<aside> 💭 tl;dr DAO debt is extremely underutilized, and there has been very few solutions for what could be a multitrillion dollar industry. We choose to look toward revenue based financing as a solution.

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In the current DAO ecosystem, debt is very rarely utilized. Only when there is a hack (Pickle Finance, Rari Capital, many more) do DAOs begin to explore these financing options. This is bad, considering issuing debt is a less expensive source of capital than equity, and the DeFi community has experienced participants for whom this is not a new realization. For growth stage DAOs with product market fit, onchain revenue, and dedicated communities, debt is a far superior option to fund operations and acquisitions. The scarcity of the use of debt is a clear signal that there is a need in DeFi that is not being met.

As an example, SushiSwap attempted to raise a $60M round. Instead of diluting existing token holders, the protocol could have taken a loan backed by the nearly $56M in annualized revenue they are currently generating. When protocols do explore debt financing not after a hack, it’s very few and far between, largely because their options aren’t clear.

In the pseudonymous environment of blockchain accounts where legal recourse for protocols in the case of defaults is not available, collateral financing has been the dominant paradigm for securing lenders. This type of credit risk mitigation places a hurdle that for less mature DAOs renders debt inaccessible and is capital inefficient for the most mature DAOs.

DAOs have another alternative in order to access debt: revenue based financing.

Creating less expensive capital sources can allow more protocols to grow, and current protocols to fund operations with little to no dilution. We are building a solution for early stage DAOs whose protocols are generating on-chain revenue to provide this type of security to lenders by segregating a portion of this revenue towards debt repayment.