TIP-061: Threshold x Flowdesk: T Liquidity and beyond

Proposals
1

Vote type:

Token holder DAO Governor Bravo Proposal

DAO Elected Representative Sponsor:

Will

Overview:

Flowdesk is the leading regulated digital assets Market Making as-a-Service infrastructure provider for token issuers, exchanges, and institutions. Our model offers token issuers a fully transparent and capital-efficient approach to managing liquidity on both centralized and decentralized exchanges. We enable our clients to directly manage their own capital, while giving them access to our OTC and execution services supported by our global trading desk.

Our Market-Making as-a-Service model has been designed to improve trust, control, and fairness. We trade with the token issuer’s capital and are compensated with a flat retainer fee, solving for misalignment of incentives. This has several advantages:

- Full control over the trading strategy
- Comprehensive set of data & analytics to facilitate reporting
- On-the-fly parameter adjustment
- Trade and custody assets with a regulated counterparty
- Better forecasting of costs

We are not a hedge fund or a prop desk, which gives comfort to our more than 100 clients that we will never trade against them or engage in controversial market behaviors. This is backed by robust internal conflict of interest policies

Our proposal:

Liquidity for T is fragmented and essentially concentrated on Binance. Prominent exchanges like OKX, Coinbase or Kraken exhibit varying levels of liquidity in the 2% depth bucket.

We are presenting our Market-Making services with the goal of enhancing the overall liquidity of T across CEXs. This initiative is envisioned to lay the groundwork for a more extensive collaboration with the DAO, with the aspiration of nurturing a long-term partnership.

Scope:

We suggest a scope of 7 pairs on the following exchanges:

- Binance (USDT & BUSD)
- OKX
- Coinbase
- KuCoin
- Kraken (EUR & USD)

We are able to trade on more than 100 CEXs/DEXs, and we can tweak the scope as needed/required. Unfortunately we are not able at this time to trade on Korean exchanges due to local restrictions.

In DeFi, we will mostly cover Curve and Balancer, ensuring prices are in sync across the board and capturing any arbitrages in the process. We can also trade there for hedging purposes.

Characteristics:

Screenshot 2023-10-20 at 11.11.19
Screenshot 2023-10-20 at 11.11.191202Ă—436 29.5 KB

Inventory requirements:

Option 1 Threshold to provide ~35M T and $650k in quote currency assets (stablecoin/ETH/BTC…)
Option 2 Threshold to provide ~75M T, Flowdesk to run a twap/vwap sell program to fund the other leg used for MM.

Liquidity metrics and inventory requirements can be tweaked and tightened.

We trust the DAO will notice that the inventory requirement amounts to only ~0.8% of the circulating supply and that these funds are still the DAO’s property (no loan). These funds can be withdrawn and are in custody with us (Fireblocks/Ledger), and deployed as required on exchanges.

OTC & Execution:

It is our understanding that the DAO (and/or DAO participants) may have various liquidations/OTC/diversification needs. As part of this proposal, the DAO will be able to trade up to $400,000 in notional value with our OTC desk per month for no additional cost.

We can provide direct quotes by chat or voice and also run bespoke algorithmic execution strategies to minimize market impact and buy/sell a block of asset over a period of time.

Deal terms:

Price $14,250/month or $17,000/month for a payment in T
Duration 12 month contract
Payment Schedule Quarterly

We are happy to be more aggressive on pricing should you be interested in paying more upfront.

Looking forward:

We are committed to partnering with Threshold and developing a strategic long-term relationship. There are several avenues of synergy between ourselves, our client base and Threshold Network.

  • tBTC liquidity across DeFi and CeFi (important for a lot of liquid funds)
  • BTC wrapping for our clients (this goes hand in hand with the above)
  • Facilitating OTC clips in tBTC
  • Synergies with our clients looking to diversify their treasury
  • Synergies with Flowdesk’s treasury

Thank you for taking the time to read through our proposal. I am looking forward to answering any questions you may have.

___________________
5 Likes
2

More liquidity the better!

Few questions:

  1. What’s the target breakdown of the $650K of stable/ETH/BTC?
  2. Would you be open to integrating with Openbook DEX (Solana’s CLOB) ?
  3. What’s Flowdesk’s policy regarding loss of funds? Please address a) exchange default b) normal trading losses c) tech risk/malfunctioning trading engine
  4. Could you elaborate on the Delta-neutral mandate?
  5. How configurable is the inventory/risk allowed by the engines & operationally how do you expect this parameter tuning to function with the DAO?
3

Thanks for the good question @Donduala

  • What we meant was a liquidity deposit of $650k worth of any “blue chip” asset to help with quoting on the various exchanges. No specific breakdown in mind, with the other option being strictly providing T tokens (and we will manage to swap them out over time for the required quote currencies)

  • Yes, we would be open to it. I believe it is a Serum fork correct?

  • Regarding the various elements:

a) The exchange counterparty risk is borne by our clients, however in practice we will seek to limit exposure by redeploying collateral actively in-and-out of the different CEXs thanks to our back-end custody setup. All your exposure can be monitored in real time with our dashboards and funds can be allocated or withdrawn from a CEX within minutes.

b) All market PnL is owned by the client. Movements in asset value (i.e BTC goes down by 5%) are not considered.

c) Our risk management framework incorporates strict fallback mechanisms, among which the cutting of all Algos in case of a cybersecurity anomaly, security breach, spike in volatility, unusual trading behavior… This would be dealt as a “force majeure” contractually.

  • Delta-neutral in this context means our mandate will not be to take on a long position in the token or conversely to sell/short the token. We will seek to hedge any positive/negative delta either in the sport market (sell/buy on Curve and/or skew the order book) or by opening perps.

The engine can be tailored to your specific needs. We can adjust risk parameters, spread, depth… We can tweak the order distribution and skew it on either side, and as explained earlier, we can deploy more or less funds to each individual exchange within the scope of our agreement. Typically with our other DAO partners, there is an appointed working group that is in charge of ensuring communication between Flowdesk and the DAO. This works best for day to day tuning and operations, but should there be a strategic decision to be made (should we cover more CEXs, should we run a token buyback program etc etc…) the decision can be made with a DAO proposal.

Hopefully that answers your questions? Lmk if anything comes up I’d be happy to answer

4

Thanks the responses are helpful.

Do you have an example of any of these dashboards from working with other DAOs?

Yes Openbook is a community fork of serum. Would be great to see more firms integrate to support our tBTC Solana growth initiative (TIP-060)

Links:
Rust & TS clients
Openbook program code
Mango markets client to access with margin

Will Dm in case you have questions on setup

6

@DonDuala - thx for the link. Will definitely reach out to discuss Openbook, especially as we look forward to support tBTC.

I will attach a screenshot of the dashboard at the end of the post (I am limited to one upload as a new member which makes it a bit tricky) We are able to issue access to demo dashboards should that be of interest.

@maclane - thx for your questions.

re. BUSD - while it is bound to die eventually, we see merit in maintaining coverage there to limit the possibility of intra-exchange arbitrage. In practice most of the liquidity will be deployed on the USDT pair (while monitoring for any arb)

re. Kraken, the volume are low on the EUR pair, but actually quite similar to the USD pair with 10x less liquidity. As a major on/off ramp venue, we see merit in maintaining at least some liquidity there.

Another market we believe makes sense to cover is Bybit, due to the presence of a perp listing there.

We are happy to add/remove any pair and adjust the overall proposal accordingly, just let us know

Dashboard screenshot:

Dashboard img
Dashboard img1920Ă—1080 167 KB

7

Thanks for the thoughtful proposal @Nico_flowdesk , a few questions:

  • How often are the performance dashboards/reporting updated and/or shared? Is this real time visibility?
  • Any early termination penalties to be aware of? In the event the DAO does not want to proceed with the full 12 month contract
  • Anything else to highlight in terms of strategic long term partnership support around tBTC growth?
8

Thx @blockchainbri

  • All the dashboards are available at all time and have real-time data. You can schedule an extract of the data to be sent directly to your inbox at the frequency of your choosing

  • If flexibility is important for you, we can offer a 6 month contract instead, at the cost of a slightly higher price, $15k/month.

  • Regarding this topic, the most immediate action point will be to try and move some of the wBTC wrapping flow we are seeing to tBTC. One thing that wasn’t mentioned in the initial proposal is also the possibility to actively manage LP positions on Univ3 (and more generally its forks and other CLAMM down the line). This would be especially relevant for the Uniswap v3 pools on the various L2s

1 Like
9

Thanks a lot for the proposal and answers to previous questions @Nico_flowdesk . Below are a few additional questions, in the order they appear throughout the previous posts.

  1. In which jurisdiction is Flowdesk regulated? It seems like you are registered in France, but not licensed.

  2. You mentioned that clients directly manage their own capital, so what is Flowdesk providing exactly (I presume API connectivity, algorithms, but is it the responsibility of the client to manage said algorithms)? Note that in the following paragraph, the sentence “we trade with the token issuer’s capital” contradicts what was mentioned earlier.

  3. In regards to enhancing overall liquidity, how much extra liquidity will be added compared to the existing liquidity on the books? Indeed, it seems like Binance, the most liquid venue, would be used as a hedging tool to provide risk-free liquidity on the other exchanges listed in the proposal. This question is especially prompted by later comments about being delta (options concept? without loan and call option model) neutral.

  4. Is the depth presented (125k in aggregate within 2%) for flowdesk only or is it the general (public+flowdesk) depth? How much of it is unhedged vs. how much of it is hedged?

  5. The capital requirements seem minimal (which is great) compared to depth provided (assuming that 125k was to be provided by flowdesk alone). What’s the theoretical range of prices covered? If you have 125k on each side and the price falls by around -10%, your quote (USD equivalent) capital is wiped (and vice versa for +10%), prompting you to ask for more capital, unless you indeed leverage liquidity on Binance/DEXs to provide “artificial liquidity”.

Thanks in advance for addressing those.

10

Hi @johnxbt - thanks for the comprehensive and detailed questions

  1. We are regulated in France and have an application ongoing in Singapore. Correct, we are registered with the AMF (Autorité des marchés financiers) as a Digital Asset Services Provider under registration number E2021-019

  2. We provide the trading infrastructure, which includes API connectivity to both CEXs and DEXs, the trading algorithms, but also a fully-fledged trading desk and risk management team. A good analogy would be to think of us as an outsourced trading desk. Since we use our client’s capital, they are free to give us any instructions (widen spread, tighten, bolster liquidity on exchange X or Y, skew the books…), however the desk here runs its own MM strategies, manages hedging independently and will always seek to maintain agreed KPIs while staying market neutral (unless specified otherwise by our client)

The three other questions are all sort of intertwined I’ll try my best to address them one by one

  1. We will quote an additional $125k in liquidity (bid side) and $125k equivalent in T (ask side), on top of what is currently in the books. You are raising a good point, the term we should probably use here is market-neutral rather than delta-neutral. We will have an initial inventory in T and seek to sell about half of that for the required quote currency. The goal then is to rotate that inventory back and forth between CEXs and our custody, leveraging DEXs when needed. Technically yes Binance is the most liquid venue so most of the hedging will be accomplished by skewing the books there so that we never accumulate too much of a long position in T (or conversely accumulate stable and run out of T).

  2. The depth we are proposing is only what we (Flowdesk) will be quoting. The 125k actively engaged in the books are unhedged, but it is highly unlikely we would get filled on all books across all CEXs instantaneously. If that is the case we would then have a delta compared to our initial inventory balance (the delta we were referring to), which we will seek to close by skewing the books/tapping into DEXs (as explained earlier)

  3. One of the strength of this setup is its capital efficiency and we are confident we can rotate the inventory sufficiently easily. There could be a few scenarios where we are required to ask for more capital if the market is very directional and rotating is very difficult, but for a token like T this would not be the case.

I trust this should answer your questions, let me know !

11

Hi @Nico_flowdesk , thanks for getting back promptly. Just wanted to clarify a few things if I may, I believe these should be considered when voting.

    1. The registration with the AMF is in no circumstance being regulated, sorry. It is a registration and not a license.
      In Singapore, are you seeking the FSMA, PSAA or SFA?
    1. If you are hedging your liquidity provision, you are effectively providing no extra liquidity. You are simply moving liquidity from Binance to other venues, as you are a maker on other venues and a taker on Binance, netting 0 extra liquidity.
    1. Contradicts 3 where you talk about Binance and DEXs as hedging venues.
    1. The few scenarios, if unhedged as claimed in 4, are uptrends and downtrends, i.e. all the time except sideway movements, thus most likely prompting a refill (if unhedged again, as you claim in 4).

Thanks for getting back again.

12

When we buy tbtc we are not exposed to this correct. Sorry to ask the stupid question but I’d like it in writing.
" 1. We provide the trading infrastructure, which includes API connectivity to both CEXs and DEXs, the trading algorithms, but also a fully-fledged trading desk and risk management team. A good analogy would be to think of us as an outsourced trading desk. Since we use our client’s capital, they are free to give us any instructions (widen spread, tighten, bolster liquidity on exchange X or Y, skew the books…), however the desk here runs its own MM strategies, manages hedging independently and will always seek to maintain agreed KPIs while staying market neutral (unless specified otherwise by our client)"

13

When we buy tbtc we are not exposed to this correct. Sorry to ask the stupid question but I’d like it in writing.

Can you clarify your question?

tBTC is a Bitcoin representation for DeFi collateralized 1:1 with BTC.

T is the staking and governance token for the Threshold Network (which tBTC runs on). tBTC signers are required to stake T but T is not used to collateralize tBTC.

14

I’d like to know if 100% of the collateral is always locked in to vault for tbtc, tusd, teth or if a portion of the collateral is being used in defi to earn the protocol a yield, which brings with it smart contract risk and the potential to be under collateralised if funds were lost.

1 Like
15

None of Threshold’s products (neither tBTC or thUSD) rehypothecate collateral.

4 Likes
16

Dear DAO members,

I hereby attest that the address below is the Threshold custody vault for Flowdesk market making activities :

0x225F6DF1679DC237477b4B08A7393b09466624BB

A test transfer has already been made an confirmed under the following Tx:
0x8bdc75db51afa1c4e018e13bbcdbe41da80aea48f0e2772997e6abd6209010d3

By doing this, I aim to demonstrate that Flowdesk is the rightful owner of the Ethereum address associated with my forum account. This verification can help build trust and credibility within the DAO community.

If you have any questions or need further verification, please feel free to ask. I’m committed to maintaining transparency and accountability within our community.

Thank you for your understanding.

2 Likes