Finance Nest Update - April
F.Nest Members: @ElliottWatts @prairiefi @Hammad1412 @Matthew_Graham
Special Update
It is time to celebrate! @hammad1412 is now officially 100% Finance Nest. The team is excited to see Hammad take on a more involved role within the team.
General Update
Early in the month Finance Nest released Index Coop’s Q1 2022 Quarterly presentation and published a youtube clip running through the results to date. The actual results across the DAO leave a lot to be desired, TVL, Net Dollar Flows, Revenue and Trading Volume were all materially down on Q4 2021 numbers.
General operations have progressed smoothly. The contributor rewards and newly implemented third party payments processes have performed well. Financial reporting deliverables have all been published, we recognise there is room for improvement on more timely publication of these reports. Finance Nest has recently fielded a request from the council to provide updates on the status of our asset holdings weekly and for this to be distributed through fortnightly plannings and weekly sCoop publications. We would like to encourage anyone with an interest to join us on the Money Talks call, 4pm UTC+1 each Tuesday in the contributor discord.
Debit Card update
Finance nest is pleased to be able to offer the use of a fiat debit card which is linked to a gnosis safe. This wallet has signers from finance nest (Elliott and Hammad) and one third party being paymagic, it will be a 1 of 3 signer and will not contain more than 1 months expected expenditure. Paymagic will take a 3% transaction fee and will automatically withdraw from this account once payment has been made on the card. The DAO debit card will enable us to manage all subscriptions at the Coop from one card and minimise the expenses contributors have to front. This will be available during this month and an update post detailing how to gain access to the card will be shared in due course, initially we will have a trial run with a small low value subscription payments.
Coupled with the new debit card a new third party payment process was created to consolidate weekly payments into a single distribution, this enables those members of the community to provide regular payments to suppliers. This eradicates the amount of contributors having to pay out of their own pockets and request reimbursement, it allows for safe more efficent transfer of funds.
Changes Core Hires
With the commencement of Index Council v2, there were a number of amendments to Core Hires across the coop during April. Two Core Hires and one legacy Full Timer have since left the Coop. An exit package for one Core Hire was valued at $23,334, excluding April remuneration. In addition, one Core Hire received a raise which was administered at Nest level and one flexible contributor who is now part of the council started receiving a 50% allocation of Core Hire Band 6 (Council) remuneration which was administered at Council level.
Currently, there are a number of legacy Full Time vesting contracts that need to be reclaimed by the Treasury address (Set Labs) as a result of the recent migration to Core Hire. To this day, most legacy Full Timers are able to claim their vested tokens and we are solely reliant on trust that they do not claim vested tokens until such time as someone with access to the Treasury reclaims those contracts. We hope these vesting contracts are reclaimed in a timely manner by set employees, the request is 2 months old now.
Optimism Airdrop
Several members of the community on multisigs will have received Optimism tokens as part of their airdrop. The council is currently deciding if those beneficiaries are required to claim the tokens and transfer them to Index Coop. This will span all multisigs that held either community and product funds. Legacy working group, pod / nest level multisigs, treasury funds and product rebalancing multisigs are all expected to have received benefits from the airdrop.
Stablecoin Runway Update
Detailed below is the composition of payments made over the last 3 months.
During March Index Coop spent $268,162 USDC and in April the spend was $280,924 USDC, a 4.76% increase from the previous month. USDC expenditure in April was higher for contributor rewards as less product was distributed, however, this was largely offset by USDC expenditure on expenses decreasing. Contributor rewards accounted for $250K of USDC expenditure. The launch of JPG gave contributors the opportunity to receive a portion of their pay in $JPG token.
At the end of April, the Index Coop’s actual total spend for the month was 628,666.14 which is significantly less than the forecast total spend of $724,250.38.
Finance Nest will be preparing recommendations for the Council as part of the mid season review, that reflects the budget v actual learnings to date in effort to realign forward looking budget spend for the remainder of Season 1.
The Operations Account holding around $1.7M unproductively, this alone is equivalent to nearly 6 months runway based on April’s USDC burn rate which is more than enough for Season 1.
Across all Accounts, Finance Nest believes Index Coop to have around 31 months of runway using April’s spend rate. ($1.7M Operations Account, $6.9M Investment Account). Please note this excludes all revenue generated by Index Coop and overlooks the annualized >$700K of revenue generated from the Investment Account.
Investment Strategy Update
In this month’s edition of the Fiance Nest update, we will be diving into the second investment theme held within the Investment Account. This theme has three distinct flavours of thinking in the strategy. The first is how to provide Protocol Owned Liquidity (POL) without price exposure, secondly generate Cash Flow for the DAO and third, is there any potential to align the strategy with more broader Business Development efforts to support growth initiatives within the DAO.
The strategy is fairly simple: deposit stablecoins into the FEI/DAI and FEI/USD Gelato G-Uni pools to earn swap fees. Then deposit the G-Uni pool token into Rari Fuse Pool 8 to earn >15% APY in TRIBE tokens. Borrow ETH, use 50% of it to acquire icETH and then provide icETH/ETH liquidity in the G-Uni pool. This liquidity supports the newly launched icETH product and reduces the reliance on external liquidity. The yield from icETH in the liquidity position exceeds the cost of borrowing ETH and the swap fees, which are highest post launch, provide additional yield which make the debt profitable with some buffer. Because the icETH/ETH liquidity is funded in ETH debt, the overall ETH position is not exposed to the price of ETH. The debt is 153 ETH and the rate at which ETH is being earned exceeds the cost of the debt. The strategy is expected to generate a fully hedge POL position, a first for Index Coop, an ROI of 2-3% in ETH on top of the 17%-18% TRIBE rewards APY.
Let’s go through the risks, what if FEI loses its peg. The chainlink oracle shows the peg to be rather tight and well held even when the ETH price was very volatile early in Q1. The stable coin is over collateralized and can be redeemed 1:1 with DAI via Tribe DAO’s front end. The peg is safe. Index Coop uses Gelato G-Uni pools to manage a number of POL positions, there is a very large portion of Uni v3’s overall liquidity in G-Uni pools, plus Gelato is a key partner of Index Coop. G-Uni pools are well battle tested and Gelato/Arrakis are a strategic partner. Rari Fuse Pool 8, a fork of Compound and recently exploited. Index Coop lost no funds due to the strategy being deployed. By depositing collateral that can not be borrowed, only the wallet address that deposited the capital can withdraw it and that means there is no re-entrancy risk. Rari Fuse pools have over a $1B in TVL, Pool 8 is the main most liquid pool and has Tribe DAOs own capital deployed within it. Tribe DAO who supports the Fuse pools is also a large investor in Index Coop, 100,000 INDEX and one of the largest DPI holders after completing a $10M purchase in 2020.
Why Rari > Compound/Aave, the >15% TRIBE rewards and the upside in SPICE tokens. By using the G-Uni token as collateral Index Coop is able to communicate to Gelato/Arrakis that Index Coop is using their smart contracts. This is great for Business Development, as are the other instances where Index Coop is using G-Uni pools. There is also the potential that when the SPICE token genesis occurs, the icETH POL position which incurs a small management fee that goes to Arrakis DAO will lead to Index Coop receiving a SPICE allocation. This SPICE allocation is considered desirable as it will then enable Index Coop to lock the token and direct SPICE rewards to Index Coop product/INDEX pools. This is a nice upside opportunity stacked on top of an already very rewarding strategy.
Please do note, maintaining the investment account strategy requires very few man hours, perhaps as little as 5 hours per month. During April there were no transactions after 7th April. The next steps in this strategy is to await the Arrakis DAO SPICE token launch and reconsider how best to structure this strategy to best suit Index Coop’s growth ambitions whilst remaining exposed to only stablecoins price movements. We may consider using the TRIBE tokens to acquire SPICE, USDC or xTRIBE to earn additional rewards. This decision point is sometime into the future.
The strategy outlined above was developed with input from multiple contributors across the DAO on how best can we grow TVL whilst maintaining the runway. A yield strategy that extends the runway and supports Index Coop in growing TVL, is a very good strategy. The strategy has a great asymmetric return profile.
Liquidity
April was again, a busy month for Protocol Owned Liquidity (POL), JGP was launched and POL was deployed from both the Operations Account to support the launch.
Detailed below is the current value of each position as at 5th May. Currently we have $2.93m of protocol owned liquidity.
| Pair | Total $ value as of May 5th | Type |
|---|---|---|
| DPI:USDT | $200k | KuCoin CEX Order Book |
| GMI:ETH | $100k | 50/50 Full Range G-Uni Pool |
| JPG:ETH | $80k | 50/50 Full Range G-Uni Pool |
| JPG:ETH | $90k | Concentrated v3 (-/+25% Range) |
| iMATIC:MATIC | $15k | Full Range v3 Pool (Delta Neutral) |
| iETH:ETH | $20k | Full Range v3 Pool (Delta Neutral) |
| iBTC:BTC | $25k | Full Range v3 Pool (Delta Neutral) |
| BTC2x:BTC | $40k | Full Range v3 Pool (Delta Neutral) |
| iBTC | $60k | 1.5x Hedge to BTC2x POL ^ |
| DPI, MVI, BED, DATA, GMI : USDC | $750k | ZigZag Order Book for Argent Partnership |
| JPG:ETH | $90k | ZigZag Order Book for Argent Partnership |
| icETH:ETH | $290k | ZigZag Order Book for Argent Partnership |
| icETH:ETH | $140k | ZigZag Order Book for Argent Partnership |
| icETH:ETH | $430k | Concentrated G-Uni Pool (Investment Account) |
| INDEX:ETH | $600k | Gamma Managed Pool |
| Total | $2.93m |
Outside of supporting product liquidity IC is also supporting ~$600k of INDEX:ETH liquidity
We are experiencing some challenges in coordinating signers across multiple time zones whilst noting that some signers are less active than others. We have been working with Den who is an early stage community partnering with Index Coop to trial some new innovations built on top of Gnosis Safe. Den will be installing bots in the contributor discord which pings the respective channel whenever a transaction needs signing and providing a mobile messages service that messages each signer when a transaction requires signing. Throughout April we have been trialing this and it has worked well to ensure signers are more active. Coupled with this we have recently implemented IIP-151 which removes inactive signers and replaces them with more active members of the community.
We are still incurring a fairly onerous man hour tax when launching products as pools are seeded well in advance of exchange issuance functionality becoming available. In order to reduce the man hours in multisig transactions, we are exploring the option of transferring funds to a trusted individual who can then do all the transactions in under an hour relative to 3-4 people over a 8 hour period. This has been discussed and approved by the council to become more operationally efficient.
We have also created a POL Operations “Sub” Account which is a clone of the main operations account. This is intended to manage active POL positions, separating the PoL from the main operations account allows for good management of active positions without disrupting the operations account transaction flow.
Reporting
During April, Finance Nest delivered the Quarterly and supporting Youtube presentation. The normal monthly reports were all published and we were able to submit both February and March Finance Nest updates. We still have room for improvement around reaching our cadence for report publishing, however with the ever expanding scope of analytics requested on the figures we are constantly improving and iterating. This months report will include more product specific analysis that takes into account PoL IL for profitability metrics.
We look forward to showcasing what we can deliver as we work through Season 1. !