A Perspective on Returning Value — An Open Letter to JPEG’d DAO

Temple is first and foremost a team of builders. We love to support other builders who push the envelope of what is possible in DeFi. That is why we have been early supporters of Wasabi Protocol, an NFT options and perp protocol. Last year TempleDAO also supplied liquidity to Caviar Protocol, a novel NFT AMM based on Uniswap technology. We admire the work that the JPEG’d Team has accomplished in developing lending products for the NFT space and we look forward to the upcoming launch of NFT perps.

However, we were alarmed by the recent Snapshot proposal from the JPEG’d Team, which made unfounded accusations against TempleDAO. It wrongly alleged that our acquisition of a significant JPGD position was intended as a precursor to advocating for a vote to shut down the JPEG’d Protocol for short-term gains. Nothing could be further from the truth. Far from being raiders, TempleDAO joined the JPEG’d community to see the JPEG’d Protocol thrive in its mission to build primitives for NFTs. TempleDAO has never put up a proposal to shut down any protocol, nor have we ever acquired a governance position in order to facilitate such an effort.

The recent ETH pump has pushed the JPEG’d Treasury value to $64.5mm as of February 24, 2024. Unfortunately, the market has not yet appreciated the good work that the JPEG’d Team has done to ship new products. This has led to a depressed price for JPGD that is far below Treasury holding per token. As part of the community, TempleDAO appreciates the progress that the JPEG’d Team has made. We also have the right to ask why a burgeoning Treasury should not also be used to return value in a more direct way such as a buyback if it would not adversely impact ongoing development? Even Tetranode, a prominent community member closely aligned with the Team, has previously expressed support for the idea that the Treasury can be used to return value to token holders in more ways than one.

Recently, the JPEG’d Team orchestrated a token migration from JPEG to JPGD (JPEG to JPGD Migration: A New Era for JPEG’d | by JPEG’d | Jan, 2024 | Medium). However, merely resetting the price charts will not rectify the declining price issue. While some would argue that buying and burning JPGD doesn’t generate long-term value, we believe that a failure to preserve token value and reduce supply is the very reason a community might decline, potentially falling prey to “corporate raiders” indifferent to the JPEG’d DAO mission.

Even setting aside a substantial buffer to address exploits or legal hurdles, the JPEG’d Treasury is well-capitalised. Given last year’s budget of $175k per month, the JPEG’d Team has over 30 years of operational runway, which could technically be infinite considering the ETH staking yield even without any product-generated fees. There is clearly more than enough Treasury holdings to both see the JPEG’d project through to completion and support the token holder community.

To summarise, TempleDAO is here to win (or ween) together with JPEG’d DAO. We believe that the burden falls on the JPEG’d Team to explain to the community what could be providing a better return on capital than buying back JPGD token that is trading at 43% below Treasury backing. The JPEG’d Team should support the community instead of letting the falling price of the governance token drive out long-term holders.

Below we address some of the concerns and misconceptions regarding a potential JPGD buyback program.

TempleDAO is not interested in NFT Finance or JPEG’d mission

False. TempleDAO is an early supporter of NFT Finance. We are by far the #1 options writer on Wasabi Finance NFT options platform. We supplied liquidity worth 50 ETH to the Wasabi Perps vault during its first week when the total value locked (TVL) was still under 150 ETH TVL. Previously we partnered with Caviar to provide 150 ETH worth of Uni v2 liquidity for the Milady collection.

TempleDAO has tried to connect with JPEG’d Team members to align, but they ignored our outreach efforts and instead put up an emergency proposal to raise the Snapshot approval threshold to frame TempleDAO as a villain instead of a supporter.

Nobody supports JPEG buybacks except “corporate raiders”

False. A growing number of crypto thought leaders are calling for the demise of “valueless governance tokens”. TempleDAO is not alone nor the first community member to call for the JPEG’d Team to do more to protect token value. In October of 2022, a forum proposal was submitted for a $5mm JPEG buyback when ETH was at $1300. Community leader Tetranode expressed support for giving the JPEG’d Team authorization to buyback JPEG anytime below Treasury backing. A second proposal was raised in November of 2023 by another JPEG whale for a buyback of up to $10mm.

How would buyback benefit the DAO and attract new users?

A buyback means reallocating some of the Treasury assets toward protecting token holder value. Since the Team is so well-capitalised, this buyback would not affect current nor future product development. New users would feel confident that the JPEG’d Team is not content to let token price fall while letting insiders buy up all the tokens for pennies on the dollar. All token holders would benefit from higher prices and the DAO discussion would shift from token price to product development and how to grow the community.

Buybacks are Ineffective / Unsustainable / Exit Liquidity for Whales

False. Buybacks can be ineffective if not executed properly, but it would be untrue to say that they are categorically ineffective or unsustainable. TempleDAO activated RAMOS in November of 2022. The price floor to which TEMPLE is indexed has risen at an annualised rate of 13% over the past 12 months. The value of the Temple Treasury has remained steady during this period and sell pressure has all but vanished which has freed us to focus on building.

Nexus Mutual has recently implemented a similar price stability mechanism (RAMM). Ongoing operations, policy underwriting, and product development have not been impeded even as wNXM token price has reached par with book value.

And lastly OlympusDAO utilises Range Bound Stability to help stabilize its token price and OHM is now trading at a 10% premium to its book value. We also note that TempleDAO is a major stakeholder in Olympus and has not sold any OHM despite having acquired most of its OHM when it was trading below book value–hardly the behaviour befitting a corporate raider.

Establishing a Price floor means price will be locked to backing value forever

False. As noted above, OHM is trading above Treasury backing per token. We believe that the JPEG’d Team can provide value-add far above and beyond cash value. Nothing about a price floor would preclude JPGD from trading at a premium to Treasury backing if the market recognises the extrinsic value of the protocol such as its products or fee generation potential. A price floor would only prevent dilution of existing loyal holders by newer and more mercenary holders and strengthen the current community.

What would happen after the buyback period?

A fixed price/duration or a one-time “rage quit” are suboptimal ways to implement a buyback. If JPEG’d DAO adopts a price floor, community members would be incentivised to stay for the long-term because their governance claim will appreciate over time, eliminating the urgency to sell their tokens.

TempleDAO has extensive experience with price floor protection through our automated market maker system (RAMOS). When Treasury value rises, the price floor is updated accordingly and the AMO will single-side withdraw the token and burn the supply. The timing and the rate of the price floor increase is controlled to make front-running unprofitable. Our Treasury Policy contributors have written extensively about RAMOS.

How much will it cost?

Given that the October 2022 proposal from the JPEG’d community called for a $5mm buyback when ETH was at $1300, we believe that a budget of $12mm toward some form of buyback is reasonable given that ETH now hovers at $3000. Ideally the price support level would be raised and maintained in a sustainable way (e.g. RAMOS) such that the JPGD arbitrage doesn’t open up again in the future. If the $12mm is depleted at some point, the community can re-evaluate at that time.

Update: a previous version of this article mentioned that the token migration occurred without a community vote; this has been rectified following community input. (edited)

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