I want to deliver on the communication I promised in the general channel a week ago. This is a post for which there were three intentions - accuracy, clarity, and comprehensiveness. Over the last couple of weeks, I’ve worked with many different perspectives in effort to best have this post reflect these intentions. In this post I will outline our financial health, trajectory, and options.
1. What is our current deficit?
In truth it’s about -900k, but you’ve likely seen or heard the -500k number.
This is, as you may have heard, because we’ve been issuing 1.3M grain/yr with only $1M/yr in funding coming in.
Why two different deficits?
The difference is DL, they are planning on not redeeming any of their entire 398k balance into the new on-chain grain to give the rest of the community priority in redeeming grain. But we’re nearing the point where even that’s not going to be enough, considering we have about 500k left, which is barely enough to cover the outstanding grain under the assumption that DL doesn’t redeem a single dollar.
Here’s a summary:
We have a 988k grain issued but unredeemed, and only 132k in the treasury which gives us the deficit of $855k. And subtracting DL’s balance, we arrive at a deficit of $458k (as of Jun 26).
2. Why did the deficit form? Why didn’t we just match funding to grain issuance?
There were many ways out of racking up the deficit, but first some background.
Most tech projects/companies rack up deficit through early stages of growth using investor capital but with the mutual expectation that the project/product/tech/startup has a positive growth trajectory in:
In such a scenario, capital is used to accelerate growth of all three things. With Protocol Labs (PL), the expected use of capital was more specific to accelerating development of the technology.
Now for a little SourceCred history:
In the beginning, we were distributing exactly the funding, but SourceCred was mostly techies who didn’t need the money. So that meant that most of the budget just stayed in our treasury, while the few people who needed the $ weren’t getting enough. We upped the Grain distribution rate to better reflect the needs of the community, but this assumed that SourceCred’s technology would continue to grow and become more successful in the future.
However, over time, our focus shifted away from this initial vision and toward initiatives unrelated to technology development. And per the current trajectory, the assumption that SourceCred’s technology would continue to grow and become more successful in the future is less certain than it was at the inception.
If funding is to continue, PL wants to see clear accountability and roadmaps. And this funding will be contingent on the success of a reapplication. Further details on PL’s expectations and reapplication see (PL sync discourse post / announcement)
3. What about Dandelion? Wasn’t this grain issuance policy their decision?
In effort to take accountability for their decision and to aid this transition by giving other community members a chance to redeem their grain balance at $1, Dandelion will NOT be redeeming their ~398,000 Grain for the $1 peg. Regardless of the current community sentiment on Dandelion, from a financial perspective this is crucial in buying us actual options for the transition.
4. How fast is the deficit growing?
Considering the financial analysis was done with the assumption that if we decided to let everyone redeem their grain, the funding through the end of 2021 would be given all at once, our deficit against expected funding currently grows at almost the entire 25k per week (23k-ish to be more exact, after accounting for recurring tithing revenue).
What does this mean?
UPDATE (7/17): William, one of the co-founders of SourceCred has expressed that he may consider using part of his ~63,000 Grain balance to help SourceCred through this transition, but this is not something to be relied on in planning.
5. What are the options?
There are time sensitive decisions and longer term strategic decisions we need to make. I will focus only on the former decisions, specifically, the options we have for the decision which must be made in 2 weeks. The key problem for which we need to find a solution is : How do we handle grain issuance after grain is no longer backed in 2 weeks.
In order to foster more open discussion, I’ve laid out the barebones details of the options.
In 2 weeks, we can:
A) Stop grain issuance - at least until funding is secured, at which point grain can be turned back on in accord with the funding.
B) Switch to issuing on-chain, unpegged grain - with this option, all grain past two weeks from now will no longer be able to be redeemed for $1, but rather at whatever price the market dictates. This was a plan that has been discussed as ‘always the eventual end goal’. It does however come with some risks and material changes to how the grain is currently used.
C) Keep issuing grain with zero changes - this would accrue a deficit at ~100k/month, currently there are no plans to account for this deficit.
D) Reduce grain issuance rate - surprisingly, without further secured funding, this option is little different from option ‘c’ this option also accrues a deficit with no plan for accounting for it.
E) Other - definitely open to other plans as the community ideates, the 4 mentioned are just the ones I’ve been able to identify.
More details and clarification will be provided at the Finances Q&A part II as desired by the community.
6. Do I need to cash out before others if I want to not have my grain be worthless?
No, If we can finalize a plan within two weeks, everyone can safely redeem the full value of their grain.
Given our current financial health, we are in danger of causing harm to the community members who’ve worked hard, as reflected in part by their grain balances. We need to make a decision within the next 2 weeks in order give SourceCred’s vision the best chance to survive, the same vision that drew most of us to the project in the first place.
If you have any questions, I, along with a panel to be finalized, will be holding a second Q&A at 330pm PT - 530pm PT on Tuesday July 20, 2021.
LINK to finances spreadsheet: