[idea] Namada shielded bonds

[cwgoes]

@preto

I’m skeptical to this. (sorry it’s me again )

Skepticism is always wise, no need to apologize!

@preto

I would like to hear more about why this is necessary.

To be clear, I’m not arguing that this is necessary, I’m just presenting an idea so that we can discuss it. Like any cryptoeconomic choice, what makes most sense depends on what Namada as a network and community wants to do – this is just a potential mechanism, with potential pros and cons.

@preto

In a way I feel this is simply introducing a mechanism akin to token locks/unlocks via the backdoor so to speak.

I can see that these do look similar from a certain perspective – in both cases, there are future token “unlocks”. However, I think the economics of shielded bonds are pretty different from just “vesting tokens at launch”, for two reasons:

1. Namada would get a predictable amount of non-native capital which could be immediately invested in productive activities. Token “vesting” provides no such mechanism.
2. The parties purchasing bonds have consciously chosen to do so, indicating that they want long-term exposure to Namada, and (perhaps) that they plan to support the project in some capacity to help make their bonds valuable. Token “vesting” where parties do not explicitly opt in (as was the case with Namada – Namada genesis tokens were never sold to anyone) provides no such signal.

@preto

The effect will be to get short term cash into the project (which can be good for operational purposes of course), but it creates a bill that needs to be paid (from the perspective of the protocol) at the expiry of the bond, thus effectively trading future obligations for short term capital infusions.

Yes, that’s right, with future obligations in NAM and short-term capital in non-native assets. Bonds are a pretty common mechanism in the “real world” for doing exactly what I’m proposing here: raising capital usable in the here-and-now in exchange for liabilities in the future, in an attempt to use the capital to build something. Whether or not they make sense seems to me to depend on the terms, what the capital is used for, what the relevant economy (in this case, Namada’s economy) looks like, etc. – such a trade of future liabilities for present useful capital may or not make sense in any particular case, but I think it would be unwise to prematurely rule out the mechanism.

@preto

(if there is an idea that it’s better to spend foreign assets instead of liquidating nam for operational purposes short term, I am not sure that’s sustainable, probably better to do the swaps up front in my opin, same logic as in the discussion on vesting/unlocks)

Where funding in non-NAM assets is required, doing swaps up front is indeed also an option. However, I think swapping NAM at the present has some disadvantages which this scheme does not:

1. The network will inevitably be front-run and get a poor price, because the decision to swap would be made in public before the swap actually happens. There’s no way to avoid this without a very different governance system. Even distributing NAM to other parties who would then sell it to meet USD liabilities has this problem, although it doesn’t matter as much if the volume is low and distributed over time.
2. The other side of the trade may be short-term speculators or just whoever happens to show up on the markets – the network has no control over who the counterparties to its trades are. From Namada’s perspective, I think it would generally be better to have counterparties who have demonstrated some desire for long-term alignment (e.g. by purchasing long-term bonds).

Note: the potential of being front-run could be alleviated somewhat if Namada swaps a little bit of NAM for other assets very slowly. This is more complex to implement – and large commitments up front still create problems – but could be another direction worth investigating.