TIP 51: Coverage Pool Allocation
Token Holder Governor Bravo
This is a proposal to provide more insurance to tBTC users in the form of allocating more Threshold DAO resources to the coverage of tBTC. Responsible risk management on behalf of the DAO is critical for tBTC users as the network continues to scale.
Currently, tBTC is backstopped by a single asset T-only coverage pool. Strong steps toward improving protocol risk management are achieved by the DAO committing more assets to this pool.
This proposal is an extension of TIP 43- Coverage Pool Migration. The intention is to strike a better initial balance between early tBTC coverage and the opportunity for the DAO to maximize yield by leveraging internal assets elsewhere across the DeFi ecosystem.
The proposal is not the end state for Threshold DAO tBTC risk management. The Threshold DAO can elect to expand tBTC coverage into multiple assets by deploying a new, fully incentivized multi asset coverage pool. This would allow for coverage outside of just T as a single asset which is benificial for risk management. However, any expansion is out of scope of this proposal.
Milestones and Deadlines:
Strategy discussion and alignment in the Threshold Treasury Guild.
Temp Check Snapshot:
The proposal will move to a Threshold DAO temp check snapshot the week of 05/08/23.
Governor Bravo (GB) Flow Start:
If the temp check is passed this proposal will move into the Threshold DAO GB instance shortly after the snapshot ends.
Who is Involved?
Token Holder DAO, Treasury Guild
The exact resources allocated to the T-only coverage pool are outlined in this section of the proposal.
Current stats for protocol generated BTC wallet size are available on this dune dashboard.
The Threshold Treasury guild is recommending the DAO uses a percentage of tBTC TVL as an anchor metric to base coverage available in the pool.
Currently, BTC wallets are generated by the protocol every two weeks. However, this number will increase to one week. Wallets will timeout after 6 months at which point they are swept resulting in BTC transferring to newer, more lively wallets. This means that 26 is the foreseeable maximum wallet amount. The DAO should aim to provide initial coverage on one BTC wallet. Thus, in theory - the DAO should initially pledge to cover 1/26 or 3.8% of the entire tBTC supply. Currently, the total tBTC supply is 529.62. This means that the DAO will deposit enough T to cover roughly 20 BTC or ~17M T.
However, metrics discussed are at the time of this proposal writing and will absolutely change. Thus, a mechanism for flexibility for the DAO to adapt to tBTC growth and market volatility is a necessary part of this proposal. This proposal calls to allocate up to 50M T from the DAO to the Threshold Treasury guild to add to the T only coverage pool at discretion. This 50M T represents a cap that the DAO will deposit into the T only coverage pool. This flexibility will ensure that this proposal does not become irrelevant in a short time and gives the DAO a mechanism to continuously adjust risk to market conditions. Worth noting, if all goes well and no BTC is lost from the protocol the Treasury Guild will be able to withdraw these funds out of the T only coverage pool and return them to the Token Holder DAO when any multi asset coverage pool launches.
Tx Details (If required):
N/A at time of posting. Exact T amounts subject to change with market over lifecycle of proposal.