Phenom is implementing some changes. I want everyone to know that this was discussed quite a bit internally before the announcement. This post is not about the details of those changes. You can get that from Phenom’s Twitter account or elsewhere. This is about my experience and perspective as someone involved on the inside.
When Matt, the CEO, called me to discuss it, he had a real problem to solve. The current treasury redemption model has people redeeming tokens every week, which pulls money out of the company that could otherwise be used to grow the site.
He presented a few ideas. One was tying rewards to staking, with increased rakeback for those who stake. The other was moving from a treasury redemption model to a free market token price model.
My gut reaction was mixed. I liked the staking and rewards changes. I didn’t like the token model change. It felt like we were going back on the idea that the Phenom token was a crypto token done right.
And honestly, I’d guess many of you are having the same initial reaction I did.
That reaction kicked off nearly a two hour call with Matt. Longer than I wanted, especially since I had an early flight the next morning. But this was something I felt I needed to fully understand. Over the course of that call, I changed my mind. And in the days that followed, the more I thought about it, and the more I talked with others involved in Phenom like Huck and Alec, it became clear to me that the most important change here was not the staking/rewards but was moving from a treasury exchange model to a free market token model.
The company currently has a problem with variable, random token redemptions coming out of the 50 percent of rake allocated to the treasury. Matt even recently had to sell tokens below market value to raise treasury funds. I know because I bought some. That alone highlights the issue.
But to me, the bigger problem is that the treasury redemption model is fundamentally illiquid. Many people have not been able to redeem as many tokens as they want week to week, because the only buyer is the treasury, and the treasury can only allocate a limited portion of weekly rake to redemptions. Anyone who thinks about basic free market economics for more than a minute can see that having a single buyer with capped funds is not an efficient or healthy system.
While having a fixed token price tied to the last four weeks of rake sounds nice, I don’t think that benefit is worth draining the company of reliable weekly income while also creating severe illiquidity. In my view, this problem only gets worse over time and would eventually create reputational issues for Phenom.
The only real solution is moving to a free market token model on an exchange. Importantly, how the token is bought or sold is not what gives it value. The Phenom token is not valuable because it can be redeemed from the treasury. It is valuable because supply is capped and staking allows participation in 50 percent of the rake the company collects. The token represents ownership in the revenue stream of the business. That has not changed.
As long as the site operates, poker is played, and rake is collected, the token has value. And token holders should want treasury funds to be used to grow the site, so more rake is generated and distributed, rather than having the treasury act as the sole buyer of tokens.
I do realize this change could cause volatility early on. It may unlock sellers. But it also unlocks buyers. Now anyone can buy Phenom tokens at any time. Who might want to do that? Crypto investors and traders who look for projects with real revenue and alignment.
All wallets are visible on-chain. I plan on locking all my tokens. Matt is doing the same, as are all the other people involved with the project I’ve spoken to at this point. I’m excited about the longer lockups and the ability to earn even more revenue than before. Either the site succeeds or it doesn’t. That was always true. And that outcome has nothing to do with whether tokens are redeemed through a treasury or sold on the market.
One of the prime reasons I got involved with Phenom in the first place is alignment. The site is aligned with the players. This change is not bad for players. Despite my initial knee jerk reaction that it was, I now believe it is necessary for the long term health of the project.
The Phenom token is different because it is actually necessary. It is the mechanism for distributing rakeback. It is ownership in the revenue the company produces. Moving from a fixed-price sole-redeemer system to a free market system should improve liquidity and overall token health.
There is a good chance that eventually the market prices the token higher than the current treasury formula, which is effectively about ten times annual revenue. Early stage growth companies often trade well above that.
That is not why this change is happening though. It is happening because it solves real liquidity problems created by a system that was originally designed due to concerns about the token being a security. With those concerns gone, there is no reason to continue handicapping the growth of the site.
There is also a decentralization issue. One of Phenom’s long term goals is for token ownership to come with increasing voting rights as the site matures. That requires broader token ownership. A system where the treasury is the primary buyer and tokens flow back to the company does not promote decentralization. A free market does.
Wrap up:
Change is uncomfortable, especially when it touches something people care about. My job here is not to sell anyone on short term price action. I don't know how that will look.
It’s to be honest about what happened.
I believe these changes give Phenom the best chance to succeed long term. After being deeply involved in these discussions, I believe this change strengthens the project, aligns incentives better, and gives Phenom a real shot at becoming what it set out to be.
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Originally Posted by Dan Druff
