[bisq-network/bisq] Running the numbers on Bisq DAO revenues (#5171)

[pazza]

> I want to comment on some of the proposed financial statements. Bisq is a very different beast from typical legacy organizations, and trying to squeeze out typical legacy financial statements from DAO numbers doesn't make sense to me.

I understand your concerns. I am not sure if  legacy financial statements are the best way, I think they are likely not the best way. My idea was to use them as a starting point. Hopefully by doing it in a traditional way first it will demonstrate what aspects are and are not suitable. Legacy financial statements would be the starting point not the anticipated end result.

> ### Balance sheet
> I'm not sure Bisq can have a balance sheet. How can such a thing be constructed? The project has no assets and no liabilities.

I see the balance sheet as being made up mostly of the value of the DAO's BSQ. I see BSQ as assets of the DAO. All BSQ holders are effectively share holders of the DAO.

Liabilities would be, for example, outstanding funds owed to security incident victims.

> Typically you get an equity value (book value) by subtracting liabilities from assets. The market's take on this book value of equity is what you see reflected in stock prices as market value of equity (aka market capitalization).

I agree.

> Bisq's **liabilities** are not liabilities in the traditional sense—they are merely a summation of repayments that the DAO has collectively promised to pay out of future revenues. Typically, liabilities are legally-enforceable liens on assets, but this isn't the case with Bisq since it has no assets. This makes repayments expenses, not liabilities, which makes them income statement items (like all baseline Bisq finance metrics; more on this below).

The amount owed might not be legally enforceable but I still consider it a liability. I do not think the enforceability or un-enforceability of something makes it any less of a liability when accounting for it. There is a commitment to pay the funds back, therefore, there is a liability.

> So Bisq is in a bit of a weird spot because it _cannot_ have a book value of equity. But it can (and does) have a market value of its "equity"—market capitalization.
> 
> I put "equity" in quotes because Bisq's market capitalization is really just a summation of the market value of all BSQ held by sovereign individuals, like shares of stock. But unlike shares of stock, BSQ tokens signify value for their owners, not the originating entity. The market value of the Bisq project itself is indeterminate, but the total value of all BSQ (what we call market capitalization) is a good proxy for the value of its software, network, community, etc. These are the only semblances of **assets** in Bisq land—but notice how these items are all intangible and not fit for systematic valuation.

I agree with all this apart from the last part about the intangibility of assets making it not fit for valuation.  I think any valuation of Bisq is subjective, I agree the market cap is a good proxy for it.

> ### Cash flow statement
> More intuitively—measuring cash flow only makes sense if it's possible to go broke. Bisq cannot go broke, as in, it cannot ever run out of cash. It has no cash and infinite cash at the same time.

I disagree with this. When you talk below about the DAO becoming unsustainable to me this is effectively the same thing as the DAO becoming broke.

> Sure the DAO can become unsustainable, in that the market can decide to value BSQ so low that the DAO can no longer sustain itself

In the current set up, if income dried up, and BSQ where to go to zero, regardless of the total amount of BSQ, the DAO would effectively be broke.

In this situation the DAO would be reliant on contributors giving there time voluntarily, in exchange for a future IOU, or contributing their own funds to grow Bisq. I imagine this was similar to what happened when Bisq was being established; contributors gave up their time, skill and expertise without any initial compensation, or even guarantee of any future compensation. Bisq was effectively bootstrapped.  

> this is not a black-and-white determination that any financial statement can make. It's a decision the market will make if/when it wants to. Therefore having a cash flow statement doesn't make sense to me either.

I think having a cashflow statement will help show the direction Bisq is heading. It the DAO becoming more sustainable (positive cashflow) or less sustainable (negative cashflow).

I agree that the term 'cashflow' is not really suited for this. But effectively I am in this instance defining cash as BSQ denominated by USD and/or BTC.

Therefore, maybe cashflow would be better describes as a DAO flow?

> ### Income statement
> This is the only legacy financial statement that makes any sense to maintain, and really, the main one from which all other metrics should flow. Bisq issues BSQ every cycle and it burns BSQ every cycle. This fits well within the profit/loss paradigm.
> 
> The fact that Bisq financial metrics can only be tracked in this manner—as value coming in and value going out—should not be surprising. After all Bisq is just software, and the whole point of the DAO is to avoid value from sitting at any intermediary points at any stage during the transfer from consumer to producer. Tracking the quantity and flow of resources in such intermediary points is what balance sheets and cash flow statements fundamentally do, which is another way of understanding why they don't make sense to have here.

Here I think it is important to distinguish between Bisq as software and the DAO as the benefactories of the software. 

I see Bisq as not having value and the DAO having value, but I accept this is subjective.

My thoughts, not fully formulated yet, to value the DAO as applied to a traditional financials would be summarized by seeing the DAO as the shareholders of the organization. Shares are represented by BSQ. Shareholders are the benefactor's of any profits generated by the DAO, and at the same time, they are also risking the value of their shareholdings for any losses incurred by DAO. 

The situation would not be too dissimilar from a public listed company that every month (DAO cycle) it made a profit it bought back it's own shares to increase shareholder value (burning more BSQ than issued), and every month it made a loss it issued more shares (burning less BSQ than issued). 

> ### Time frames
> Cycles seem like the only reasonable time frame for profit/loss analysis because issuance is done on a per-cycle basis. Anything else would result in inconsistent data. You can of course do months and quarters and years in terms of groups of cycles.

Agreed. 
 
> ### Closing
> I think many of the ideas in this thread are great, but if we're going to use certain terms, I want to make sure it's clear what the meaning of those terms are and what they mean in the context of this project. Base metrics must be understood properly in order to create second-order metrics and any further analyses.

Yes I agree that clear meaning of words are important, especially when stakeholders are coming from different locations.

I think establishing a lexicon could be done alongside establishing accounts. 

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