The purpose of this proposal is to outline how the Radicle can use UMA’s success tokens to diversify its treasury. In DeFi, many projects and protocols are reliant on other teams success for their success. Using the Success token, teams can swap their token with other teams and thus giving both teams an incentive to help with their success.
The intended outcome of this proposal is to get Radical to diversify its treasury by swapping tokens with other projects that are integral to the success of Radical.
Firstly, what is the success token?
The success token is a standard ERC20 token that has an embedded payout function. It is comprised of a token and a call option. The details of the call option will become apparent when we walk through an example.
How does it work?
Radical will lock up its native token (RAD) into an LSP contract. Radicals partner project will do the same. Radical and the partner project will swap their success tokens and hold them on their balance sheet.
Each success token has a predetermined vesting schedule. At expiry, the holder of the success token will unlock the underlying collateral. If the protocol does well, then the owner of the success token is rewarded with a higher upside potential. This is achieved by each success token being a token made up of one project token plus a call option on the token.
Let’s walk through a numerical example (note this is an example, and all the numbers are parameters that can be customised):
RAD is currently trading at ~$10. Each success token is collateralised with 2 RAD tokens. Each success token is always redeemable for 1 RAD. The bonus is the extra upside exposure from the embedded call option. Let’s assume the call option strike is set to $15.
At expiry, RAD is trading at ~$20. This means that the partner project that held Radicals success tokens gets a payout of 1 RAD token, worth $20 plus the upside of the call option, which is $5 in the money.
[This example uses token price as the bonus metric, but variations can include other KPI metrics for the protocol]
The parter projects’ Success Tokens that Radical hold will follow the same settlement logic.
Why use this structure?
Using the success token structure is a DeFi native way of allowing project teams to use their treasury in ways that effectively align with the long term growth of the project.
Instead of doing a raw token swap, this structure allows projects to gain increased upside exposure of the success in projects that help make Radical a success—creating a positive reinforcing loop.
Next steps?
Launching the success tokens requires no lift for any of the project teams interested in using the product. The main next step is to find a partner project that Radical firstly would like to do a token swap and agree on the terms of the trade.
Terms of the trade to work out are:
- Size of the swap
- The strike price on the call option
- Length of time for the success tokens to vest
More information about Success tokens: