Proposed Change to Grain Redemption

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As discussed in the SourceCred Finances Discourse post, SourceCred can no longer afford to support a fixed $1 redemption price for Grain, while continuing to issue Grain. This issue is that while we do have financial resources and funding (totalling to about $425k through end of year), we have around 1M Grain currently outstanding. Thus, mathematically speaking, each Grain is only backed by about 42 cents, rather than a dollar.

I’ve offered to not redeem any Grain until SourceCred is on better financial footing, which brings our overhang down to about 535k. However, that means we still only have about 80 cents per Grain.

We have a plan to shift the SourceCred treasury onto much more sustainable footing: basically, by launching Grain as an on-chain token. As discussed in my presentation during the SourceCred retreat, this will remove the financial instability we have around the peg, and let the Grain price be determined by the market’s perspective on SourceCred as a project.

It will take some time to launch on-chain Grain. However, we need some urgent action, as right now every week of inaction worsens our financial position. This is because every week some people redeem Grain (removing money from treasury) and we also issue Grain (increasing claims on the treasury). Basically, if we don’t do anything, we’d run out of money, cease to be able to redeem any Grain, and leave anyone still holding Grain out of luck.

Therefore, I propose we make two changes.

First: for so long as we continue to have off-chain Grain redemptions, we’ll choose a price that matches the actual amount of proven funding in SourceCred treasury. Basically, this mitigates the issue where everyone who redeems Grain leaves the project in a less sustainable financial situation.

Since Grain issuance is predictable, we can predict how the Grain redemption price will decrease over time:

Date Redemption Price
July 22 $ 0.87
July 25 $ 0.83
Aug 1 $ 0.79
Aug 8 $ 0.75
Aug 15 $ 0.72
Aug 22 $ 0.69
Aug 29 $ 0.66
Sep 6 $ 0.64
Sep 13 $ 0.62
Sep 20 $ 0.59
Sep 27 $ 0.57
October 3 $ 0.56

The downward trend in Grain redemption price is due to the fact that we continue to mint more Grain every week. If we were to stop Grain issuance, that would also stop the descent in Grain redemption value. Or, we could halve Grain issuance, and the Grain redemption price would drop much more slowly:

Date Redemption Price Price with 1/2 Issuance
July 22 $ 0.87 $ 0.87
July 25 $ 0.83 $ 0.85
Aug 1 $ 0.79 $ 0.83
Aug 8 $ 0.75 $ 0.81
Aug 15 $ 0.72 $ 0.79
Aug 22 $ 0.69 $ 0.77
Aug 29 $ 0.66 $ 0.75
Sep 6 $ 0.64 $ 0.74
Sep 13 $ 0.62 $ 0.72
Sep 20 $ 0.59 $ 0.71
Sep 27 $ 0.57 $ 0.69
October 3 $ 0.56 $ 0.68

Second: because we have limited liquidity (only 50k USDC remaining in treasury, and we don’t get another tranch of funding until the middle of August), we need to limit the rate at which people can redeem Grain. Basically, proposal #1 guarantees that the treasury won’t run out of money in the long-term, but because of the timing of when we get funding, it could run out in the short-term.

Therefore, to ensure that everyone has access to enough $ to cover their immediate needs, I propose capping the amount of Grain that any person can redeem per month at $4k. I hope this number will be high enough for folks who urgently need cash, but is low enough to ensure that a “Grain whale” can’t leave the treasury dry for the ~4-6 weeks until more funding comes in.

Between these two changes, this will fix the urgent issues with our treasury, and give us space to launch on-chain Grain instead.

I recognize these changes are uncomfortable, and we all wish that the project were in a better financial situation already. However, this will put us on stable footing to re-orient and build a better SourceCred.

Thanks to everyone who attended the DeFi WG today for helping tune this proposal, and to @scrabbleboy for helping us understand the financial situation, and @blueridger for organizing the emergency Core meeting to discuss this proposal.

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Support this proposal. In the DeFi working group, we discussed this at length and it seemed like the best option.

I will add that the bottom line isn’t quite as dire when you account for, a) we can expect some people not to sell Grain (e.g. I’ve pledged to leave my ~30k Grain on the ledger until the financial situation improves), and b) we have ~$40k in tokens from tithing I believe (it fluctuates considerably due to price volatility) . Selling tithed tokens right now though I don’t think is an attractive solution. Firstly, with the market down we might get less than if we hold, but perhaps more importantly, the liquidity isn’t that deep in some of the communities tithing to us. If we “dump” the tokens all at once, it could drop the price significantly. And I don’t think the amount of time that would buy us outweighs the long-term consequences. Moving forward, there are strategies for selling more responsibly over time and not impacting the price too much, as well as more sophisticated treasury management generally, but implementing those will take some time.

A strong argument was made however against not relying too heavily on people not to sell, so a liquidity cap seems like the most straightforward short-term solution while we explore getting more funding and growing our tithing revenues.

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Looks good.

As an interaction with the proposal to make a token, the redemption prices will change depending on how many other people convert to on-chain. I made a tool to help the treasury quickly calculate price: Grain Redemption Price / sourcecred / Observable

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Support this proposal. As a person who has been relying on grain for immediate needs, this plan feels solid and I deeply appreciate the creative problem solving that went into this.

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Thanks for thinking this through and making it so concrete for us DL, Bo, and DeFi folks.

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Looks great to me! Also happy to pledge not to redeem any of my Grain until funding comes, but capping it at $4k a month is a great way to keep it credibly neutral and enforceable (vs just honour system)

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Late to reading about the situation here.

Considering the tendency is to move towards an on-chain Grain, and being enough of a “Grain whale” to affect liquidity and floating prices, I presume it would be helpful to know what I have in mind for my Grain that has been left in unspecified limbo for some time now.

A few thoughts for context:

  • On-chain Grain will substantially increase administrative burden for my taxes. Even if I ignore and leave it be. And would be exacerbated by a floating price. So the desire to move to on-chain, to some degree forces my hand to redeem (or otherwise make a decision) whilst the current redemption model still exists.
  • At this point I believe it’s safe to say, I won’t return to working on SourceCred directly. So there’s an element of wrapping things up.
  • I’m not in urgent financial need, so an approach that doesn’t compromise anyone depending on Grain sales is clearly preferable.
  • I’m considering burning/donating an amount of Grain. And as a sanity check for this, would like to see where my account sits in the “balanced” policy. A big overpaid status would be interesting to know about before picking an arbitrary ratio of what I’d want to redeem vs not.

So my asks are:

  1. Would love to hear thoughts on which approach of not straining the budget you prefer. I could use the suggested $4k/m way for instance.
  2. Anyone willing to help validate my degree of over/underpaid under the “balanced” policy? I’ll have a go at this myself but a second pair of eyes would be much appreciated.
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Hey beanow, I unfortunately am not the best person to meet your requests, but I wanted to hop on and say that I appreciate the way you elucidated your situation, I would celebrate any burning of Grain that you would consider, and I find this a very thoughtful consideration. Hopefully my response brings attraction to this post. Actually, I will just post a link in the Discord now so that it may get more attention :+1:t3:

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Thanks for responding and bumping my questions.

As it turns out, the proposal had apparently been accepted on the same day it was posted. Emergency Core Meeting 2021-07-23

Just not really announced, so I was rather confused to find a 4000 grain redemption resulting in 3000 USDC on my wallet. https://github.com/sourcecred/cred/pull/328

Given the 4k/m rate limit and the remaining grain I had, it’ll take me 18 months to redeem. And given the steep cliff the redemption price has, being about $0.50 by the 3rd month, along with the reasons why my arms’ sort of twisted and I have to redeem, I think it’s fair to say I no longer get to decide how much I’ll be essentially burning.

So unless the finances change, my grain’s worth will be slashed beyond recognition. And feels bad this essentially became a “because I didn’t cash out when I had the chance” thing. I’ve been pledging for more rigor, monitoring and validation of the financials ever since the grain ledger was being written. Not only do I unfortunately feel proven right now in those criticisms, it appears I’ll be personally affected by it to the tune of tens of thousands of dollars.

It also changes the nature of my remaining questions a fair bit.

  • Will the on-chain grain be made mandatory anywhere between now and 18 MONTHS?
  • Is there any indication for this to be a temporary measure or is that wholly dependent on additional fundraising?
  • Assuming more people were in the same situation (having to saturate the 4k limit every month due to future on-chain plans) does it still hold up in not jeopardizing livelihoods of people depending on grain sales?

Things along those lines. Though frankly I’m disappointed and not expecting great answers, nor in a reasonable time.

Edit: want to make sure I mention I’m not upset at anybody in particular. Just a really disheartening state of affairs. That I saw coming. And didn’t want to believe, but here it is.

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Hey Beanow! I’m sorry for the late reply. Have been pretty slammed lately, and wanted to give you a proper reply. Thanks @Jolie_Ze for bumping.

I was kind of hoping you might come back someday! Bad timing to try and recruit you I know, but things have changed a lot since you left. I wonder…Presumably not lol, but If you ever want to just chat and catch up, curious what you’ve been up to.

The balanced policy only looks at the amount paid out, not redeemed…My assumption would be that this wouldn’t change that. It would just be like if you received it and transferred it to another address.

You are not alone in your frustration at the financial situation. It was not the community’s decision to spend over what was coming in. But here we are, and we are making policy now.

Afaik, there’s no planned end date to the current ledger system. Though at some point maintaining two systems will not become burdensome I imagine. Also depends also on how overall financial situation evolves.

My understanding is that this is temporary. We’re in negotiations to get further funding right now, and if that goes through, I would assume this is lifted. Also, it’s possible (though not guaranteed ofc), that people will buy on-chain Grain just to support the project, even before we do a proper token launch.

The 4k limit was chosen such that if we see significant Grain sales, we’re still OK. Contributors can still pay bills. However, so far redemptions have been fairly small. Most large holders that can afford it (myself included) seem to be HODLing for now. I’m not planning on using my 4k/mo limit until we get more funding, and would be happy to give it to you if you want to cash out faster at higher prices (i.e. I would just sell my 4k to the project, then buy your Grain personally with the proceeds). I’m also bullish on the token fwiw, and may buy more anyway, especially if on-chain price stays below $1.

Not sure I understand the question…If it helps, I will say that the Grain sales so far have been small, we’ve created a mutual aid network, and I don’t think selling 4k Grain/mo is going to impact things too much…That could change, but the 4k number was chosen so that if Grain whales start selling we’ll be OK.

Again, sorry for the delay and the turbulence. OG whales such as yourself deserve better :whale: :sweat:

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Thanks @s_ben.

From my point of view, my crypto related administrative burden is prohibitively expensive in opportunity cost. (Literal full-time months of wrangling monster spreadsheets and counting.) So I’m prepared to sell whatever you’re buying at almost any price.

That said, I wouldn’t feel great about the suggested way of using your redemption cap and buying back from me. As that seems more like you smoothing over some of that turbulence for me, and partially circumventing the financial restriction. I can definitely stomach the setback, so I’d rather not offload part of that onto you and rather abide by the spirit of the policy than get a better price for myself :slight_smile:

But yeah if you want to buy, let me know.

It’s entirely a health decision for me. Especially towards the later part of the adventure, I think my standards diverged from what there was support for, making doing what I stand for an uphill battle till I did burn out. Skimming through a few developments I’m not convinced that would be hugely different now, but do see issues that would drain my energy, so I’m very apprehensive of risking much involvement.