TIP 46: Defi Liquidity Bootstrap and Growth Part I - Market Maker

Proposals
1

Vote Type:

Token holder DAO Governor Bravo Proposal

DAO Elected Representative Sponsor:

Will

Overview:

tBTC has successfully launched, but with limited utility, adoption at scale is currently bottlenecked. We need to establish tBTC use cases beyond the core BTC to ETH bridge. To do that, a solid liquidity foundation anchored around tBTC TVL and volume on DeFi needs to be built.

This is a proposal for the Threshold DAO to engage with a Sense Capital to deliver market making services to bootstrap liquidity for tBTC across the DeFi ecosystem.

Further details including services rendered and benefits to the DAO are included in the Detailed Summary section of this proposal.

Milestones and Deadlines:

  • Commencement: Focus liquidity deployment, inventory rebalance and tweak and deploy smart contract based trading and concentrated liquidity management.

  • Ramp up (month 1): Increase volume and liquidity via V3 LP strategy and Dex arbitrage on mainnet, expand to additional L2s like Polygon and Optimism.

  • Growth (month 6 - 12): Grow volume with refined strategy.

Who Is Involved:

Sense Capital, Threshold Token Holder DAO, Threshold Treasury Guild

Detailed Summary:

This proposal calls for a 50m T loan to be given to Sense Capital from the Threshold DAO to be paid back in a basket of ETH based crypto assets potentially including stables and ETH.

In addition to market making services Sense Capital will provide monthly reports on progress to the Threshold Treasury Guild.

Other than executing the loan and monitoring performance of the engagement this proposal requires no further action on behalf of the Threshold DAO.

Who Is Sense Capital?

Bespoke trading firm based in Hong Kong/Australia, Market Making, Liquidity management on CEX/DEX since 2019. Focus on 3 apex assets like Bitcoin, ETH and Stablecoins.

Advocate and early user of MakerDAO/Uniswap with strong Defi trading capabilities including automated Uniswap V3 liquidity management, cross DEX/CEX arbitrage based on our Defi orderflow and MEV data research.

Market Making Goals:

Make tBTC a dominant, trusted, distributed Bitcoin Representation on Defi, accessible / redeemable to Real BTC:

  • Bootstrap: Liquidity with Organic Defi Flywheel
  • Scale: AUM with large pockets with Unique value prop for each segment (exchange, mm, traders, miners)
  • Expand: Build out channels and rails (wallet, exchange, dapp, payment processors)

Key objectives

  • Boost Defi trading volume on DEXes like Uniswap and Curve with concentrated liquidity deployment and MEV Arbitrage engine.
  • Increase sustainable yield generated for LP to incentivise liquidity growth in liquidity pools.
  • Improve user experience of liquidity to offer better depth and execution price on Dex liquidity pools.

Why this deal?

  • Partnering with a DeFi focused market maker like Sense helps us lay the groundwork to attract tBTC DeFi Liquidity.
  • 50M T loan is a small price for this level of sophistication and in the trenches work is required to bootstrap tBTC. For comparison other firms asked for 200-300m T loan and only want to work on market making for T and on CeFi.
  • Sense is sensitive to T liquidity supply/demand market dynamics and has already laid out a calculated approach to minimize the supply impact when swapping T for ETH/BTC/stables (per the proposal). Post engagement, Sense Cap is flexible to pay back the loan back to the DAO in ETH/BTC/stables and/or T to aid in treasury diversification efforts.

Tx Details (If required):

Additional Info (Optional):

T inventory would transfer over 3 stages.

Stages T Inventory Objectives
1 Commencement 10M Rebalance T inventory, setup mainnet and arbitrum trading, data collection.
2 Ramp up
After 1-month from commencement. 15M Increase volume and liquidity via V3 LP strategy and Dex arbitrage on mainnet, expand to additional L2s like Polygon and Optimism
3 Growth
After 6-month from commencement or KPI trigger 25M Grow volume with refined strategy.

KPI Trigger

  • Total Defi TVL exceeds 2000 tBTC
  • Daily trade volume exceeds $1M USD for 3 days (less TVL but higher yield and velocity)
  • DEX TVL increased $10M USD (excluding current Uniswap/Curve TVL)|

Request Mint fee rebate in T token during stage 1, 2 to lower the cost of operation, a list of mint transaction id would be provided at the end of stage 2 for reimbursement.

Example: Initial use of T token inventory at commencement.

Passively rebalance 50% of first trench into Stable, ETH, Bitcoin over 2 weeks without price impact or supply shock. Current daily trading volume is $35M/day, passive rebalance would have negligible impact ($500/hour)

9 Likes
2

Hey y’all, thanks for the thoughtful proposal! Two questions.

Considering how turbulent the market is right now, and how we may or may not deploy independent T incentives… I think it would make sense to leave this trigger up to the Treasury Guild rather than fix it upfront?

It’d also be way easier to vote yes if I knew the Treasury Guild could stop us from going on to the next stage at all, though that might be trickier on your end from a planning perspective.

Here I assume you’re asking for a rebate for any minting and redemption fees in the first two stages? Eg if a mint costs 20 bps and you mint 100 tBTC, you’d want a rebate of 0.2 BTC?

If so, that seems reasonable… but it’d be good to know how the T price should be calculated relative to BTC or USD here.

3 Likes
3

Market turbulence and inherit uncertainties was the intention behind these KPI triggers. These KPIs are the my initial suggestion based on current of view of the market.

  • Volatility compression for months. No matter what you do, volume and fees won’t be amazing, there were period of 2018-2019, even 2020. Sideway/stability attacks AMM LP liquidity, Volume/Fee Decrease, TVL Increase.

  • Volatility expansion, Volume and fee API increases but liquidity would exist the market, that is triggered by human psychology ( panic and fear ). Volume/Fee Increase, TVL Decrease

  • Total tBTC Issuance vs engaged Defi TVL Defi Liquidity engineering / strategy is more of a optimisation problem where as AUM/TVL is more of a business development problem. While they are interconnected as contributory factors (volume/fee/yield attracts liquidity), it’s difficult to put a direct KPI on total tBTC TVL. Market sentiment, cycle and timing could be a stronger factor here.

Example: Crypto gone Bankless, Bitcoin addresses has grown 1M in the last 5 days this week due to failure of 3 US banks (SVB, Silvergate, Signature)

The general approach is if 6-month period or either of above KPI has triggered, so we can move towards the next stage of growth plan as traction and market conditions evolve.

I look forward to discuss further to come up with reasonable triggers with Treasury Guild towards growth of tBTC market and community.

3 Likes
4

If so, that seems reasonable… but it’d be good to know how the T price should be calculated relative to BTC or USD here.

At the end of stage 2, we can use 7D moving average of related assets (T, ETH, BTC) to calculate total Mint expense in US dollars.

1 Like
5

I lack insight as to what a “typical” proposal might look like here. Yet, I think this is an opportune moment for this kind of arrangement. It is a moderate sized “bite” of a centralized pie, but I believe this will help the community grow. While partnering with Sense Capital, a centralized trading firm, may appear to be a compromise on Threshold’s DeFi values of openness and decentralization, it is important to consider the strategic rationale behind the proposal. The primary objective is to bootstrap liquidity for tBTC and increase its adoption within the DeFi ecosystem. Adoption is everything. We can always continue to improve ourselves, but not if we are marginalized into non-existence.

5 Likes
6

Thanks for joining the Treasury Guild meeting to introduce Sense and answer questions on the proposal, @sensecapital.

I asked about the marketing recommendation in the draft proposal, and you mentioned 2 things: amplifying collateral and rebates.

I wanted to hear more about the former, but the answer regarding calculating our fees on minting 2k BTC seemed to suggest the later. I understand that these are rebates to Sense, not to minters. Can you explain what you mean by “incentivise collateral usage reward / airdrop on volume” and what you’d expect us to spend on this?

1 Like
7

**Additional details around tBTC Collateral and tBTC mint rebate Incentive reward **

tBTC Collateral

Instead of providing $50-100K worth of liquidity to assist the effort, Sense.capital is looking allocate this liquidity towards a tBTC collateral arrangement to minimise trust. Total collateral would be 21 BTC at stage 3. Ideally, collateral is posted as Curve 3BTC pool LP so it also earns yield and further boost tBTC defi liquidity.

  1. Commencement: Post 4tBTC, unlocks 10M T
  2. Ramp-up: Post 8 tBTC, unlocks 15M T
  3. Growth: 9 tBTC, unlocks 25M T.

This would also become an insurance policy that expires in 12 months time around next BTC halving around April 2024, if BTC price exceeds previous 2021 all time high, then Treasury Guild is more protected.

T Rebate to Incentivise early tBTC minters up to 2000 BTC
There were some confusion around the specifics of T rebate and total budget. I’d suggest the following

  1. first 1000 BTC mint rebate leave it for early partners like Maker Maker, Defi Liquidity provider.
  2. second 1000 BTC rebate quote reserve for wilder public.

Total Mint Rebate budget: 0.3% x 2000 BTC = Around 4M T Tokens.

3 Likes
8

Thanks for joining the Treasury call again this morning, Taylor, and answering these questions (and others).

To share with the DAO:

  • Rebating or eliminating minting fees could be split between market makers and retail customers, and we can experiment to see what works

  • This plan doesn’t assume any particular level of marketing spend to hit the targets, so it’s a question for the Marketing Guild and contributor teams how we think best to promote, in context of overall strategy

Also, to clarify: the current mint fee is 0.2%.

2 Likes
9

Proposal cancels importance of permissionless access to Defi.
thUSD appears to be the headwind for tBTC.
Why pay someone to sell your shoes and still share in the profit with
no insurance if the store were to go bankrupt?
Financial matters is not my thing! lol
But, i just can’t see the light here…

10

Just want to add a few additional notes:

  • After Treasury Guild Committee discussion, including Taylor joining twice to answer questions, I strongly support this proposal

  • I’m confident these activities and Sense Capital’s expertise will jumpstart tBTC liquidity bootstrapping and set us up well for upcoming liquidity proposals

  • These convictions were enhanced by 2 conversations I had with professional references who highly recommend Sense Capital for their proven expertise, as well as Taylor’s integrity and commitment to developing bespoke strategic and technical solutions for customers’ market making needs

3 Likes
11

Wallet created for Threshold Inventory (Ethereum Mainnet).

0x52d033E64774F31A8B7562806aA5782CbbD29382

4 Likes
12

:eyes: Important Proposal Information

Strike price was discussed in a previous version of this proposal but is not directly discussed in this post. It was correctly flagged as an important detail that needs to be defined here so there is no proposal ambiguity.

The strike price for the first tranche is a 7 day T moving average (MA) on engagement commencement.

In this case engagement commencement is when the proposal passes, the Governor Bravo timelock ends and T is automatically transferred from the DAO to the address Sense provided.

7 day MA is defined as T price over 7 days divided by 7 starting at commencement calculated using the CoinGecko price feed.

Subsequent strike prices are not directly relevant to this proposal and can be defined in following proposals that examine continued engagement.

3 Likes
13

In this case engagement commencement is when the proposal passes
7 day MA is defined as T price over 7 days divided by 7 starting at commencement calculated using the CoinGecko price feed.

Hi Will, Thanks for the clarification on the strike price methodology at commencement is very reasonable. It starts when proposal passes using Coingecko price which indexes across multiple markets.

4 Likes
14

Here is my sign message to verify wallet ownership.

0x52d033e64774f31a8b7562806aa5782cbbd29382

Message: “TIP 46: Defi Liquidity Bootstrap and Growth proposal”

Signature Hash: 0xeb38b23eb8b78edc9c144b5da9ce2c5237dd060446d62396048a731553815de916a6b3cd93fb6eaf3b0b24d6ee234757c67dadc1c02ad3be84caddae5823b17e1b

Etherscan Verify Signature: Ethereum Verified Signed Message

8 Likes
15

TIP46: End of Week 1

  • Execute proposal 20 April and received 20M T inventory
  • Strike price 0.03254 using daily close price of next 7 days 20-27 April (0.0334, 0.0325, 0.0329, 0.0321, 0.0322, 0.0325, 0.0322)
  • Rebalanced 30% (2M T) into USDT, ETH and WBTC on Mainnet and Arbitrum with minimum T price impact (less than 0.5%)
  • Deployed 80% of liquidity to mainnet tBTC/ETH pool on mainnet. Created tBTC/WETH and tBTC/wBTC pools on Arbitrum.
6 Likes
16

Thanks for the update, Taylor.

Just to clarify, the T inventory sent was 10M per the plan above.

2 Likes
17

Stage 1: Summery

It has been an intense and fruitful month for tBTC growth, we’d like to give the Treasury guild a summary.

  • Launched Liquidity pools on Mainnet, Arbitrum, Optimism and Polygon
  • Deployed Managed LP Strategy on Arbitrum, Optimism and Polygon
  • Volume has increased significantly across L1/L2 to $7.8M in 30 days
  • TVL on L2/rollups has grown to $4.5M (arbitrum, polygon, optimism)
  • Created Dune analytic dashboard to track volume growth across network and dexes

Inventory T-MM

  • 2M T remains on Arbitrum and Polygon

  • 8M T token has been rebalanced into tBTC, wBTC, ETH and USDC Debank portfolio

  • Managed LP strategy Dashboard Link (please don’t share)

Summary value
T-MM Wallet (9382) $226,297
LP Strategy wallet (792A) $56,638.66
Quickswap Gamma (Polygon 792A) $12,477.532
NAV $295,413.19
Repayable value (10MT strike@0.03254) $325,400

Debank is not indexing bridged T token on polygon (fxT token) and Gamma position correctly, I expect this to be solved once their indexer and pricing improve… It doesn’t not index LP strategy positions that are managed by smart contracts.

Main focus of stage 1 is to drive volume and liquidity to enable tBTC liquidity and pricing to be more discoverable, deploy across leading dexes on arbitrum, polygon and optimism. However liquidity has stretched very thin so L1 liquidity and Uniswap liquidity has been weak.

Next steps

  • Provide Treasury guild wallet address to receive 4 BTC (2 wBTC, 2tBTC) collateral
  • Release stage 2 of T token allocation to drive further growth on important liquidity pools on Uniswap and L1 mainnet.
4 Likes
18

Posted 4BTC collateral to DAO Treasury multi sign.

2 wBTC sent to TTG MS on Arbitrum

2 tBTC sent to TTG MS on Arbitrum

We are ready to proceed to stage 2 of this proposal to use further T token allocation to ramp up liquidity based on the data that we have capture to improve liquidity across L1, L2.

2 Likes
19

Received 15M T token as part of stage 2 allocation.

4 Likes
20

Stage 1: 10M T

  • strike@0.03254 7 days 20-27 April 2023 (0.0334, 0.0325, 0.0329, 0.0321, 0.0322, 0.0325, 0.0322)
  • Repayable Value: 325400

Stage 2: 15M T

  • strike@0.02390 7 days 18-25 July 2023 (0.02377, 0.02408, 0.02369, 0.02380, 0.02422, 0.02439, 0.02340)
  • Repayable Value: 358500

Overall: 25M T

  • Strike@0.027356
  • repayable value 25M T or $683900
1 Like