In a treasury-centric model, the On-Chain Organization’s treasury will be denominated in assets like USDC. The assets held by the treasury may be spent normally or used to provide guaranteed redemptions for tokens issued as Treasury Protected Tokens (TPTs). TPTs are minted by the company’s treasury and may be redeemed for treasury assets at a predetermined rate.1 TPT recipients may redeem their tokens for the underlying USDC at any point. The recipient is incentivized to hold the tokens because they may be able to sell them above redemption value on secondary markets2. This provides guaranteed income in USD terms while providing perfectly aligned upside opportunities. Regardless of market prices, TPT holders have no risk because the underlying assets are locked in smart contract escrow.
Importantly, TPTs lose their status as “treasury protected” if they are sold; once transferred from the original wallet, they may never be redeemed against the treasury. After TPTs are transferred, they are standard tokens with no additional rights. In practice, TPTs will be issued to pay for expenses, especially salaries. Contributors who usually receive compensation in common currencies (i.e. USD) will receive tokens of the OCO, but with guaranteed redemption value denominated in the treasury assets like USDC.
For example, an employee who is expecting to be paid $10k/month will receive tokens with a redemption value of $10k. That value is guaranteed in USD terms and there are corresponding USDC assets in the treasury. The employee may choose to redeem $5k worth of tokens to cover rent and other living expenses, but hold the other tokens knowing that they may appreciate substantially. In another month, they may choose to redeem all of their tokens to receive $10k USDC. If they have a financial safety net, they may choose to not redeem any of their TPTs in the hopes of selling higher later on secondary markets.
At times, the tokens may have more value on secondary markets; rational TPT holders who need liquidity will choose to sell on secondary markets instead of redeeming against the treasury. When TPTs are sold on secondary markets, the “treasury at risk” (TAR) decreases and the liquidation value of the treasury increases3. Any time the TAR is less than the value of the treasury, the treasury may issue additional TPTs. The total redemption value of outstanding TPTs may not exceed the value of the treasury.
The treasury essentially acts like a spring. The ability to issue TPTs (i.e. guaranteed payments) increases when the tokens are sold on secondary markets. The treasury is recharged as more and more TPTs are sold on secondary markets, essentially reducing the “liabilities” of the treasury. The treasury may choose to issue new TPTs with the unburdened treasury assets once some of the initial TPTs have been sold on secondaries. The redemption value of outstanding TPTs may never exceed the value of the treasury.
This mechanism provides incentive-alignment between value-creators and the OCO itself. Rather than asking contributors to accept risky unprotected token payments, they can have the best of both worlds: guaranteed payments and upside exposure. TPT recipients are protected from the volatile and unpredictable nature of tokens.
UP NEXT:
Read about other killer features or benefits of On-Chain Organizations.
Treasury assets will frequently be USDC or ETH, but anything can be used
There are many regulatory challenges that must be considered
The treasury is no longer liable for TPTs after they’re transferred