Building Protocol Owned Liquidity (POL) is a priority for the DAO. Part of this strategy includes accumulating voting power in CVX and CRV tokens so that the DAO can direct gauge weight to pools with T and TBTC.
This loan allows the DAO to jumpstart building POL before running a bond program.
The Treasury has been presented with the offer of a $5M - $10M loan.
Lender: Not publicly disclosed
Recipient: Threshold Network DAO
Executed by: Threshold Council Multisig
Target Debt: 3,000 ETH
Min loan: 100 ETH
Min term: None
Purpose: Treasury diversification through CVX and CRV rewards on the T - ETH pool on Curve Finance through the use of Protocol Owned Liquidity in the T - ETH pool.
Notice: Either party may trigger the termination of the loan at any time with confirmed written notice.
Interest: 50% of the rewards from staking in the T - ETH pool on curve with the LP tokens staked in convex finance.
Impermanent loss protection:
In the event of impermanent loss the DAO will offset the lender’s loss up to the value of the T / CRV / CVX gained as rewards through being an LP. Please see the example below.
For simplicity approximate round numbers are used.
- The lender provides 3,000 ETH (assuming a market price of ETH of $3,333.33 for the purpose of the example)
- The DAO will provide 100,000,000 T (assuming the market price of T is $0.10)
- An initial position of T - ETH with a value of $20M will be created by the Threshold Council.
- If the value of ETH increases to $10,000 and T stays at $0.10 when the loan is called. Assuming that the makeup of the T - ETH position is now 2,000 ETH and 200,000,000 T which has generated $5,000,000 worth of CVX and CRV rewards
- The lender would receive the remaining 2,000 ETH ($20,000,000) + 50% share of the LP rewards + 1,000 ETH worth of T / CRV / CVX from the DAO. The ratio of the T / CRV / CVX rewards would be at the discretion of the council.
The risk to the lender is that the impermanent loss is greater than the rewards and the additional T accumulated to the pool. To allow the lender to manage this risk there is no minimum term set for the loan.
Offsetting impermanent loss of the lender in the event that the value of the ETH appreciates faster than the value of T. The risk is capped such that in the worst case scenario the DAO would receive back the initial T that it supplied to the pool. Furthermore the DAO intends to incentivise votes for the curve gauge on the pool as a mitigation strategy against the IL risk.
Drafted and reviewed by the Threshold Network Treasury Task Force, submitted to the Threshold forum for discussion and voted on by the Threshold Network Council for approval, requiring 6 of 9 votes for quorum.
- Rewards and ETH will be returned to the address that the lender used to provide the ETH after the loan is closed. Changing the lender’s address to receive funds requires written confirmation on two channels and a voice confirmation.
- In the event of Impermanent loss the prices used to calculate the value of the assets used to subsidize the lender’s loss will be global average prices for each asset as recorded on coingecko at the time the termination request is sent.
- The gas costs will be paid for by the DAO.