Bulls on the Block - Revolutionizing what it means to build a community around NFTs

None of this is financial advice in any way. I am not a financial advisor. Do your own research.

 

Overview

Below is a draft framework and thought piece for managing the Bulls on the Block (BOTB) Community Wallet. An intelligent use of this wallet can play a substantial role in setting the BOTB community apart from other projects, while aiding in the development of community (e.g. around discussions on use of funds) and long term value accumulation.

Thoughts below are based on discussions on the discord channel and are meant to be a starting point / thought piece for discussion, with edits from the community. 

 

I do not speak for the BOTB community, or the BOTB Team. 
 

Summary
The discussion below relies on a trusted and fair DAO / voting structure to manage the Community Wallet. This requires that voting decisions cannot be ‘gamed’ for the benefit of some Bulls over others, along with preventing theft of funds. I will leave the voting structure and methodology out of this, for now, acknowledging its critical importance. 

Management of the Community Wallet would also benefit from certain trust and fairness requirements, such as limiting the percentage of the Community Wallet funds that can be spent in any particular month/year, or ensuring that any material distribution of value to the community is statistically equal for all Bull holders.

Please raise thoughts for discussion in BOTB discord. For direct edits DM comments on the below to @OnTheBull, or leave in comments.

The community is divided on the use of Community Wallet funds for (1) short-term community-building activities and (2) longer term investment of funds / accumulation of value within the Community Wallet.
Short-term community building activities include:
 - Merchandise

 - NFT buybacks (including removed from circulation, donated or used for promotions)

 - Marketing initiatives

 - Airdrops

 - Land in Sandbox

 - The list goes on…we have a creative community


Longer-term investment of funds includes growth of Community Wallet through:
(1) Accumulating fees from OpenSea transactions (2% of sales)

(2) Growth from compounding investment returns


The intent of this proposal document is to help set a framework for balance between the use of Community Wallet funds across both short and long-term options. The particular use of funds for short term activities or long term investment decisions should be voted on collectively by the community.

Benefits of short-term community building activities
Many of the above-mentioned short-term activities are important to build and foster a sense of community, along with providing short-term economic incentives to drive demand for Bulls. Actions to build a sense of community will benefit longer-term demand, while economic incentives (e.g. air drops) will benefit demand in the shorter term.

Further, ongoing short-term activities will help build an ongoing sense of community, purpose, and discussion around the use of funds. This could end up becoming a core component of the BOTB community over time. For this reason, ensuring a continued flow of funds for short-term activities is critical. A longer-term investment fund could help assist with this over time as funds accumulate, enabling short term initiatives even if trading volumes slow substantially and fee income can no longer be relied on.
 

Benefits of longer-term investment fund
There are two primary reasons to consider longer-term investments as a use of Community Wallet funds. Firstly, they set a floor value for Bulls in the market. Second, a large and growing Community Wallet supports community and long-term belief in the project. 

1. The Community Wallet sets a price floor for Bulls
Borrowing from finance, the value of a Bull is equal to its intrinsic value plus its extrinsic value. That is, a Bull’s value is equal to its proportional interest in the Community Wallet (1/10,000th of the value) plus the value attributed to being part of the BOTB Community and the utility derived from ownership of a Bull (collectability, aesthetics, etc.). Lets ignore future cash flows for now. 

Even if all community is lost, the value of a Bull should not fall below the intrinsic value due the arbitrage opportunity it creates. Let’s say, for instance, that over time the Community Wallet grows to 3,000 ETH through the accumulation of fees and investment income (this is not unreasonable, we are currently generating 20 ETH per day in fees). The value of each Bull, in this scenario, should not fall below 0.3 ETH. This is because the Community Wallet can be used to repurchase Bulls selling below their intrinsic value. 

Repurchasing bulls below intrinsic value is accretive, increasing the value of each Bull. For example, continuing on the above scenario, if 5,000 bulls were repurchased for 0.1 ETH, this would cost the Community Fund 500 ETH. The 2,500 ETH Community Fund is now controlled by the remaining 5,000 Bulls. This makes the new intrinsic value of each bull 0.5 ETH. Buying pressure from repurchases would ultimately drive the market floor price of Bulls back above intrinsic value. 

2. A large and growing Community Wallet supports continued community building activities and long-term belief in the project
If the Community Wallet funds were to be spent immediately, so too would community interest and excitement around potential uses of these funds. This excitement sets the Bulls apart from other projects, and thus it is important to retain this differentiated value driver. 

A large and growing Community Wallet demonstrates to everyone that Bulls are here to stay, and are increasing in importance. Excitement and interest in the governance of this wallet will increase in tandem with its size, driving demand and higher Bull prices. This creates a positive (bullish) feedback loop that we need to keep spinning. Sufficient funds must be maintained in the wallet to continue short term community activities for the long term. 

In order to accomplish this, the Community Fund would benefit from a structure that ensures longevity of the Community Wallet. In short, the fund should not spend more than it is expected to generate in fees and investment income on an annual basis. 

The Bullish feedback loop

Unique to the BOTB community is the opportunity to deploy Community Wallet funds to strengthen demand for Bulls. The Community Wallet can be used to strengthen community, which ultimately drives higher demand for Bulls. Higher demand means higher fee income from OpenSea, Community Wallet value growth, and ultimately more funds for community-building activities or economic benefits to Bull holders over time. 

The Endowment Fund model
In order to ensure longevity of the Bullish feedback loop, we should maintain balance between short-term activities and long-term growth of the Community Wallet. For context, Universities or charities often use Endowment Funds to ensure long-term funding for annual activities. The idea with these funds is to spend slightly less each year than what the endowment expects to generate in returns. For example, XYZ University’s $5 billion endowment could target investment returns of 6% per year ($300 million), and might use a slightly lower amount of funds (5%, or $250 million) toward activities that benefit the university. 

The BOTB Community Fund can deploy a similar approach, aiming to spend less than what it expects to accumulate each year. Below is a diagram to help aid in the thought process (shout-out to @Carranza for creating this visual). 

 

Over time, the Community Fund can expect to generate two sources of income:
1. 2% of OpenSea transactions, and 

2. Investment returns from long-term investments


Currently, the community fund sits at 92 ETH, made up of 50 ETH that was promised as part of the roadmap, along with ~42 ETH generated from OpenSea fees in the first two days of launch. Given the excitement during launch week, it is highly unlikely that transaction volume will remain at these elevated levels (~20 ETH per day). However, let’s be super conservative and assume transaction volume falls 90% and that Bulls don’t increase in value over time … that still amounts to 2 ETH per day ... 2 ETH per day gets us to ~730 ETH annually ($1.8 million USD). Clearly we have a lot to play with here, and there is a lot of upside to this figure if we do this right. It is important we are all thoughtful on how these funds are used to ensure the longevity of the community. 

Referring to the above diagram, the proposed model suggests we essentially split the Community Fund into two buckets. One bucket will fund short-term spending activities on whatever the community decides is valuable at the time (via a voting mechanism). The second bucket will be focused on accumulating a war chest of capital under an Endowment Fund model, which will be used to help fund short-term spending needs over the long term (even if transactions slow significantly) along with demonstrating the growing value of the BOTB community. 

In the early years, the majority of Community Wallet cash inflows will be generated from transaction fees. As a percentage of cash flows, this will slowly decrease over time as the long-term investment portion of the Community Fund grows in size, and is thus able to generate more cash flows from investment returns.
The community must decide how much of the transaction fees should be directed toward the long term and short term buckets of the Community Wallet.

Pillars of demand
Ultimately, the above framework should support core pillars of demand for Bulls. 

1. Community: A strong community that individuals value being a part of 

2. Intrinsic value (community wallet): The current value of the Community Wallet, perhaps even including the value of future fee income generated from sales activity

3. Governance / voting power over the Community Wallet

4. Differentiation from other projects: Included within this category are the unique aesthetics of the bull community (thanks Rui), the ability for the BOTB community to come together and govern the Community Wallet, and what we hope will become a differentiated community of individuals. 

 

And of course, since someone will comment on this, unique to the value of individual bulls is variations in rarity and aesthetics, as determined by market forces. 

Next steps / points for comment and discussion:
I could only spend so much time on this today, and there is still a lot to think about. I hope this can be used as a starting point to help the BOTB community think more deeply about this topic. Below are some additional items to expand on in the future. Comment in discord! 

 

 - Broader analysis of optimal governance structure. The Community Wallet could get very large, increasing the importance of this.

 - Discussion on the proportion of funds to allocate to short term vs. long term Community Wallet Bucket.

 - Deeper discussion on specific options the community should vote on for the short-term bucket and longer-term bucket


 - Safety rules to ensure funds are not misused. E.g. first community vote should only be X% of wallet funds to ensure a smooth process?

 - Something else in mind? Comment in discord channel.  

Thanks for reading, 

@OnTheBull