Temp Check: Should the Lenfi DAO Swap/Buy SPLASH

DAO Discussion General
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Temp Check: Should the Lenfi DAO Swap/Buy SPLASH

Summary

Splash protocol is preparing to launch its escrow voting system and veSPLASH governance, where SPLASH holders can stake for veSPLASH, earn protocol fees, and influence decisions like pool reward boosts. In line with the discussion regarding migrating the DAO LP to Splash, we learned about the opportunity to swap 1,000,000 SPLASH for the equivalent in LENFI. This temp check aims to gauge an open discussion and sentiment on whether the Lenfi DAO should pursue swapping 1,000,000 SPLASH tokens in exchange for the equivalent in LENFI, which could potentially give/increase the share in Splash’s fee-sharing system, generate fee revenue (100% distributed to veSPLASH holders) and give governance power, and influence over which pools can be boosted.

Problem

As of now, the Lenfi DAO lacks exposure to diversified treasury inflows, relying heavily on:

  1. Accumulated 20% tax on top of each interest payment on V1 and V2;
  2. Generated fees and rewards from the LENFI/ADA LP on Minswap;
  3. LENFI buybacks using the ADA rewards from the staked ADA sitting in the V1 contracts.

Meanwhile, the DAO owns 14,368,800 LENFI (nearly 50% of supply), so swapping a portion of LENFI for 1M SPLASH would be a small fraction compared to the opportunity of staking in one of Cardano’s fastest-growing DEXs. Since other projects have acquired their stakes at 0.175 ADA per SPLASH, the figure could stand like this:

1 SPLASH = 0.175 ADA

1 LENFI = 1 ADA (as of 29 March)

1,000,000 SPLASH = 175,000 ADA, or 175,000 LENFI

A quick check on Taptools shows that Splash generates over 40,000 ADA in fees daily, offering a share of this revenue via veSPLASH. Staking 1M SPLASH would also grant voting power to boost the LENFI/ADA pool (check the migration temp check), enhancing liquidity incentives. While this involves parting with ~175,000 LENFI (more than expected due to the lower price of LENFI and higher ADA quote for SPLASH given by the Splash team), the potential for diversified income and influence aligns with our goals, warranting discussion.

Further Overview of the Possible Solutions

Option #1: Inquire with Splash About Swapping 1M SPLASH from their vault

Acquiring 1M SPLASH (175,000 ADA at 0.175 ADA each) for 175,000 LENFI (1 ADA each) enables staking for veSPLASH, earning a share of Splash’s 40,000+ ADA/day fees (100% distributed). Voting power could prioritize LENFI/ADA pool boosts, attracting liquidity. With only ~1.2% of our 14,368,800 LENFI, the swap taps Splash’s growth (e.g., 117,000 ADA fees in February) for diversified revenue and influence, signaling a strategic partnership.

Risks and considerations: Reduces LENFI reserves by 175,000 tokens (if we account for the current LENFI price at 1 ADA vs. SPLASH at 0.175 ADA), risking market impact if not managed. Considering the current price of SPLASH is over 24% down from the 0.175 ADA quote, the upcoming emission schedule can create additional selling pressure, which may make the deal inefficient compared to other options like DCA.

IMPORTANT NOTE: Even if this temp check turns into an off-chain proposal and, consequently, passes an on-chain vote, the Splash DAO will also have to approve the swap for it to happen.

Option #2: Buy SPLASH on the Free Market via DCA

The current price of SPLASH is 0.132 ADA, meaning acquiring 1M SPLASH from the open market will cost the Lenfi DAO 132,000 ADA, ~24.57% cheaper than the swap (175,000 ADA), saving 43,000 ADA. Preserves LENFI reserves while securing veSPLASH fee revenue and governance power, leveraging Splash’s growth (117,000 ADA fees in February) at lower cost. Since the Lenfi DAO’s treasury has a little over 110,000 ADA currently, we can reduce the purchase in half, e.g., 66,000 ADA invested in a DCA manner (other projects are also considering this strategy).

Risks and considerations: Requires spending ADA from the treasury, potentially straining liquidity in the short to mid-term. Market purchase lacks the partnership signal of a swap, even though this should not be the priority of such a move.

Option #3: Do Not Pursue the Token Swap with Splash

We can choose to retain the 175,000 LENFI, avoiding market pressure from releasing tokens and risks tied to Splash’s performance.

Risks and considerations: We will forfeit the idea of purchasing 1M SPLASH, missing veSPLASH fee revenue and governance power to boost LENFI/ADA, potentially ceding influence in a growing ecosystem.

Conclusion

Swapping aligns with partnership goals, but buying offers cost efficiency and reserve preservation. While Option #2 (market purchase) appears optimal for cost savings, pending treasury capacity. If favored, we’ll proceed with the chosen path post-discussion and on-chain vote. Of course, choosing not to pursue any deal or purchase is also fine, but we might lose the opportunity to really open up to the DEX revenue streams and earn influence over Splash DAO’s decisions by holding veSPLASH.

2 Likes
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I support the token swap and inquiring about swapping LENFI tokens for SPLASH but you will need to consider the initial liquidity bootstrapping requirements and the dynamics there. If its not feasible then using ADA to buy SPLASH is worth considering as well.

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I don’t think selling LENFI for this swap is a great move, especially after the rough few months just we’ve had. We’re already down quite a bit, and letting go of 175,000 LENFI now will put even more pressure on the price. The idea of earning fees and governance power with veSPLASH is interesting, but not if it means dragging down the price of the LENFI token even more.

If we really want exposure to Splash, buying in slowly makes way more sense than dumping a big chunk of LENFI at a bad time. Honestly, just holding and waiting for a better opportunity might be the smarter play.

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Diversifying Lenfi’s DAO treasury with new revenue streams is important for long-term growth of the project. The current DAO has accumulated ~110,000 ADA in ~12 months from protocol fees for nearly ~9,000 ADA per month. Increasing revenue in multiple ways is vital so that investing in growth or turning on an eventual fee switch can be lucrative for $LENFI token holders.

Considering 175,000 $LENFI is only 1.2% of the DAO’s holdings, I’m in favor of option #1. However, a blend payment of half $ADA and half $LENFI is worth considering (option 2).

Another thing to keep in mind: Having ADA in the treasury comes in handy as a project matures, as a lot of growth initiatives require ADA itself. A treasury consisting of 99% tokens and 1% ADA is not ideal - thus I’m a bit more hesitant on option 2 as it would cut the treasury ADA considerably.

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Swapping LENFI for SPLASH means the Splash DAO gets LENFI tokens while the Lenfi DAO gets SPLASH tokens. This doesn’t necessarily mean they will sell their LENFI tokens.

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Option 1 would be the best option on my opinion.

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I think we should only proceed with a token swap if we also migrate the pool. I don’t think we should migrate the pool. Therefore I don’t think we should do a token swap

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This aligns with the LP migration to splash
considering the amounts which as reasonable as they are for the stake size the DAO receives it might take a while reciprocate and break even on investment but you need to spend money to make money.

Saying this we do have quite a large treasury so it’s a good idea to add more revenue streams.

I think a mix of option would be mutually beneficial.
If we can get an agreement where it’s possible to vest 50% for 1M splash token & buy the rest using the ADA in the treasury it will reduce the impact while DAO can ignite a new revenue stream & open paths to new avenues.