- Mint GLP on the GMX platform instead of holding raw BTC and ETH
- Make No Changes
Name: [RFC] - Earn Yield on our 25m in ETH and BTC
Scope: Wonderland should earn a safe yield on its 25m BTC and ETH position by using its BTC and ETH to mint GLP, a token paying 15-20% yield in ETH on the GMX platform
Link to previous [DAO Discussion] (GLP gained a majority of votes in the poll)
Objective: There are four objectives for this proposal:
- The core objective is to utilize our treasury assets more productively and earn a yield to increase treasury size or enable a higher revenue-share
- The first byproduct of this proposal is that Wonderland can move more of its operations on-chain, reducing any trust-vulnerability in executing TradFi style OTC transactions
- The second byproduct of this proposal is that Wonderland gains instant liquidity for buying or selling BTC and ETH through GMX rather than having to carry out slow transfers onto CEXs or OTC transactions which also take time to set up.
- The fourth byproduct of this proposal is that it enables Wonderland to more quickly deploy delta-neutral strategies in the future, per YieldChad’s previous proposal.
Provide a High Level Overview: GMX is a trading platform on Arbitrum and Avalanche, and GLP is a liquidity token on this platform. GLP can be seen as akin to a basket of BTC, ETH and USD and GLP can be minted or sold freely for its constituent assets. GLP holders are paid various fees for providing liquidity to GMX traders.
If this proposal succeeeds, Wonderland should bridge its WBTC and ETH to Arbitrum using the most efficient method and mint GLP using those assets. In order to increase or decrease exposure to BTC and ETH in future, Wonderland should mint or sell GLP, bearing in mind any future risks to GLP at the time.
Provide Low Level Details:
Currently, our treasury holds slightly more than 25m in BTC and ETH. These assets provide no yield and are acquired and sold through OTC trades which are slow, off-chain, not transparent and not trust-minimized. Wonderland should get its BTC and ETH exposure by holding GLP. Certain questions arise in executing this: (1) should GLP on avalanche or arbitrum be used; (2) how much liquidity is there for selling GLP into USDC; (3) what are the risks associated with GLP and are they acceptable; and (4) does this proposal tie the hands of our treasury team?
Wonderland should prioritize investing in GLP on Arbitrum rather than on Avalanche, but subject to the need for maintaining sufficient exit-liquidity it can also invest in GLP on Avalanche. Although GLP on Arbitrum is paid a lower esGMX yield than GLP on Avalanche, Arbitrum is preferred as it has more than 2x the liquidity (250m vs 90m) and aligns with Yieldchad’s delta-neutral strategy as he outlined in his aforementioned proposal. Further, the esGMX yield vests over a significant period of time and is slightly less important to Wonderland than the yield paid in ETH. Finally, yield paid in ETH is more attractive than yield paid in AVAX, as Wonderland already has significant exposure to AVAX through its AVAX Liquid Staking project and in general ETH is considered a ‘better’ asset.
How much liquidity there is for selling GLP into USDC: There is close to 100m of USDC, DAI and FRAX on GLP-Arbitrum. This enables Wonderland to safely acquire relatively large positions in GLP while being able to exit to USD-stablecoins. Even in the case where the composition of GLP is heavier on BTC and ETH, both those assets are also highly liquid and it is not problematic to sell GLP into them, and later sell those assets on other platforms or CEXs/OTC transactions as a last resort. If there are reasonable concerns by the treasury manager/advisor/council/operator as to the sufficiency of exit liquidity for GLP, then it is not necessary to attain exposure to BTC/ETH through GLP. To the extent that there are no such concerns however, this proposal necessitates that GLP ought to be the medium for BTC and ETH exposure.
There are two main risks to GLP:
The first risk of $GLP is smart contract risk. The smart contracts on GMX have been audited and currently contain a TVL greater than $USD 200m across Avalanche and Arbitrum. They have not been exploited in the past despite the > 350 million dollar incentive that exists to do so (if you can exploit GLP and steal the underlying assets, you would gain close to 350m in BTC ETH USDC and other assets). Further, given the popularity of GMX as a platform, several commentators have examined GMX’s smart contracts and have generally not found exploits. One such piece of mature commentary and the corresponding response by GMX’s main dev can be found here.
The second risk of $GLP is that $GLP act as “the house” where GLP holders win when traders lose, and vice versa. Leveraged traders have consistently been unprofitable on the GMX platform. However, there is a foreseeable risk that in a grey swan event, traders win en-masse and $GLP holders experience depreciation of $GLP. This risk is slightly mitigated in a bull-market where traders win on longs as the BTC, ETH and AVAX component of $GLP would also appreciate and slightly offset trader-winnings. This risk is exacerbated in bear-markets where traders win on shorts as $GLP loses value both from traders winning and from the depreciation of BTC, AVAX and ETH. Over the past year of trading on GMX, traders have been consistently unprofitable. This pattern is not unique to GMX, it is relatively well-known that as an aggregate, traders tend to be unprofitable and this can be observed on other platforms such as Gains Network as well. Note, these are not the only two risks to GLP, but they are two that were selected as among the most prominent and clear risks.
- Does this proposal tie the hands of our treasury team? No, this proposal is not intended to force the treasury team to always use GLP no matter what. As mentioned above, there are limitations to GLP and those limitations can change day to day – it is for the decision-makers at Wonderland to assess the situation and make decisions based on risk, liquidity, transaction costs, urgency, and other factors. Further, if a comparable alternative to GLP with better risk-adjusted yield ever were to arise, this proposal should not prevent the team from deciding to redirect GLP-investments into the alternative. The goal of this proposal is to upgrade our investments in raw BTC and ETH to GLP, but not to hamstring Wonderland from finding even greener pastures elsewhere in the future.
Business and/or technical requirements of the implementation of the proposal:
GLP ought to be minted by directly depositing the treasury-held BTC and ETH on the GMX-Arbitrum platform in exchange for GLP. When minting GLP, one has a choice of using either BTC, ETH or USDC (among other assets) to do so. Different assets have a different minting-fee associated with them.
Currently it is cheapest to use BTC and ETH to dierctly mint GLP on GMX-Arbitrum, and those are conveniently also the assets our treasury has already. This whole series of transactions can be carried out within a day with relative ease, even accounting for the relatively slow speed of multi-sig transaction signing and execution. If this proposal passes, the multisig ought to immediately begin the processes required to swap our BTC and ETH into GLP.
Lastly, it should be clarified that this proposal does not impose a specific amount of BTC or ETH exposure on Wonderland or introduce any new processes by which managing members can utilize treasury funds. Instead, pre-existing procedures for attaining approval prior to using treasury funds are unchanged and it is by following those procedures that the Treasury Manager, Treasury Advisor, Treasury Operators and Trade Teams, as well as the Treasury Council (TOs, TTs and TC are all references to WIP 15) can decide how much exposure to BTC or ETH (through GLP) is appropriate.
Edits from Feedback
Comments have been generally supportive but indicate a desire for keeping position sizing to <15% of Wonderland’s portfolio, or in this case around 10-15m. In line with this, Yieldchad has also indicated his view that 12.5m spread across Avalanche and Arbitrum would be well-sized. Deal has further mentioned that this proposal should indicate a figure for the GLP position rather than leaving it purely to discretion without any starting point. Accordingly, this proposal will now incorporate these suggestions as a soft-target that should be adhered to unless circumstances were to materially change or the risks inherent to GLP were to be seen by the treasury team as more significant than this proposal implies. In other words, if this proposal passes, the treasury ought to allocate 12.5m USD to GLP (and proportionally reduce BTC and ETH holding to reflect the transferrance of crypto-exposure from BTC and ETH to GLP). Further, this GLP should be spread across GMX-Arbitrum and GMX-Avalanche evenly.
A misconception about this proposal (due to imprecision in my language) has been that by replacing 25m in BTC and ETH with 25m in GLP, we will half our exposure to BTC and ETH. What I meant in reality was that we will use GLP to mimic the same exposure to BTC and ETH, which would imply an even greater amount of GLP. Now that a soft-limit to GLP exposure at around 12.5m has been suggested, this means that around 6-7m of BTC and ETH would be replaced by GLP (as GLP is 50-55% represented by BTC and ETH, among other cryptoassets).
Since an RFC is a “work in progress” Proposal, not all of these points need to be filled out from the beginning. They can be added over time as the RFC evolves into a mature Proposal.