Borrow thUSD for expenses
Vote Type
Token holder DAO snapshot with a 7-day vote period
DAO-elected Sponsors
@Eastban , @JohnPackel , @wuji
Tldr
Use thUSD protocol to mint thUSD against tBTC collateral to pay for some of the DAO’s monthly expenses.
Background
DAO’s Treasury
DAO’s treasury overall balance sits right now at over $26m. It is classified into 4 groups depending on the nature of the asset:
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T token holdings across different addresses account for 492m T (~$17m ).
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T pairs that are protocol owned liquidity deployed on three pools on Ethereum mainnet, making up ~$3.8m.
- T/ETH (50/50) pair on Curve
- T/ETH (80/20) pair on Balancer
- T/tBTC (80/20) pair on Balancer
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Reserve Assets including Bitcoin, ETH and stablecoin holdings worth at the time of writing $3.9m.
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Governance tokens the DAO possesses, primarily to have voting power in other protocols. CRV and CVX for instance allow the DAO to vote on CRV incentives to flow towards targeted Liquidity Pools on Curve. AURA and BAL let the DAO vote on BAL incentives to flow to Liquidity Pools on Balancer.
Treasury Diversification
The DAO’s continued efforts to diversify its treasury have been highly successful, with almost 40% of its assets not to be exclusively its T governance token. Clearly this diversification makes the treasury more resilient. This diversification also allows additional generation of income and as a result, the overall capital of the DAO is better preserved.
Ongoing efforts spearheaded by the Treasury Guild let the DAO diversify its treasury by ongoing bonds that buy tBTC with T each day, effectively dollar-cost averaging in the amount of ~$150k per month. Bond issuers (such as the Threshold DAO) deploy their market, seeking to receive quote assets (tBTC) from the wider community. The market auctions payout assets (T) whereby bonders in an open market can “bond in” and receive vested payout assets at a discount compared to the current market price. The issuers raise assets that tie into broader organizational objectives, and bonders get their favorite vested tokens at a discount that they can claim at a later date and utilize across crypto and DeFi.
DAO’s current expenses
As Threshold Network continues to grow, evolve, and roll out innovative new products, it’s only natural that ongoing expenses increase. The rationale behind this is to accommodate various operational needs such as legal and compliance requirements, transaction monitoring through TRM Labs, oracle services from Chainlink and blockchain security monitoring with ChainPatrol. In order to adequately attend to the increased manpower demand, the DAO continues to onboard more collaborators and increase the working hours of existing collaborators.
As the product portfolio expands and the opportunities and needs within the DAO continue to broaden, these ongoing expenses become an integral part of the operational structure, ensuring Threshold is well-equipped to handle the challenges and demands of running a successful DAO.
Currently, expenses are entirely* paid in T each month from the DAO’s treasury. Occasional audits, bounties and accounting services are also paid from the treasury. We’re not sure what each collaborator or provider does with it, some may be added to a node, other pooled in a LP, but probably most get sold to pay bills. For the treasury it’s a net cost and a decrease in its overall balance each month.
*Legal and MM services are paid in USDC but the original asset is T from the treasury.
thUSD protocol
Threshold USD is a decentralized borrowing protocol that allows anyone to draw loans using tBTC and ETH as collateral. Loans are paid out in thUSD (a USD pegged stablecoin) and need to maintain a minimum collateral ratio of 110%. The thUSD protocol is a fork of Liquity’s LUSD.
Threshold USD’s key benefits include:
- Low cost for tBTC loan (variable 0.5% issuance fee and no interest rate at launch)
- Minimum collateral ratio of 110% — more efficient usage of deposited tBTC
- Governance minimized— most operations are algorithmic and fully automated, and most protocol parameters are set at time of contract deployment. (see docs for parameters that can be changed through governance)
- Directly redeemable — thUSD can be redeemed at face value for the underlying collateral at any time
Proposal
Idea
Convert $400k T into tBTC each month and add that tBTC as collateral to a vault on the thUSD protocol to mint $160k thUSD (with a safe 250% collateralization ratio). Use the minted thUSD to pay part of the DAO’s monthly expenses.
The crypto market is volatile and very dynamic, so no one knows how the assets will behave and what their prices will be after a year. However, as an example, assuming that no value changes, in a year the DAO treasury will look like this:
Benefits
Today the DAO pays expenses, including collaborator compensations, with T from the treasury. This is a pretty straightforward operation and each collaborator gets exposure to T. It also implies that the treasury gets depleted by ~$300k each month.
If instead, the DAO buys tBTC each month and borrows against it to pay expenses, the benefits would be:
- T gets dollar-cost averaged (DCA) into BTC: DCA is an investment strategy where an investor divides the total amount to be invested across periodic purchases of a target asset. This strategy aims to reduce the impact of volatility on the overall purchase, removes the pressure to make perfect timing decisions, as investments are made consistently regardless of market conditions and particularly in volatile markets can result in a lower average cost per share compared to lump-sum investing.
- Treasury gets diversified, an overall long-term goal of the treasury guild to build a more resilient treasury where capital is best preserved.
- Thresholds’ own thUSD protocol gets used by Threshold, a solid use case example and strong marketing message for the whole market.
- Getting paid in stablecoin allows each collaborator to choose their exposure.
- If tBTC continues its upward trend: then the DAO sells a part of its tBTC, repays the loan and keeps the rest. Overall treasury value and resiliency increases. At the same time with debt paid down tBTC is released from the Vault and can be put to work to generate additional income.
The potential operation considerations of this process are:
- Increased complexity of monthly operations
- Active debt management would need to be performed
- The DAO would need stables in reserve to handle sporadic loan repayments to avoid pitfalls of market drawdowns and manage decreasing collateral ratios
- The DAO may lose BTC exposure if a vault gets redeemed
Funding
To obtain the necessary collateral to start this program, we must swap T from the DAO’s treasury into tBTC. In this way, the value of our treasury wouldn’t decrease, instead it would only change from exposure to T to exposure to tBTC. We see 4 options to do this:
Option 1:
Increase monthly bonds that sell daily T to tBTC up to $400k each month.
Quote asset that the DAO receives could be tBTC and/or thUSD. This would be an additional use case for eventual collaborators that receive thUSD and want T exposure.
Option 2:
Slowly offset the existing Flowdesk deal.
Flowdesk currently custodies 75m T which are used to provide MM services on different CEXs.
The DAO would instruct them to OTC $400k of T each month into tBTC (for collateral), and transfer it to the TTG.
At current T prices we would deplete their T stock in 6-8 months, and their services would be then terminated. After that, if the program continues we would start swapping T from the treasury into tBTC.
Option 3:
Drive $400k in T through Aera.finance each month.
They’ve been providing an interest-bearing vault with DAO assets in it and use onchain and offchain rails to slowly change asset composition in the vault.
Option 4: a mix
$150k Bonds for thUSD; $50k will be kept as thUSD POL (added to a LP) as emergency cushion if debt has to be repaid; and $100k will get swapped into tBTC.
$300k of T from Flowdesk OTC’d for tBTC.
Monthly total of $400k in tBTC gets added to the vault as collateral, and 160k thUSD gets minted, effectively added to the debt, and used to pay expenses.
Monthly process
The TTG should include these steps in their monthly process:
- check Collateral ratio on existing vault :
If coll ratio is too high (>400%) → we reduce it to 250%, by removing collateral
If coll ratio is too low → we increase it to 250% by repaying debt with DAO-owned stables.
- Add $400k in tBTC collateral
- Mint 160k thUSD (250% collateralization ratio)
What if…
BTC price drops :
- TTG reduces debt with repayment, to increase the collateral ratio
- trigger to immediate reaction: 180% coll. ratio
- monthly management if collateral ratio moves less.
BTC price increases :
- TTG removes collateral, and :
- TTG establishes price-triggers at which tBTC gets sold, examples:
tBTC hits $80k, DAO sells 10 tBTC
@ $90k, DAO sells 15 tBTC
@$120k, DAO sells 20 tBTC
Why sell Bitcoin? Because the DAO needs stables to:
- Offset debt
- Buy tBTC when price drops increasing its overall value
- Buy cheaper liquidated collateral
Vault gets redeemed :
From thUSD documentation: "If your Vault is redeemed against, you do not incur a net loss. However, you will lose some of your tBTC exposure. Your Vault’s collateral ratio will also improve after a redemption.”
If this happens frequently TTG should discuss if new debt should have higher collateral ratio.
Treasury Guild: Program Management
Given that TTG is already authorized to manage or oversee functions such as treasury diversification, POL, growth, etc., it would be efficient for the TTG to manage this program if approved by the DAO – including loan collateral ratio monitoring and adjustment, the monthly amount borrowed (authorization is up to $400k, but less may be needed in a given month) and the ability to reduce or terminate the program if it isn’t achieving its objectives.