. Looking forward to talk more tomorrow.

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Worth noting as well that Psyoptions (who intend to only do an IEO token launch) would possibly be getting some level of “decentralized liability benefits” from joining a DAO rather than launching their own token. This could be factored into a counteroffer, if the need for one arises.

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Something I’d really like to see before a DAO proposal happens is a list of statements - explicitly agreed on by both sides - that outline what is intended to happen as a consequence of this deal. A contract.

Currently I don’t get what Mango is buying. In part this is because it’s often unclear what people agree on, what was a one-sided opinion and what the current state is.

Example statements (some intentionally extreme to gesture into directions where people may have diverging opinions):

  • This is not an aquihire, Psy-Options will continue working on their product.
  • This is an aquihire, Psy-Options developers will stop what they’re doing and start working on options in Mango immediately.
  • Psy-Options rebrands to something relating to Mango.
  • Mango DAO gets upgrade authority over Psy-Options contracts.
  • Psy-Options code is completely open-sourced.
  • Mango DAO will retain clawback authority over given locked tokens.
  • Mango supports Psy-Options with infrastructure services and rpc nodes.
  • Mango and Psy-Options work together to explore options integration in future versions of Mango.

I want more concreteness around what the buyout changes apart from setting the intention of building a joint product at some point in the future.

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  • Mango DAO gets upgrade authority over Psy-Options contracts.
  • Psy-Options code is completely open-sourced.
  • Mango DAO will retain clawback authority over given locked tokens.

+1, I wanted to bring up exactly these questions also

I think the majority of those statements are warranted and totally fine. It is my understanding that we would continue working on everything we have in flight with the American and European protocols and business development around the platform. But at a high level we would start designing the engine that brings the Mango spot and perps together with the European under (likely) a single protocol and account structure.

  • Mango DAO will retain clawback authority over given locked tokens.

The above is the only piece that sticks out to me as a potential deal breaker. I know those bullets were just examples but the reason it stands out is it’s very vague and nailing the details and infrastructure on and off chain could take a lot of time. Anything that’s going to cause distractions, delay, and/or destroy a deal on small details stands out as a red flag.

I’m trying to be as transparent as possible with what a potential deal breaker is so everyone can be aware and we avoid wasting precious time.

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Your number is wrong here, and we’ve been working with the PsyOptions team for far longer. And have been in contact with the Mango team months pre-IDO trying to help where we can. I’m not saying we’ve been a major part of the success by any means, but this is not a quick flip for us. We want to see it grow to it’s full potential.

I see how this might be hard to believe or you may be skeptical, I probably would be as well if I were in your shoes. But the valuation commentary is really about comparing the alternate paths. We’re committed for the long term here, whichever way it works out. But to ignore the market in your consideration is just naive.

The DAO has quite a lot of MNGO to deploy. This seems like a very compelling way to put that to work, and immediately grow the Mango ecosystem, with even greater synergies over time.

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Performance based earnouts are common in mergers and acquisitions but maybe it’s not appropriate here because the product isn’t fully finished yet and there may be changes to the plan in the future.

Here’s a quick summary of what was discussed at the AMA:

  1. Revising legal agreements with VCs would slow the psy options team down, so they don’t want to move away from their cap table based reward scheme
  2. Very little positive response to Tommy’s proposal for an adequate amount of tokens for compensation, we’ll skip a vote given the technical overhead related to setting up the multi-sig, unless there’s more positive feedback
  3. Lack of interest from Mango community is mostly related to the strong focus on perpetuals in the short term and the clear product vision the core team is working towards, integration further down the line will be explored
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That’s a shame, feels like a missed opportunity.

I was too late to the commenting party, but I’ll share the thoughts I was typing right as the deal was called off anyway. Maybe they’ll be useful for posterity stake.

Incorporating PsyOptions into Mango would extend Mango’s offering without the barrier of a steep learning curve, which can be evidenced by the fact that Psy is already on mainnet and functioning. This means their team has the ability to execute, which is more important than some minor issues noted by others. The UI was mentioned as a barrier, but it would be Mango-ified anyway, and Psy’s beginner UI is a great way to funnel new users with limited experience into a product.

As for the deal, I’m not in the best position to say whether 100mm or 250mm is the right amount, only that if it was just the product Mango acquired then 250mm seems high. If it’s the product and the team for x amount of years, I think that’s a much lower risk, especially if clawback provisions with clear terms are in place to protect both parties.

The only thing I didn’t really like about the negotiation was the use of the PsyOptions IEO as a tool to try and rush the process. I understand you use what you have in a negotiation, but if you’re open to an M&A, then you also need to be open to the fact that some due diligence and time is required.

I guess what I’m saying is: Would it really have been a large detriment to the team to delay the IEO so that they could conduct a thorough and proper negotiation (most likely resulting in upside for them)?

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Agreed. Maybe the team feels that the music is slowing down and you’d better IEO while the IEO’ing is good, but hard sells to rush a diligence process has never sat right with me.

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Ok, since now PsyOption will have an IEO on FTX.
I guess the buyout difficulty will grow exponentially after they also have token…