my opinion : we dont need the money off vcs, we need first class talent for dev sushi products
My view: zooming out, what is SUSHI trying to accomplish?
If Sushi wants to raise funds at cheapest price, sell a âbondâ:
Every one on this forum thinks $SUSHI is cheap right now and that $SUSHI will be higher in 1-2 years. If Sushiâs primary goal is to raise funds at the cheapest cost, then it should not be selling tokens here. Rather it should borrow against its treasury and issue âdebtâ that can paid back at a later date when the $SUSHI price is higher. This is proposed by UMAâs Range tokens or @AdamSCochranâs Smaug.
The downside of this approach is that VC funds donât really buy bonds (they arenât credit investors). As @amywu pointed out on the community call, venture investors want upside, not yield. So this approach isnât appealing if the goal is to attract strategic venture funds as investors.
If Sushi wants to raise funds from strategic venture investors, sell a âtoken+call optionâ structure:
If Sushi wants strategic venture investors it needs to sell tokens (not yield). The initial proposal of selling tokens as a discount has been pretty thoroughly bashed in this forum, and for good reason. It feels off-putting to the community to give these investors a gift before they have proven their strategic value.
The better option imo is to sell venture investors a âtoken+call optionâ, and to not sell at a discount. This is something UMA is calling a Success Token (because the idea is that the bonus is only valuable if the project is successful). @SBF and others in the forum think this is a sensible idea, as it aligns interests wellâthe venture investor only gets the added value if the project is successful. The terms of the call option (strike, expiry, and number of options) are flexible, and can be the basis of the negotiation between the DAO and the investor group.
What does the Sushi community want?
Does the Sushi community want cheap money, or strategic investors? I think there is going to be a wide range of opinions here. My read from @0xMakiâs comments on the community call is that he personally believes venture investors like @amywu can be transformational to Sushi community right now.
Where does UMA come in?
Traditional companies use legal contracts to do debt and equity financings, write vesting agreements, and write financial contracts of all sorts. DAOs like Sushi need access to the same sort of functions, but they canât use legal agreementsâthere is no legal recourse in DeFi! There is an open space to define the design patterns for how DAOs do debt and equity like financing. Iâd like to see UMA to be part of that.
We have the ability to deploy range tokens, success tokens, or even things like @AdamSCochranâs Smaug with audited code today. UMA did itâs own $2.6mm range token as a test, and it was ridiculously easy to do (no lawyers required). Iâd like to see UMA make it dead simple for DAOs to do these sorts of trades in the future, and itâd be awesome to do this with the Sushi community.
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I appreciate your input, but would have to disagree here about selling âsuccess tokensâ if itâs going to be a private VC deal.
This is IMO even worse than the 30% discount proposed earlier.
Why does the project need to give a private group of investors a deal where they can buy $SUSHI at current price and obtain both the upside of the underlying token AND the upside of an additional $SUSHI token if the price hits a certain target? Itâs essentially giving the private investors the upside benefit of 2 $SUSHI tokens for the price of 1.
Given how crypto markets move, it is not a stretch that sushi would hit the price target referenced earlier in UMAâs blog post WITHOUT any help from strategic VC partners.
I too would like access to this deal. Iâm sure most of everyone else in the community would like access as well.
At the end of the day, this just feels like giving favors to a small group of private investors and creating a more complex structure than it needs to be. If people want to invest just buy on market like everyone else.
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Have we thought about raising from strategic investors in the context that corporates are the ones investing into Sushi instead of VCs? Wouldnât that bring more synergistic value? e.g. Banks/Neobanks/Robo Advisors, etc taking a stake in Sushi and thereby incorporating their various financial products into Sushi, reaching millions of non-crypto folks who require various financial products/services for different purposes.
Additionally was also thinking about this idea(wrote more extensively here) where a DAO structure can be set up as an extension to the VC(similar to a SPV in TradFi world) who is making the investment. Through the DAO(specifically for Sushi investment) community members can be part of this DAO and invest alongside the VC.
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A couple points:
(1) this doesnât have to be a private VC deal. Itâs completely up to the Sushi community to decide how this is sold / who has access.
(2) a token + call option is definitely not 2 tokens for the price of 1 (unless you set the strike of the call option at zero). The components actually offset each other in a pretty cool way: the token portion is locked in the structure until expiry, meaning it should trade at a discount due to illiquidity; the call option portion offsets that.
I do agree with you that $SUSHI could rally to a price target organically (without direct help from strategic partners). But at least here the partners have a deeper incentive to really push hard for Sushi. If you wanted to get more explicit about the incentive, you could actually make the payout of the call option also dependent on the VC partner actually providing value (as measured by some pre agreed metric). Amy from Lightspeed actually suggested something like this on the call.
My point is that we can get way more targeted / precise than simply selling tokens at a discount. This seems promising to me for both Sushi and also other future DAO raises.
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A âsuccess tokenâ is inherently more valuable than a native token because it contains both the underlying and the call option. Unless the strike price is some unreasonably high number, selling it at the price of a single Sushi token is basically giving the buyer a discount.
This discount can be substantial. It depends on how the market moves organically and what strike price is set, but moves toward 2 for 1 and more as the price increases further above the strike price.
From what Iâve gathered in the discussions above, if there were to be a community sale, a block of tokens would be allocated to VCs and a segregated (and smaller) block would be allocated to the community.
Itâs unclear to me how bidding would occur to set the market price of this new âsuccess tokenâ instrument. If VCs can buy at a set price equal to the value of a single $SUSHI token without competing against retail buy pressure, while retail had to compete against one another, you would end up with highly unfair & disparate pricing between the 2 block sales.
Rather than setting up a new token with metrics which can be gamed and whose sale would be discounted for VCs and bid up to a premium for retail, it seems simpler to just have strategic investors invest directly.
If theyâd like to offer strategic advice to the sushi team, thereâs nothing stopping them from doing so today. Even better, as investors theyâd have the same aligned incentives as every other single sushi holder.
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Hey folks! 
This is Jason Choi representing the Spartan Capital team, here to offer our thoughts.
âHow did you get involved with this raise?â
Weâve been speaking with 0xMaki from Sushi since the inception of the project. Earlier last month, we were approached by Maki regarding a strategic raise.
Given the uncertainty in secondary markets, we saw the benefit of diversifying Sushiâs treasury to stablecoins and onboarding strong partners that could add value to the project, and decided to help.
We committed late in the process, therefore unlike most VC deals where the lead investors set the terms, we had no hand in setting the discount or lockup for the round. The deal terms were presented to us by Maki, and we accepted on the assumption this was agreed upon by other investors.
With a growing team and wide network of DeFi projects, we believe we could be a helpful partner to Sushi and agreed to participate in the round. After we communicated our interest, we were told we would be one of the co-leads in the deal by virtue of the size of our commitment.
We responded that we would be happy to co-lead the deal with the other major VCs, and the arrangement was proposed for a community discussion on this forum.
Over the past few days weâve been following the community discussion around the Sushi Phantom Troupe Proposal closely and we would like to share our perspective.
âWho are you?â
To provide some context, Spartan is a crypto fund based in Asia that has been investing in the space for the past 3 years.
We run a crypto hedge fund and a DeFi venture fund that has a mandated lock up for 5 years - meaning we think about our investments in that fund in years, not weeks or months.
We have been vocal and active users and supporters of DeFi since 2019, and are one of the few DeFi-focused funds with a mandate that fits a venture horizon in Asia.
âOk good for you. But have you actually helped before?â
VCs can promise the sky when they want to get an allocation!
What matters is how they have actually helped, and how they will.
Hereâs a few ways weâve engaged before.
- Spartan has been an early holder of SUSHI and user of Sushiswap
- We actively provided liquidity to the protocol via our liquid vehicle
- We drafted one of Sushiâs earliest governance proposal around insurance mining
- We nominated ourselves as a multisig signer during Sushiâs most difficult time (Chef Nomi sagaâŚ)
- To this day, we are vocal supporters of Sushi in most of our public appearances and media distribution channels (e.g. podcasts, panels, social media)
- As Maki mentioned, one of the key priorities is to refer new projects to work with Sushi - as a purely DeFi focused fund we are in a unique position to assist with this. We have already connected a few of our portfolio companies with Sushi/Miso!
âSo how do we improve the current raise?â
Overall it seems like the community feels that:
1. The size of the raise is too large
2. The list of investors is too long and selection can be improved
3. The discount offered to investors is unjustified
4. Sushi shouldnât be diversifying its treasury when prices are depressed
5. The idea of offering a discount is contentious even with a 24 month lockup
Here are some of our suggestions re the above concerns.
A) Re size:
Sushi team should set the size of the raise itself, and communicate with some detail over how the funds will be used, and over what horizon.
As part of the raise is also done to diversify the Sushi treasury into stablecoins to withstand market volatility, not just to raise capital, Sushi team should also communicate how much buffer they require for the team to continue to expand throughout a potentially lengthy bear market.
That will help the community understand better the opportunity cost of not raising, and come to an appropriate size.
B) Re investors:
We agree the list of investors may be too long.
As Maki stated, one of the key priorities is to have a continual pipeline of quality referrals of projects for both Miso and Sushiswap, which requires the investor to have an existing portfolio of quality projects in DeFi, and a consistent, ongoing pipeline of DeFi projects to come.
Funds should also at least be able to serve as an LP to Sushiswap, as that is the foundation of Sushiswapâs liquidity.
At the risk of a community vote devolving into a popularity contest, we advise every strategic investor to list out their prior and upcoming contributions to the protocol, and for the wider community to vote on who should be on that list based on those contributions.
C) Re price and discount:
Maki has done a great job in reaching out to diverse funds in the space - from hedge funds, to prop funds, to traditional venture capital firms. These different fund structures imply different liquidity requirements and ways to compute discount.
We donât think itâs productive to debate whether venture funds are more âstrategicâ than traders. The fund structure may or may not dictate investment horizons, but does not imply how helpful an investor actually is usually.
In fact, some of the liquid funds weâve worked with before have also provided disproportionally more value than venture funds - especially in DeFi - so we donât think thatâs where the line should be drawn!
Now, the community seems to care most about the existence of a discount and the idea of having Sushi sell too many of its tokens during a depressed market environment.
One potential suggestion weâve come across to avoid the Sushi team needing to sell its tokens too aggressively today with no promise of value add came from the UMA team: the Success Token.
We are still in the process of properly evaluating its pros and cons, and whether it meets the communityâs standards of fairness, but it seems like a promising alternative.
In short, the token is a composite token that comprises 1 SUSHI + 1 call option on SUSHI with a certain strike price and expiry date. The structure allows the Sushi team to not need to sell any tokens at a discount upfront.
In other words, the call option itself doesnât pay VCs a profit immediately via an upfront discount.
VCs do not profit unless the token exceeds a certain price by expiry (e.g. 3-4 years). Should VCs fail to inject value into the ecosystem in that time frame, the option may expire worthless.
This is just an initial suggestion, and weâre not married to this. Weâve already reached out to the UMA team to discuss more. Should there be interest in this structure, we are happy to discuss what it might look like!
Final words
Shepherding governance for decentralized protocols is not an easy task. Maki deserves credit for attracting a strong group of investors who are willing to be part of the Sushi community!
We hear your concerns that not all investors add the same value, and that preferential treatment of any community members, VCs or otherwise, is unfair.
We think that speaks volumes about how strong and supportive the community around Sushi is.
As with all partnerships, there should be extensive due diligence about the parties involved, their prior contributions, what value they can actually bring, and the investment horizon they hold.
We have been investing in DeFi for more than 3 years and have worked closely with projects and founders. We are happy to provide references to a few founders if anyone in the community wants to vet our credentials as well.
Some of you have known us for a long time, and were there with us advocating for DeFi when Aave was still ETHLend and people still called it âOpenFiâ. 
Weâre grateful to be considered as part of this community - and if in the end the community is vehemently against any type of raise, it wonât dent our passion for DeFi one bit.
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So would you lobby that if success tokens are made, theyâre sold to everyone in the community, or do you wanna vulture those?
Personally think it should be open to all - or at least put to a community vote based on past and future contributions to Sushi, for anyone who wants to get involved!
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does your team share in any of the legal concerns @AdamSCochran raised?
Also just wanted to share here weâve decided to run daily AMA community calls this week to support the conversation on the raise, 9pm UTC in the sushi discord.
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Good question. This is just Adam talking his book.
Selling a token to a broad base of retail investors vs selling a token to VCs only has no effect on its status as a security. It just makes the sale a public offering, which is problematic if the token already is a security.
If you are concerned, the simple way to handle this is to avoid U.S. investors.
@lex_node gives a more nuanced analysis up above. He is spot on, as usual.
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Lex absolutely lays out the right nuance.
But, the Telegram case shows us that if something is not, or is questionably a security, you can absolutely have it muddied by making a security offering with it.
If I make and sell Beanie Babies to the public thatâs one thing.
If then to raise funds, I take those Beanie Babies I produce and sell a locked-up tranche of them to private investors, in a private offering where I create the expectation of returns based on my material efforts and not theirs, then Iâve created a security offering.
Now, since that offering is with the single asset type, Iâve muddied the asset and it becomes reasonable for the general public who also hold those Beanie Babies to not only look that them as a collectible but now as an investment, as I the issuer, have expressly issued the same thing, in a an investment fashion to investors.
Thatâs why Iâve noted in my expanded Smaug thread, and should clarify further here, you probably donât want to sell it privately to investors at all either.
If you were to sell it, you would need to do something like selling future debt, collateralized by locked Sushi and not the express sale of the Sushi itself.
None of that negates the risk in selling to the public.
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This got pretty contentious fast so wanna pitch in with my PoV for Zee Prime. I already did so on Twitter, but main points here:
-
A proposal should make it more clear, that the primary goal is treasury diversification (in order for SUSHI to be derisked in case of prolonged bear market without needing to dump on market) and SUSHI ownership distribution to long term aligned entities.
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Asking every investor to write what kind of strategic value they aim to bring is of course legitimate, but over-focusing on KPIs and deliverables may be missing the main point (treasury diversification). I would instead focus on picking investors based on their alignment with Sushi goals and community values. For example, letâs make every participant underwrite a honour based statement of alignment - e.g. they subscribe to act in alignment with Sushi, wonât be dumping nor hedging their exposure etc.
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Letâs make a short list and invite non-VC participants as well - influencers, angels, founders and members of partner projects and crypto companies. These could all bring another angle of differentiated value add and further distribute the token ownership (decreasing avg ticket size). Downside: additional overhead.
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Decrease the size a bit to 30M-50M and set max allocation of everyone involved (one entity shouldnt get more than 3-5M imo, not sure if thats the case now)
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Make the vesting 1.5x - 2x longer to filter out more short term oriented investors.
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No, most of this is simply incorrect.
But, the Telegram case shows us that if something is not, or is questionably a security, you can absolutely have it muddied by making a security offering with it.
I am not sure what you mean, but offering a token that is not a security to the public will not usually make the token a security. To use your example, this would be like saying beanie babies are securities if I sell them directly to the public, instead of to toy stores.
If I make and sell Beanie Babies to the public thatâs one thing.
If then to raise funds, I take those Beanie Babies I produce and sell a locked-up tranche of them to private investors, in a private offering where I create the expectation of returns based on my material efforts and not theirs, then Iâve created a security offering.
Now, since that offering is with the single asset type, Iâve muddied the asset and it becomes reasonable for the general public who also hold those Beanie Babies to not only look that them as a collectible but now as an investment, as I the issuer, have expressly issued the same thing, in a an investment fashion to investors.
I am not sure what you mean by âmuddling the assetâ, but letâs assume that offering the tokens in this fashion would render securities.
Then, as @lex_node said, the tokens will be seen as securities regardless of whether they are sold to retail or to VCs only.
In other words, the act of selling the tokens to retail will not affect their status as securities. Period.
Thatâs why Iâve noted in my expanded Smaug thread, and should clarify further here, you probably donât want to sell it privately to investors at all either.
This might be right. Based on the Telegram case, it is possible the SEC could deem a contract to buy the tokens an investment contract (i.e, a type of security) and perhaps then even consider the tokens themselves a security. But selling the tokens to retail investors wonât affect this analysis.
If you were to sell it, you would need to do something like selling future debt, collateralized by locked Sushi and not the express sale of the Sushi itself.
This is also incorrect. Future debt that pays out the token price at maturity is a security in the same way that a convertible bond is.
In fact, I think it is probably even more likely to be seen as a security than a locked up token because the payout (token price appreciation if the price of Sushi goes up and $1000 principal amount if the token price goes down) is directly dependent on the operations of Sushi.
In other words, this makes the problem worse. Not better.
None of that negates the risk in selling to the public.
Agreed. If the tokens are securities or a product is sold to the public that is a security, there is risk.
The easiest way to address this risk is to avoid the US.
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It is a legitimate offer, when VCs are all over with a lot of money looking to invest in a token. What I donât understand is how you get to such a discount. Itâs really unfortunate to see such an action, without any base to it, from my point of view.
- You donât need capital
- With even 10% discount and a general offer to your community, you would manage to diversify the capital base.
So, yeah, it sounds pretty much like not a good deal TBH.
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Yes. Thatâs what Iâm saying.
Avoid ever selling Sushi from the treasury, too anyone in some locked promissory sale.
The best way to do that is through another debt asset that is separate and distinct, that you can collateralize with current funds should you fail to pay back.
You then use that asset in an exempt offering.
Iâm not saying that wouldnât be a security, I am saying it would be, but it keeps the direct sale of Sushi out of it.
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Got it. You are correct that the bond would likely be a security and the structure is different from the SAFT and Telegram legal precedents.
However, I think what you are arguing is that selling a convertible bond is less likely to taint the underlying Sushi than selling it with a lock-up. Why?
A convertible bond is no different than a lockup with a contingency.
If the price of Sushi goes up, you get the Sushi at the maturity date - i.e., when the lockup expires.
If the price of Sushi goes down, you get a refund (the principal back).
It is hard to see why a court in the US would see this as any âbetterâ than a regular lockup in which you cannot get your money back.
Based on the response, Iâm assuming youâve not read the other in-depth proposal.
As the bond is collateralized by the Sushi but can be paid in the debt (USD) and only converts to the Sushi should it fail to repay the debt balance (+interest/appreciation)
Using something as collateral because it has value, is not the same as promising that thing will have greater future value.
Based on the response, Iâm assuming youâve not read the other in-depth proposal.
As the bond is collateralized by the Sushi but can be paid in the debt (USD) and only converts to the Sushi should it fail to repay the debt balance (+interest/appreciation)
This is the exact mechanic I described, except that I said the payout of the appreciation would be in the token (instead of cash).
Paying out the appreciation in cash instead of tokens will have no effect on the securities law analysis. In fact, cash settled convertible bonds are normal in the US and have been for years. Courts and the SEC will view them exactly the same as they view physically settled ones.
Using something as collateral because it has value, is not the same as promising that thing will have greater future value.
Thatâs right. This is neither here nor there.
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@AdamSCochran Despite my responses, I know you have contributed to the Sushi project and want to continue contributing to it.
Moreover, I believe your proposal to have Sushi issue a convertible bond was novel and creative, and could be extremely valuable to Sushi or another product.
Letâs transform this into a constructive conversation and focus on creating a workable solution.
For this project, the easiest one is to offer locked up tokens, a convertible bond like you have suggested or a call option package outside the US. Offering to retail or to VCs only usually wonât matter much. In contrast, executing any of these options within the US will be much more risky.
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