[DAO DISCUSSION] Defining Stronger DAO Control Measures on Treasury Management

Background:

With the current voting of “WIP8 - Defining Dani’s Role in Wonderland”, the community currently is expressing support for certain limitations on a Co-Founder, and also by extension re-adjusting the discretionary power of the Treasury Manager.

These are great steps towards rules based governance, as the current Treasury Manager, and also as a wMEMO holder, I strongly feel we can take a chance to make further progress on Governance and moving some power over Treasury Asset decision making to the DAO (and voting on WIPs). There are certain actions I believe should be codified in DAO Governance and are laid out below.

Proposed Governance Changes (or Clarification):

1) Re-Allocation of liquid Assets to Illiquid Assets
The DAO should decide whether liquid assets (such as USDT, USDC, MIM, WBTC, WETH, etc) can be turned into which illiquid assets, which includes non-liquid staked tokens or VC investments. These are decisions that TM (or anyone) should not be making unilaterally.

I suggest we vote for a YES/NO for Explicit DAO Approval through WIP on 1) and also if passed voted on 1-A and 1B below.

1-A) For example, we should have CVX been staked into vlCVX? I would propose that we would vote on this retro-actively as there are un-staking event in July and August. (YES/NO)

1-B) A VC Allocation headroom (excluding current ones) should also be voted for. This can be for example max 2.5% of the Treasury before a TM would seek for more headroom for example. (YES/NO)

  1. Voting or Voting Delegation
    This is directly related to vlCVX voting for which pools currently, but this may be apply to other situations. A TM (or this protocol) should not acquire assets for the sole purpose of influencing a vote in another protocol, and a key control factor is having a DAO WIP to determine the voting or vote delegation action.

The two questions to be asked here is:

2-A: DAO should determine through a WIP vote on how WL should vote with held tokens. Such voting direction request should come from the TM. (YES/NO)

2-B: Provided 2-A is voted YES: Delegate vlCVX votes to Votium and delegate to the Bribe Pool Optimizer with the earliest possible Gauge Vote. (YES/NO)
Note that the previous vote into Votium would have yielded US $380,000 by my calculations and votes occur every two weeks.

Lastly:

  1. The DAO should give certain risk limits over % of Asset Holdings in its Treasury as proposed by the TM (YES/NO).

3-A. Provided the above passes, the current TM (Thats me) proposes the following risk limits:

  1. Non Stable-coin Directional Exposure 30% of Liquid Assets (BSGG Excluded)
  2. Stable-coins risk:
    a. USDT 25% (about 52 mm USD)
    b. USDC 30% (subject to temporary raise for redemption)
    c. DAI 25%
    d. MIM 25%
    e. Combination of all others (or any) 15%, and among these max individual limit 10%

With these DAO decided limits, the treasury manager will have the initially - things such as conflict of interest, and risk limit controls placed on him/her. wMEMO holders can be also rest assured that material changes to the liquidity or risk profiles would have to be proposed to the DAO and get WIP approval.

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This serves as a good checks and balances. Since you proposed the limits I will have to assume this doesn’t impede your ability to invest and make profits timely. Your point on conflict of interest is valid
and should reassure the wMemo holders that their best interests are insured with this and potential WIP approvals which are needed outside of the defined scopes.

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Given the circumstances currently, this should be enough to be able to operate.

Post UST, I don’t think there is such high risk appetite for partial backed stables etc, with lower liquidity. Directional at about 60mm headroom currently should be enough.

Still, on governance topics, I’m trying to weed out the base issues (and this is great in a bear market as there’s a bit less going on).

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A few thoughts:
1-A) Since the CVX is an issue with conflicts of interest, clearing this issue up on the forum via WIP makes total sense and provides direction/input from holders.

1-B) I would like to hear input from other people as to what allocation people would like to see for VC deployment. Personally, I think 5% would be good. The ROI on these has been excellent so far so would hate to limit this area too much.

2-A) I agree we should have input regarding CVX votes.

2-B) This makes sense, increase returns.

3-A) Not sure if I’m an advocate for predetermined stable-coin exposure due to potential depeg/centralization risks especially with new potential hazards like regulation or manipulation. We need to let SkyH have flexibility in case of depeg to reallocate assets as needed. Perhaps we can add a clause for “emergency use w/temporary reallocation”.

As just a side note, I would like to see more allocations farming. For instance, maybe GLP for directionals (Eth, BTC, USDC) at 40% APR or Stables farmed on AAVE or allocated to USDD (overcollateralized by 200%).

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Hi:

1-B) I was thinking that a TM can ask to up the limit from 2.5% to 5.0% for example in increments if needed.

2-A) I changed the English as it was unclear. Basically, a vote in gauge such as those for Convex should be presented to the DAO for approval. For example, say I wanted some more votes for Bastion business in another protocol but i just bought it for WL to vote… thats not right.

3-A) Noted that an emergency temporary re-allocation is fine, and such allocation announced on the discord channel by TM.

In the long run, I have been thinking of these farming opportunities.

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Why would we wait for a depeg / emergency? Just get rid of the partially backed stables now. I think the money we would make with those coins doesn’t worth the risk.

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@z0li A coin can go from full backing/collateralized to partially backed if directional values backing the coin fluctuate (or dev’s/founders do something shady). Anything can happen in crypto. Obviously the idea is to avoid high risk stables all together in the 1st place, and the ones he’s suggesting are fairly low risk to begin with. SkyH is suggesting predetermined allocations. If that’s the case we need a “emergency allocation” clause to allow him to change allocations in the case of a future depeg event. That was my only point.

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Ok, I understand that, but we have some data from the recent depeg event of Luna / Terra whatever it called. It happened fairly fast, and it looked like nobody saw it coming.

The question is: can we get rid of the toxic assets fast enough in a depeg event of USDT? Does @TheSkyHopper have the power (our approval) to get rid of all 52M within minutes (hours)? And this is the biggest question: if a depeg happens, and everybody (and I mean EVERYBODY) on the selling side are we even going to be able to get rid of the assets? Not fast, not slow, just sell anyhow?

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My name is The Ferengi and I approve this message.

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If we are looking to hedge and process for such a event (a true depeg of USDT of such magnitude), then I’d question really why you’d be in crypto or in something like WL in general. USDT remains to be a foremost stablecoin and looks to be that way for at least the medium term.

The there is a bigger chance other stablecoins would come under stress - which is why there are certain limitations to each holding.

Deal is looking at it that in case of something happens that the bottleneck isn’t in this governance, but for reasons you have actually stated.

The truth is you’d have to look also examine multi-sig history to see what kind of response time I would get. Our currently policy is that BAU is 24 hours is acceptable, and may take upwards to 5 days.

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Lets get that money we deserve for those Convex Votes.

STOP THE STEAL!

I am TaeKwonDo and I approve this message.

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So we don’t need to worry about the Tether’s recent depeg and 9 billion dollars drop in market capitalization?


I need a number, how much money our USDT investment make / year? 10%? Can we do a serious risk assessment?

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There are risks with every stablecoin.

USDC, TUSD, BUSD are all US Regulated for example.

DAI and MIM depend on collateralization.

Others might be algo adjusting.

WBTC depends (I believe) in storage of BTC in a vault.

So, the only real “free” way is to become ETH Native? But then that was Squid Dao.

But here’s the thing, these limits puts a cap on each exposure in normal periods. Isn’t that what you’d like to see if you have concerns?

I don’t think there’s much use turning this into a singular USDT bashing exercise. I can make arguments as such on any other.

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I’m disappointed to hear you say this SkyHopper.

Referring to a “hedge” as an aversion to risk is not only inaccurate, but indicative of a lack of portfolio management experience. A hedge can be many things, from the other side of a beta neutral position (extreme risk off) to the other side of a delta neutral position (controlled risk on, pair trades, etc…).

Take a long/short portfolio of 500 names: 300 long and 200 short. Are the 200 short a hedge for the 300 long, or are the 300 long a hedge for the 200 short? Is the book market neutral or are both sides of the book directional?

The answer is much more complicated and cannot be simplified. In the case of your comment, it appears your comment has an ulterior motive behind it, because it carries no intellectual value. Perhaps you are mad at zOli and couldn’t help yourself from taking a two bit swipe at an investor in WL, which technically means you took a swipe at a member of the body that appointed you to your position as TM.

Suggesting that

a hedge == extreme risk aversion

and

extreme risk aversion != crypto

you’re basically saying crypto fund management should not be using any hedges. Before I tear into this, let me give you an opportunity to walk back your statement, or at the very least, present any intellectual support for it so that I may be able to understand how I misunderstood your point.

Because to me, and maybe to investors in this protocol, this specific comment, if it is indicative of your mental framework as a TM, is hugely concerning. I certainly do not think you are as simple minded as that comment suggests. It would be a terrifying realization to wake up and learn the TM for WL does not understand the complex ways in which capital may be used to generate returns by engineering structured trades, whereby “risk” is merely a mathematical variable to be accounted for when calculating risk adjusted returns. You are suggesting that managing risk where it can be managed, is tantamount to self neutering if one is a crypto investor.

Sure if one is worried about “outliers”, and as a result tries to eliminate what we would call “gamma exposure”, then yes, crypto is not the appropriate asset class. Crypto is pure gamma. I would say that is why it is so f’ing appealing to all of us here. But a stablecoin that is as centralized as Tether is in no way, shape or form, ‘CRYPTO’. I challenge anyone to present an argument to the contrary.

I realize this is the way of the quantitative trader, and “hodl” is the way of the discretionary dreamer. When we selected a TM for WL, most of us were assuming you to be the former.

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Then you had to go and say something like this? How you could have possibly made the mental jumping jacks to arrive at this comment is quite an accomplishment in and of itself. I do not want to turn this into an indictment of our TM, but damn son, you just made me one nervous dude.

I have not lost all faith in you and am VERY HOPEFUL that your following rebuttals will set things back on track for everyone… I believe in you, less today than yesterday, but am optimistic enough in your abilities to give you the benefit of clarification and retraction. Perhaps we take this discussion off board and because everyone is capable of learning something new, including you and I, and in the spirit of benefiting this protocol and its Treasury above all else, I invite you to continue this discussion with me in private, as I’m sure I can learn a thing or two from you.

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Explain this to me like I’m a 10 years old:

If:
USDT: liquidity pools, farming, let’s say we make 5% / year from our investments. But the coin is not regulated, not fully backed, so it have a (let’s say) 15% risk factor.
And:
BUSD (or some other stable): we would make approx. the same returns, but it’s regulated, and fully backed by dollars, so the risk factor is close to zero.

My question is: why do we accept the higher risk? Is the USDT ROI that high?
(And BTW this is the question in the cases of DAI and MIM, too.)

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You may want to consider the practical limitations currently of any decentralized treasury. As you may know, there has been variable approval times for multi-signatures. I must make do within the context of the current situation. There are no centralized exchanges to operate through API, nor a private wallet to interact for the most part.

To be honest, complexity or the hubris to construct something into something complex leads to losses in general. Thus, it is easier to look at things from the simplest construct and interpetation.

Your comparison to crypto as gamma is completely misguided. If crypto was completely gamma, then well, there would be little need for a crypto options market, as if would be redundant. I can simply buy bitcoin and hedge it with bitcoin calls… gamma hedged by gamma?

Likely, what you are approaching at is rather the implicit negative convexity presented by stable-coins. There is really only an “upside” of price of 1.00 and potentially well, 100% downside (in the case of UST). I am actually quite aware of this risk and risk profile. Even up to a few months ago, yield farming opportunities (theta as you may like to call it here), well compensated for the negative assymetric risk of stablecoins. However, this is no longer the case.

Thus, I am well aware of these concerns. However, no other olympus fork is managing quite so differently as the majority of each treasury are stablecoins besides I guess Klima.

Conveniently, 2021 proved that all types of returns probably compensated for risk of all kinds, but no longer. But I am no magician, and especially with the reality that high frequency transactions cannot take place that many strategies would be utlimately not be available.

In essence then, we come down actually to WIP 9 “Redemption”. I cannot find a solution that would suit your expectations - which ideally may be similar to mine. Thus, it is most prudent for yourself to redeem and manage the funds as you see fit on your own.

In the meantime, I answer to the sentiment that I interpret from the majority of the community - being defensive when markets are going south. That involves, sadly, a significant amount of exposure in stablecoins.

Within those holdings, I need to have a work-able, simple, and understandable set of guidelines someone without a PHD can comprehend.

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I agree with stronger DAO control measures.

Hopefully Dani seeing that the DAO doesn’t want to prop up Abra with our votes will finally get us what’s ours.

I also agree with the proposed percentages. Although they should be revisited as the market develops through quick WIP.

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We need to have controls on things so things like UST doesn’t happen again.

The DAO has to be more active in deciding some things - or else it will be way too cetnralized. Too much power just I reallly think corrupts.

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First:

  1. You are misconstruing the risk limits with the intended position.
  2. BUSD is issued by Paxos, which is US regulated, and thus likely have higher trust (it is a trust).

As you might be already see, I am actually moving exposure away from USDT as possible and into other tokens such as USDC. (we moved 5mm USDT into USDC last night for example, and I am not done). I have been waiting (whether this is wise or not I don’t know in the end) for the USDT/USDC (or whatever else) to go at or above .9990 levels to move out of it into the “safer” stable coins.

You should be aware that over time I had to reduce over 100 million to 120 million dollars of MIM (thats 40% of treasury), into what is around half that exposure through extended periods of unbalanced curve pools - and within a context of Abra-Wonderland cooperation.

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