TIP-006 ETH loan to Threshold DAO

Background:

The DAO intends to provide value to all T - ETH LPs by making use of platforms such as veCRV bribes and CVX bribes to boost the yield on the pool.

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.

Summary

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.

Example Scenario:

For simplicity approximate round numbers are used.

  1. The lender provides 3,000 ETH (assuming a market price of ETH of $3,333.33 for the purpose of the example)
  2. The DAO will provide 100,000,000 T (assuming the market price of T is $0.10)
  3. An initial position of T - ETH with a value of $20M will be created by the Threshold Council.
  4. 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
  5. 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.

Lender Risk:

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.

DAO Risk:

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.

Governance Process:

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.

Notes:

  1. 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.
  2. 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.
  3. The gas costs will be paid for by the DAO.
7 Likes

Sensible and incentives seemed well aligned with lender. I’m all for this proposal. This is an optimal way to bootstrap the DAOs’ POL program.

4 Likes

This is a great proposal, I like the rewards and loss prevention provided. I think this will draw a lot of attention and help create a jumpstart. I am a CRV holder - their dash is not especially user friendly - if this proposal passes I think the T marketing group can really do a great job at promoting the rewards (further enhancing the jumpstart).

3 Likes

Quite exciting. Thanks @ben! Is the expectation that we vote on this soon and executr, prior to the full plan for first-year treasury management, or that it’s one component of that strategy?

The council voted on the proposal after it had been posted

which passed unanimously


(MacLane and Doug just voted to see the results)

The Council then received the ETH and has created the $20M USD LP position.

Next step is to get a proposal for the bribing.

We are going to increase the frequency of the treasury meetings to get the first year plan locked down faster.

3 Likes

Maybe I missed it somewhere but where does the Council have the authority to do this (with a single day for comment)?

“The Token Holder DAO will manage the treasury and be the owner of the T token contract.”

1 Like

Thanks for raising this, it’s a fair comment worth discussing, @maclane also raised it when first presenting the offer. No objections where raised by the 6 non-council members that participated in the discussion after it was presented. One of the points of discussion for how the DAO would operate is having guilds with budgets to execute against the goals without having to go to a token holder vote for each proposal. However you are right that perhaps there should have been a longer period for discussion on the specific details for this proposal.

The Treasury Task Force has been discussing creating Protocol Owned Liquidity in the weekly calls, the T - ETH pair was first discussed on the 14th of Dec 2021.

The blocker for being able to pursue it was needing to acquire ETH and so running a bond program with Olympus was discussed as a way to bootstrap the ETH for this. On the 21st of Dec 2021 the conversation was revisited around using Convex to boost the yields.

The meeting on the 4th of Jan 2022 we discussed moving the rewards from the KEEP - ETH pool to the T - ETH pool on curve but instead of providing them as liquidity rewards making use of bribe.crv or votium as they currently provide a higher yield for LPs. The issue of getting ETH so the DAO could LP to capture the CRV and CVX rewards was surfaced again.

Getting T - ETH POL has also been discussed in the Treasury Task Force thread in the integrations channel.

Currently the governance contracts have not been deployed which is why the council multi sig currently has control of the T treasury funds. In this specific case the lender wears almost all of the risk, in a worst case scenario the treasury would get back the T that it put in. However going forward, what the Treasury Task Force and Council should be able to do before the governance contracts are operational is something we should add to the next calls agenda to put some quantifiable process in place for the interim.

2 Likes

Thanks for the thorough background, @ben. I know there has been a ton of work going on investigating treasury strategy, and the discussions are either in channel or meeting notes (which I try to keep up with). And the fact that part of this was a shift in rewards makes sense.
Maybe we can outline what kinds of opportunities (if any) the treasury task force and council may want to act on before a first-year treasury plan is laid out for comment. So it’s really a process question; I’m glad we are seizing opportunities and moving forward.

2 Likes

It’s actually a good question and part of a broader concern we’ve been discussing. There are obvious issues with publicizing financial transactions prior to execution. In this case, it was an OTC transaction, so the risk in that regard was lower. However, going forward, I think we need to develop better precedent/guidelines for how we go about this. No ideas at the moment, that I haven’t express before and publicly. Would love feedback and insight on this.

2 Likes