Explore the prospect of toggling transferability on and off

[PaulRBerg]

Idea

The idea is to add a new function that allows the sender to toggle the transferability of a stream.

This feature came up recently during a discussion with a potential integration partner, Smart Token Labs:

My Thoughts

Unlike cancelability, it makes sense for transferability to be something that senders can toggle on and off during the lifetime of the stream. From the recipient's perspective, a "non-cancelable" stream that can be made cancelable again is not really non-cancelable. However, a non-transferable stream that can be made transferable may be appealing to the recipient. While the reverse (transferable → non-transferable) is not true, the transferability dimension does not affect the core distribution of assets, so disabling transferability should not be a dealbreaker.

Cons

Besides implementation cost, there's another significant con.

This feature would throw yet another wrench in the developer experience of making an NFT integration with Sablier. Imagine the following scenario:

1. Stream is transferable
2. User transfers the stream to a lending protocol (e.g., NFTfi)
3. Sender makes the stream non-transferable
4. The NFT cannot be returned to the original user

Thus, it seems like transferability would break NFT lending, and the only way to fix the resulting mess would be to implement a locked NFT wrapper. The problem is that the spec for that is not currently settled.

I suggest we do more brainstorming on this feature before assuming any particular course of action. Cc @sablier-labs/everybody.

[smol-ninja]

Toggling transferability may present additional complications. One another example is in the context of staking.

Consider the following scenario:

1. A stream is made transferable.
2. The user stakes the stream, effectively transferring it to the staking contract (Related Open discussion about staking #675).
3. The sender makes the stream non-transferable.
4. The user can not unstake it.

My thoughts

Much like the case with cancelability, where it is not wise to permit a stream to become cancelable after it has been set as non-cancelable, allowing a stream to become non-transferable after it has been made transferable could lead to a suboptimal experience for recipients.

When a stream is set as non-cancelable, it gives confidence in the recipients that the stream will remain as such. Similarly, when a stream is made transferable, it introduces new utilities for the stream, some of which we comprehend, and others that we may not fully understand at present. If the sender were to revert the stream to non-transferable, it could give rise to unforeseen issues.

[PaulRBerg]

Agree. I will tentatively close this discussion because this is a complicated feature, and implementing it is not worth it given where we stand today (regarding budget and human resources, etc.)

[IaroslavMazur]

This whole feature sounds like a very niche thing, honestly.

While I don't fully understand why a sender would want to make a Stream non-transferable (to me, it sounds like the recipient should be able to decide what happens with the Stream; if the sender isn't satisfied with a transfer, they can always cancel the Stream, after all), if we do implement the toggling of transferability, I suggest we do this similar to how the toggling of cancelability is already implemented.

More specifically, I suggest that the Streams start off as non-transferable - and, once the sender flips the toggle, become transferable indefinitely.

[PaulRBerg]

I think you're right - this feature makes if the only direction allowed is non-transferable → transferable.

why a sender would want to make a Stream non-transferable

• Prevent dumping on OpenSea
• Prevent OTC (over-the-counter) deals
• Prevent interactions with any other smart contract

[maxdesalle]

Correct @PaulRBerg, we have had numerous requests, and one even today actually on a call with a potential user, about making the NFT non-transferable. There is a real demand for this.

[IaroslavMazur]

• Prevent dumping on OpenSea
• Prevent OTC (over-the-counter) deals
• Prevent interactions with any other smart contract

Not completely sure about the 3rd one (could you give some specific examples, please?), but taking the option to do the first 2 from the Stream recipient sounds in contrast to the open market ideology that crypto has been built upon.

If you're streaming me some value, it's my right to do whatever I want with this value, even if this means selling it for less than it's worth (either in your eyes, as the sender - or in general). Otherwise, it'd smell like CBDCs. 👃🤢

[PaulRBerg]

could you give some specific examples, please?

I can't think of any off the top of my head (I'm tired now). That bullet point was deliberately broad. It's about the capability of transferring the NFT to any DeFi protocol.

taking the option to do the first 2 from the Stream recipient sounds in contrast to the open market ideology that crypto has been built upon

A bit dramatic?

Some participants in the market may prefer their vesting plans not to be tradeable. And that's a perfectly legitimate position and has nothing to do with open markets - vesting is, by design, not something out in the open. It's a contract between a company and an individual.

If you're streaming me some value, it's my right to do whatever I want with this value

The already streamed part? Yes

The not streamed part? No. That's subject to a legal contract.

[IaroslavMazur]

It's about the capability of transferring the NFT to any DeFi protocol.
Some participants in the market may prefer their vesting plans not to be tradeable. And that's a perfectly legitimate position and has nothing to do with open markets - vesting is, by design, not something out in the open. It's a contract between a company and an individual.

I'm really curious about the specific reasons for why some companies might not want to have the Streams they create be transferable.
And how big of a percentage (relative to the whole streaming space) such companies are.

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The already streamed part? Yes
The not streamed part? No. That's subject to a legal contract.

Absolutely!

And in the case of the cancelable Streams, their intrinsic value is, generally, equal to the value of the streamed part. So, if I'm allowed to withdraw the streamed assets and do whatever I want with them, why am I not allowed to, say, use the Stream as collateral to borrow some crypto based on its intrinsic value (that has already been streamed and is, therefore, mine)?

[smol-ninja]

I'm really curious about the specific reasons for why some companies might not want to have the Streams they create be transferable. And how big of a percentage (relative to the whole streaming space) such companies are

If I may answer your question, some companies do prefer to have non-transferable tokens even after they are fully vested. In the above example, $ONDO was fully vested 1 year ago and yet it's non-transferrable even today.

• Why do they do that?
  My best guess is that they don't want the market to value their token yet.

• Why don't they want the market to value their tokens?
  Because they believe that they can get a much higher valuation after hitting a certain threshold of certain metrics.

So in the above example, if ONDO were distributed through the Sablier stream, and if the stream NFT is transferrable, despite the underlying ERC20 non-transferrable, the stream can still be traded in the free market giving value to their tokens.

• How big is the TAM?
  I don't know but this ONDO token was fully valued at $200M 2 years ago and now based on their TVL, they could be as big as $500M. And this is just one example.

why am I not allowed to, say, use the Stream as collateral to borrow some crypto based on its intrinsic value

You can still do that if you can find a lender. I am sure many lenders will be willing to lend you an amount equal to or less than what has already been streamed. There is another discussion on the risks involved in using Stream NFT as collateral.

[PaulRBerg]

Perfect answer from @smol-ninja. Thank you for chiming in!

It is worth noting that this is not something strictly related to crypto. Most web2 vesting plans do not allow the option holder to trade the option contract prior to a liquidation event. For more details about why this is the case, see my conversation with ChatGPT:

https://chat.openai.com/share/2160aaeb-44fc-44ba-9c3b-3ec461df86e2

Also see this:

https://twitter.com/lex_node/status/1537840850377449472

[IaroslavMazur]

Thank you for the insights, @smol-ninja! 🙌

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they don't want the market to value their token yet
they believe that they can get a much higher valuation after hitting a certain threshold of certain metrics.

Honestly, this sounds shady to me, as if they're trying to play tricks with their investors/token holders. If you don't want the market to value your token yet, don't launch it yet - do this at a point when you're satisfied with the valuation your project deserves 🤷‍♂️

This reminds me of the MetaWar project/token on BSC which has distributed its token to hundreds of thousands of addresses, but has limited their ability to transfer the tokens. They went as far as to require you to pay (out of pocket) to "unlock" your airdrop (which was both hillarious & outrageous). Of course, the price of their token has been steadily increasing, alongside their MCap, but this has been achieved by only a small fraction of the total supply being transferrable, while they have, likely, been using the "unlock money" they have been charging their token holders to buy up more of their token.

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You can still do that if you can find a lender. I am sure many lenders will be willing to lend you an amount equal to or less than what has already been streamed.

Ehm... Why would anyone lend you anything based on your Stream NFT in a trustless manner, without requiring you to transfer the NFT someplace specific (which would be impossible if the NFT is non-transferrable)? 🤔

[smol-ninja]

they're trying to play tricks with their investors/token holders. If you don't want the market to value your token yet, don't launch it yet - do this at a point when you're satisfied with the valuation your project deserves.

The answer is to raise money from private investors at a stage where you don't have a viable business. They are not doing it to trick investors, you can think of non-transferrable tokens as an instrument to raise money similar to how SAFE works.

• Why they don't want the public market to value their tokens?
  The framework that private investors use to value companies is different from the framework that the public market uses. Startups in the early stages don't have PMF, tractions and sometimes even products. That's where the private investors help them with financing mainly because of their high-risk appetite.
  The public market is assumed to have a low appetite for risk and they rely on "real" financial metrics such as EBITDA, PE ratios, Cash flows, EPS etc. That's why startups prefer to raise money from private investors at an earlier stage instead of directly doing an IPO. It can help them get a reasonable valuation that they think they can justify in the coming years.

Your example of MetaWar sounds like a scam to me. Of course, there are scams in all markets but that does not mean that all companies that raise money using SAFE, SAFT or non-transferrable tokens are scams. It's just a means to finance business at earlier stages.

Why would anyone lend you anything based on your Stream NFT in a trustless manner

Someone who is lending money to you would, of course, expect it to be done in a trustless manner or through a trusted custodian. They would do it for interests (could be risk-free if borrowed amount is less than what has already been streamed) that you will be paying them for borrowing money.

[IaroslavMazur]

Your example of MetaWar sounds like a scam to me.

That's because MetaWar was, indeed, a scam 😆

Someone who is lending money to you would, of course, expect it to be done in a trustless manner or through a trusted custodian. They would do it for interests (could be risk-free if borrowed amount is less than what has already been streamed) that you will be paying them for borrowing money.

So, how could this be done if the Stream NFT is not transferable? 🥲

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re: why make Stream NFTs non-transferable, in general?

Let's look at this from a different perspective. Imagine I have had some tokens streamed, and want to sell them. Even if I cannot transfer the NFT to some smart contract or EOA, I can still withdraw the streamed assets - and perform the sale. In other words, I can access the whole intrinsic value (represented by the streamed assets) of my Stream NFT, and use it as I please.

Given this, how would a company I've invested in (and am receiving streamed tokens from) benefit from me not being able to transfer the Stream NFT, if I can access its internal value, anyways?

[PaulRBerg]

@IaroslavMazur it's not about the streamed value. It's about the unstreamed value, specifically the fact that you can transfer the right to claim that value to someone else.

Shub and I have shared several references above. It would help you to have a look at them and do some research on the incentive structure in traditional vesting contracts.

[IaroslavMazur]

Shub and I have shared several references above. It would help you to have a look at them and do some research on the incentive structure in traditional vesting contracts.

I did have a look at the references. Back when you had shared them 🙃

If I had to summarize traditional vesting in one sentence, it'd probably, be that it is a way to reward the loyalty of an employee in the form of company stock (with a quantity known in advance), unlocked in batches over the years that the employee works at the company.

Moving to web3, the unlocked value can only be withdrawn once it's been streamed - and from this point on, I don't see a big difference (to the Stream Sender, that is) between the Recipient withdrawing the streamed value and transfering it to some third party - and the third party withdrawing the value on behalf of the Recipientdirectly.

As long as the Recipient does their job (whatever you're streaming them the value for), you keep streaming the value - and whatever value has been streamed is out of the Sender's control. If the Sender happens to disapprove the third party that the Stream NFT has been transferred to, they can always stop the "unstreamed" value from being streamed to that party, by canceling the Stream. Unless the Stream is non-cancellable, of course 🙂

Having said all this, I admit that it's possible for a certain clause (that I'm unaware of) to exist in the legal contracts associated with traditional/DeFi vesting, that renders my arguments above useless. If that's the case, there's nothing we can do besides adapting to the legal limitation.

[PaulRBerg]

did have a look at the references. Back when you had shared them

Apologies

If the Sender happens to disapprove the third party that the Stream NFT has been transferred to, they can always stop the "unstreamed" value from being streamed to that party, by canceling the Stream

1. This requires active monitoring, which is unrealistic in practice.
2. But still, even if the sender has a bot that monitors every single tx in the mempool and auto-cancels the stream, the mere ability to transfer the NFT may break some clause in the underlying legal contract. For example, the recipient may wish to sell the unstreamed tokens to a competitor (for malicious purposes).

there's nothing we can do besides adapting to the legal limitation

It's not so much a legal limitation but a matter of preferences/ incentives between consenting parties.

[IaroslavMazur]

1. This requires active monitoring

Yes, naturally.

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2. the mere ability to transfer the NFT may break some clause in the underlying legal contract.

Now, we're getting somewhere!

As I've said in my previous comment, if the non-transferability (or smth else that, in turn, makes it impossible) is stipulated in the legal contract underlying a Stream, then, this whole argument fades away. In that case, it becomes irrelevant what we/I might think about Stream transferability: we either implement it (and potentially onboard the respective Streamers) - or don't (and definitely lose them, as they won't bother trying to bend the laws they're working by).

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For example, the recipient may wish to sell the unstreamed tokens to a competitor (for malicious purposes).

Yep. Or they might wait for the unstreamed tokens to be streamed - and sell them afterwards.

Both of these cases sound the same to me, as the end result is the same: the third party/competitor will only be able to access the unstreamed tokens once they're fully streamed: either by the original recipient withdrawing the tokens and transfering them to the third party - or by the third party withdrawing them directly, after the Stream NFT has been transfered to them.

[PaulRBerg]

Or they might wait for the unstreamed tokens to be streamed - and sell them afterwards.

That's different.

Both of these cases sound the same to me, as the end result is the same

They are not the same because when the stream is transferable, the recipient can obtain some value today by selling the NFT, using it as collateral, etc.

This is what Shub and I have been trying to explain in this thread.

Do you understand this point now?

[IaroslavMazur]

when the stream is transferable, the recipient can obtain some value today by selling the NFT, using it as collateral, etc.

Do you understand this point now?

Kind of.

The argument involving the non-transferability of the assets/Stream NFT stipulated directly in the vesting legal contract still sounds more convincing/unarming to me, though.

[PaulRBerg]

Great!

The argument involving the non-transferability of the assets/Stream NFT stipulated directly in the vesting legal contract still sounds more convincing/unarming to me, though.

That's actually just a downstream consequence of the other point, i.e., that companies don't want to allow option holders the ability to access liquidity early on.

In other words: intentions precede legality.

[PaulRBerg]

Closing due to inactivity and soft agreement that the potential benefits are not worth the complications.