Case: Scraps DAO — In light of gassed-out investor

While looking at his holdings with a tilted head, Patron#1 has realized a potential to save some value for the poverty-struck sub-community of crypto from getting rekt as the market peaks (and subsequently corrects). In case of many small investors that entered earlier this year, it was easy to buy small amounts, and history is witness to the fact, that relatively small amount of tokens after gas expenditure, cost more to sell than their worth.

Everyone wants to extract as much upside as possible, however there is a colloquial saying that covers this case i.e. “left holding bags”; Obviously that means one didn’t sell when there was a chance to profit or cut losses, but for small investor, the cost of selling (gas) plays into it, given most tokens are on ethereum chain while most liquidity and exchange mechanisms on mainnet as of now, however that is going to change, which is what enables our proposed solution as it follows.

Every bull run, there are countless small investors that lose 100% of value on their holdings, despite a gain in market value on their initial investments. Even if they have the will to realize that gain, it’s just not feasible to exit with profit due to exorbitant transaction fees. Combine these relatively trace amount of ERC-20 holding wallets, and we end up with numerous valuable tokens locked into many wallets. This token lock is not by a contract, but by fundamental prejudice.

Alice learned about CHAD token from twitter, and spent $70 worth of ETH 9 months back to get 140 CHAD tokens on ETH mainnet, the transaction costed $30 worth in gas that Alice is aware of. From Alice’s perspective, she invested $100 and expects a 100x. CHAD went along with market, dipped and rose, Alice held onto it. 2 months back Alice checked holding value to be at $140, Alice thought, if not 100x, it can at least do a 10x. Alice was not aware that avg minimum gas price at the time was ~ $140 worth.

Now CHAD has gained over 10x for Alice’s holding, standing at 12x on her initial investment, and Alice is advised by friend Bob to not be greedy and cash out. Alice’s wallet shows a nice $1200 valuation on her holding.

Alice loads up her wallet with $30 worth of ETH and goes ahead with the transaction, but it fails. Alice asks Bob “wtf”? Bob finds out about her holdings and tells her that the gas cost is not the same as 9 months back, it varies and right now exceeds her CHAD holding’s value; Alice is in shambles! But then Bob tells her that there is a way that didn’t exist in last bull market when Bob was left holding some bags due to ridiculously high gas as market peaked.

Bob tells Alice that with Scraps DAO, Alice can spend $200 worth of ETH to send CHAD tokens to Scraps DAO, and gain back a reasonable worth of her holding after some time. Bob tells Alice to do her own research. Alice further learns from Scraps DAO friendly guide that she can send 140 CHAD to DAO’s CHAD vault, to which a lot of other CHAD holders are evidently contributing.

Alice also learns that Scraps DAO without any third party interference, takes desired exit value from all contributors along with their token transfer. Watching optimal market conditions, total value in vault, and desirable exit values, it executes bulk sales from the vault over time. Since a larger value is sold, the costs of bulk sales are highly minimized per contributor. The value shares are then distributed through ETH or a stablecoin on what is commonly called an L2 chain, which Alice needs to learn about. Alice realizes that through this process of Scraps DAO, she can make a return of at least several multiples of her initial investment, rather than absolute loss.

Solution (early)

The solution of pooling assets to mitigate gas costs is not entirely novel. We know of at least one protocol that offers such a value, however that is built around other use cases within the protocol and cannot adapt to that of investors like Alice.

However, since Scraps DAO is for a very specific problem, it is likely not going to benefit an average investor trying to save on gas cost, because it requires compromise on timing of exit, and therefore potential of lower return value than desired market value exit.

The solution should be found around contracts under contribution and return.

• The deposit call has to be free from complexity, which means assessment of the asset being deposited is a client function.
• Each deposit may come with a minimal cost in ETH. This may enable contribution to later bulk gas expenditure.
• Bulk sales are done in exchange for stablecoins.
• Simple form of return is a withdrawal called by user, with the assumption that gas costs reduce at some point in future to make the entire engagement profitable.

We may be following up on this with a proposal-like, however, Scraps DAO was conceived over a month prior, and due to our prioritization of long-term ventions, we may not be able to work towards a timely implementation as the investor exit opportunities are thinning out; Even though this is a solution that should have existed last year.

Originally published at https://pint.network on January 21, 2022.