Derive co-founder proposes 50% DRV token supply increase, diluting holders by 33%

Derive co-founder Nick Forster proposed expanding the token supply of the onchain options exchange’s native DRV token in a bid to retain core contributors and close deals with institutional partners, according to a proposal published Friday, Sept. 12.

Forster’s proposal calls for 500 million DRV tokens to be minted, increasing the token’s supply by 50%, with the tokens to be distributed to the Derive Foundation (to be renamed from the Lyra Foundation, referencing the protocol’s former name). Forster said existing holders will be diluted by at most 8.25% per year for four years, per the proposal’s estimate,

As part of the proposal, Forster said Derive has already secured “one major partnership to bring institutional-grade liquidity and custody to the ecosystem,” and added that the Foundation is “in advanced negotiations with several of the largest liquidity providers and traders to onboard deeper liquidity and launch new product lines.” Forster did not name the partner, and Forster and Derive did not immediately respond to a request for comment from The Block.

“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,” Forster wrote in the proposal.

Forster’s proposal also reveals that Derive has cut ties with team members and investors who supported the proposed merger with Synthetix, which was mutually called off in May after Derive investors criticized the deal, saying it undervalued the onchain options platform.

Under the terms of the proposal, 46% of the newly minted tokens would be allocated to core contributors, whose tokens have mostly vested, in order to retain them as employees. The tokens will vest over four years, and will only be able to be sold if DRV maintains a market capitalization above $150 million. DRV currently has a market capitalization of $28.5 million, according to CoinGecko data.

The proposal comes as a reversal of Derive’s former pledge that “no new tokens will be minted.” The prior conversion from LYRA to DRV tokens kept supply flat at 1 billion tokens, with a 1:1 snapshot conversion.

Forster’s proposal argues the token mint is necessary to compete with Deribit, the industry leader in options trading, which was acquired by Coinbase in a $2.9 billion cash-and-stock acquisition that closed in August.