Sunsetting tBTC coverage pools

General
1

Threshold’s coverage pool contracts are designed to provide an insurance backstop against potential losses in the Bitcoin collateral backing tBTC. However, it’s clear that T-only coverage pools are a sub-optimal solution given the inherent relationship between tBTC and T. In case of a BTC collateral loss event, it’s likely that T would experience a significant price impact, reducing it’s effectiveness as an insurance backstop.

Far better are coverage pools with exogenous assets that are not correlated with tBTC (i.e. ETH, ETH LSTs, BTC).

However, naively deploying coverage pools with exogenous assets is unlikely to be the best approach. Since coverage pool liquidations are not automated but rather require the intervention of a risk manager (currently the Treasury Guild), it’s unnecessary to deposit those assets into a coverage pool contract. Instead, they can be more deployed into various DeFi strategies to earn yield for the DAO.

With this in mind, I propose sunsetting the explicit coverage pool contracts in favor of moving to an “implicit coverage pool” model where tBTC is backed by the full faith and credit of Threshold DAO (that is, by its treasury assets, which currently include T, ETH, wBTC, tBTC, stablecoins, CVX, veCRV, and associated LP tokens, etc.

These assets are held primarily in three locations:

  • GovernorBravo timelock controller
  • Council multisig
  • Treasury Guild multisig

In the event of a collateral loss event, these assets can be used to cover the loss by the risk manager in an orderly manner.

7 Likes
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I am a supporter of this

Some links to the assets

Treasury Multisig

Council Multisig

Governor Bravo

2 Likes
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Let’s code this proposal as TIP-064.

Thanks for initiating this @maclane, it is very interesting for the DAO to move to a model where tBTC is backed by Threshold. Tagging here some TG members for a wider discussion, @Eastban @Will @jakelynch @sap

3 Likes
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This proposal makes a lot of sense to me. T isn’t the ideal asset to backstop any problem with the bitcoin backing tBTC imo. Also worth mentioning that ongoing diversification efforts like the bond program e.g., mean an ever increasing position of non T assets in the treasury.

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Yes, thanks for leading the discussion on this in Treasury Guild and proposing this, MacLane. It makes a lot of sense for the reasons stated. And I think the community can see that the TTG has been effective at managing the treasury, protocol-owned liquidity and multiple growth initiatives over the last 23 months, so that should give tBTC hodlers further confidence.

1 Like
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TIP-064 has been approved by the DAO on Snapshot with the following results:

Results

  • Approve: 787M T - 99.79%
  • Disapprove: 1.6M T - 0.21%

The TTG will be the body in charge of outlining the next steps for this proposal.

1 Like