DIP: Strategic Mint for Institutional Expansion

DIP
1

Abstract

This proposal authorizes the mint of 500 million DRV tokens (a 50% increase from the current 1B supply - or 33% dilution to existing DRV holders). We estimate that this will lead to, at most, dilution of 8.25% per year for 4 years. These tokens will be allocated to the Derive Foundation (to be renamed from the Lyra Foundation) to fund institutional partnerships, market maker incentives, integrations, and development resources. This allocation will position Derive to become a globally competitive options liquidity venue that can rival Deribit in spreads, volume, and open interest.

Over the last 4.5 years, proposals for Tokens have attempted to request the minimum possible allocation, but this has unintentionally led to smaller scale deals and engagements, capping the potential of Derive. This proposal is aggressive - and will ensure Derive retains the execution capacity required to compete and scale in a fast-evolving environment.

The Foundation has already secured one major partnership to bring institutional-grade liquidity and custody to the ecosystem. Additionally, the Foundation is in advanced negotiations with several of the largest liquidity providers and traders to onboard deeper liquidity and launch new product lines. After years of navigating a challenging market for onchain options, both the total addressable market and competition are rapidly intensifying. We now need a concentrated, strategic deployment of resources to capitalize on this opportunity and dominate market share.

Motivation (Context and Objectives)

Derive has invested 4.5 years building the foundation for institutional-grade crypto derivatives infrastructure. With core products in place - including industry leading portfolio and cross margin, deep RFQ liquidity, and structured product rails - Derive is positioned to lead as capital markets move onchain.

Following the attempted acquisition in May this year, investors supportive of that proposal and similar team members have been offboarded, with the remaining team re-committing to building a generational protocol.

This DIP is structured to:

  • Accelerate institutional onboarding through targeted capital deployment

  • Capitalize on competitive tailwinds including increased demand for sophisticated onchain yield and hedging products

  • Extend contributor alignment as early vesting ends, mitigating execution risk

DRV is the sole alignment mechanism for contributors and partners, and there is no value accruing equity associated with any Derive affiliated entities. Token structures must therefore be forward-looking, aligned, and performance-based.

Rationale

Derive is the leader in onchain options, but to compete globally (on or offchain), the biggest bottleneck is deep, institutional-grade liquidity. Liquidity is king. Without it, the product can’t support meaningful derivatives flow or achieve stickiness and network effects.

We have enormous opportunities in-hand to improve liquidity and scale platform flows in short order. One deal is already signed with a top-tier prime broker and liquidity provider moving billions in institutional flow across exchanges, OTC desks, and structured products. With 4-5 more, we’ll lock in one of the strongest liquidity networks in onchain derivatives. But we need the flexibility to close them.

That means onboarding and retaining institutional partners with long-term, aligned incentives - namely, meaningful ownership in the network. In the past, Derive (Lyra) relied on AMMs and paid heavily to bootstrap LPs. In hindsight, that spend wasn’t efficient. 4.5 years in, it’s time for a reset to realign incentives for the next phase.

Entities within the Derive ecosystem have also recently signed letters of intent with major onchain teams for up to $150m a month in unique, repeat, long term options flow. For the first time in our history, the onchain options market is emerging, and the recent speech by SEC commissioner Paul Atkins outlining a blockchain based financial system of the future means that the opportunity for onchain options is immediate and large - we cannot afford to be timid in these next critical 12 months.

Neither the Foundation nor the BVI Subsidiary has an existing budget of Tokens that can execute strategic deals to create alignment at the scale needed to drive meaningful shifts in Protocol adoption.

Transparency and guardrails

The Foundation will adopt a long-term structure for the Derive ecosystem inspired by Morpho’s recent structural update. More details follow in Specification (Legal). We will do this to enhance the transparency of the Derive DAO and improve clarity and certainty around the Token and its wider role within the ecosystem.

Should this plan be approved, 25% of the Tokens minted pursuant to the Mint - and not included in the Core Contributor vesting conditions outlined below - will vest on the passing of this proposal, and the remaining 75% will vest every 3 months over the subsequent 12 months. These are the ‘Strategic Allocation’ of tokens. Strategic deals allocated out of this portion will not grant Tokens to any entities controlled by, owned by, or affiliated with any core contributors or Foundation personnel.

Alignment and additional vesting conditions

We’ve retained a top tier team that have delivered a product of technical excellence, however after 4.5 years most of the existing core contributors have either already vested their initial token components, or the vast majority of them. We need more tokens to lock them in for the next phase of Derive. Therefore, tokens for continuing core contributors will comprise 46% of the new allocation (230,000,000), with vesting over 4 years, commencing as early as July 1, 2025 for some contributors. Tokens for future hires will be taken from the remaining allocation. Allocations will be structured to vest tokens over 4-year periods to ensure long-term alignment, attraction and retention of market leading talent, with flexibility to adjust terms in exceptional circumstances.

100% of allocations to core contributors for existing or future hires will be gated from selling by market cap and liquidity conditions to ensure alignment with the community. At a minimum, these will be non-transferable unless the 30 day TWAP market capitalisation of DRV ≄ $150,000,000 and the time component of the vest has been fulfilled.

Specification (Legal)

Note that alongside the above, Foundation processes and structures are in the process of being upgraded to ensure long term alignment with the Derive community, the following describes what this DIP would ratify to that end.

Lyra Foundation (the “Foundation”) has been incorporated to act as the holding and governance vehicle in furtherance of actions to support, among other things, the Derive protocol (the “Protocol” or “Derive”) and the DAO (the “Derive DAO”) comprised of holders of utility tokens known as DRV tokens (the “Tokens”), and governance proposals duly approved by such community (the “Foundation Purpose”). The Foundation is the sole shareholder of:

  • Lyra Subsidiary (BVI) Ltd (the “BVI Subsidiary”); and

  • Lyra Technologies Inc. (the “Panama Subsidiary”)

The Foundation is also the sole director of the BVI Subsidiary, and has the power to appoint and remove directors of the Panama Subsidiary.

The Foundation currently holds certain Protocol and Token related code and intellectual property, including any subsequent improvements, derivatives and enhancements to the foregoing (“Derive IP”).

It is proposed that the BVI Subsidiary be used by the Foundation to execute and effect Derive DAO resolutions, act as Token issuer, hold treasury funds, manage and issue Token grants and engage service providers and other counterparties in relation to the Derive ecosystem (the “BVI Subsidiary Purpose”).

The Panama Subsidiary currently operates the centralised Derive exchange and infrastructure (orderbook, frontend).

This proposal authorizes:

  1. the following name changes:

    1. Lyra Foundation, to change its name to Derive Foundation; and

    2. Lyra Subsidiary (BVI) Ltd, to change its name to Derive Subsidiary (BVI) Ltd;

  2. the amendment of the Memorandum and Articles of Association of the Foundation to reflect the name change of the Foundation, updated objects and other miscellaneous updates;

  3. the adoption by the Foundation of bylaws;

  4. the granting by the Foundation to the BVI Subsidiary and Panama Subsidiary of a licence to access and use any of the Derive IP for their business activities;

  5. the creation and/or amendment by the Foundation and BVI Subsidiary of wallets and the authorisation of the official multi-signature smart contracts of the holders of such wallets (the “Multi-Sig”), such that the Multi-Sig is a 3 of 5 multi-signature smart contract;

  6. the adoption of a multi-sig policy applicable to the Foundation and BVI Subsidiary to govern all interactions with wallets held by the Foundation and BVI Subsidiary;

  7. the entry into by the Foundation of a master services agreement with Derive Labs Corporation (“Derive Labs”), with respect to the provision by Derive Labs of certain operational and other services to the Foundation and its subsidiaries;

  8. the mint by the BVI Subsidiary of 500 million Tokens (a 50% increase from the current 1B supply - or 33% dilution to existing Token holders) (the “Mint”); and

  9. the transfer of 500,000,000 Tokens by the BVI Subsidiary to the Foundation shortly following the Mint

In each case, subject to and pursuant to the approval of the board of directors of the Foundation and the BVI Subsidiary, and where applicable, the supervisor of the Foundation.

This proposal also authorizes the transfer of all existing Foundation and BVI Subsidiary treasury assets and obligations (the “Existing Assets”) into the new Foundation and BVI subsidiary Multi-Sigs. This proposal gives the Foundation and its directors authority to use these Existing Assets at its discretion pursuant to the bylaws, and Existing Assets are not subject to the conditions specified for the newly minted DRV tokens outlined in this proposal. This proposal removes any vesting conditions, constraints and restrictions imposed on Existing Assets by previous governance proposals. The Existing Assets includes an unallocated balance of 9,067,500 DRV.

It is important to note that contributors to Derive Labs and Derive Foundation will be aligned by the token, not equity. Derive Foundation (not Derive Labs) owns and licenses out all IP, including open source and closed source code.

Specification (Technical)

A new DRV token with a supply of 500,000,000 tokens will be deployed to HyperEVM minted to a safe owned by the BVI subsidiary. This token will be connected to the existing DRV token bridge network via the LayerZero liquidity layer, making it part of the existing supply.

Test Cases

N/A

2 Likes
2

Hey Nick, directionally I am aligned with this proposal, but I have some clarifying questions.

First off, the rationale is sound:

  1. Derive is the leading options DEX, but the market is still early, and Derive remains default dead.
  2. Creating the necessary growth won’t be possible via bootstrapping (i.e. financing entirely from cash flow).
  3. For many reasons you mentioned, there is a limited window of time to capitalize on this opportunity.
  4. The team has been working on Derive for almost 5 years, so it’s little surprise that existing compensation pool has run out. Also, having no tokens left severely impairs strategic maneuverability.

Creating new tokens is the logical step in this situation, and I’d encourage people to evaluate this proposal as an investment: Today, current investors own 100% of the tokens. In 4 years, they will own 67%. So for the proposal to make sense, Derive’s future value in 4 years must be 1.5x as valuable as it is today.

This feels like a no-brainer and likely even overstates how profitable the proposal has to be because without a refresher, Derive is more likely to go to zero than remain at the current baseline.

Now to my questions:

  • The text implies 230m tokens for current and future contributors, gated behind 4 year gating. However, elsewhere in text, you say 25% of tokens are to be vested immediately and 75% to vest over 12 months. Do these vesting schedules refer to the two distinct tranches of the mint (contributors + strategic reserve), respectively?
  • Can you provide a table with clear supply outstanding at the end of 2025-2029, respectively?
  • Will token holders have legal control over appointing and removing board members?
  • What is the story behind creating a second token with 500m supply on HyperEVM? Does the team want to expand there? How is interoperability with the existing token guaranteed, e.g. in liquidity pools?

Best, Hasu

Disclosure: Long DRV (as seed investor)

1 Like
3

Hey Hasu thanks for the considered reply here - think you’ve summed up the rationale well.

To your questions:

  1. Yes that’s right - poorly worded so will update the proposal to make explicit, but those are two distinct vesting schedules. We won’t be / haven’t made any token deals with market makers that offer instant liquidity on DRV as we are trying to strike deals where MMers have an ongoing incentive to bring their best markets to Derive over a long period (replicating the Deribit dynamic with their close partners/investors).

  2. I can’t provide a specific table for 2025-2029 because the strategic portion hasn’t been allocated and we need flexibility. Teamwise, there’s 57.5m tokens per year - beginning July 1 2025- that are vested but non-transferable/locked pending the liquidity conditions (150m market cap). They will not be eligible for staking or governance when they are non-transferable.

  3. Yes tokenholders can add / remove directors, and the Foundation is compelled to do whatever tokenholders propose, provided that it is legal in the Cayman Islands

  4. This is an implementation detail since the DRV token contract is non-upgradable. They would be the same token as fungibility is achieved via using the OFT standard/LZ liquidity layer. We needed to choose a chain that does not currently support DRV. We don’t have any concrete plans to expand to Hyperliquid - but it’s certainly possible.

4

Made a couple of edits for clarity and legal - first is in under transparency and guardrails to make it more explicit that these vesting terms apply to strategic tokens per Hasu’s feedback:

*Should this plan be approved, 25% of the Tokens minted pursuant to the Mint - and not included in the Core Contributor vesting conditions outlined below - will vest on the passing of this proposal, and the remaining 75% will vest every 3 months over the subsequent 12 months. These are the ‘Strategic Allocation’ of tokens. Strategic deals allocated out of this portion will not grant Tokens to any entities controlled by, owned by, or affiliated with any core contributors or Foundation personnel.
*
Second is an addition to help add legal clarity to existing Foundation assets (in the Technical Specification - Legal section)

This proposal also authorizes the transfer of all existing Foundation and BVI Subsidiary treasury assets and obligations (the “Existing Assets”) into the new Foundation and BVI subsidiary Multi-Sigs. This proposal gives the Foundation and its directors authority to use these Existing Assets at its discretion pursuant to the bylaws, and Existing Assets are not subject to the conditions specified for the newly minted DRV tokens outlined in this proposal. This proposal removes any vesting conditions, constraints and restrictions imposed on Existing Assets by previous governance proposals. The Existing Assets includes an unallocated balance of 9,067,500 DRV.

1 Like
5

Thanks for writing up the proposal. Why does the vesting start on July 1st rather than when and if the proposal gets approved?

6

Hey Adeimantus,

Most of the team vests expired in the first half of the year. We believe it’s appropriate / fair to start some team vests mid-year so that the team are compensated for their hard work over the last 6 months.

1 Like