IIP-115: Authorize the Investment Account for Aave, Compound, Balancer, Element Finance, Notional Strategies, Ribbon Finance and mStable

iip: 115
title: Authorize the Investment Account for Aave, Compound, Balancer, Element Finance, Notional Strategies, mStable and Ribbon Finance.
status: Proposed
author: @Finance.Nest
created: 11/17/2021

Abstract

The Investment Account is approved to be created. Additionally, a recent proposal seeks to modify the original signers on the Investment Account Gnosis Safe to allow for a wider pool of signers for better availability and hence, secure & efficient execution of transactions. This IIP outlines the strategies to be used within the Investment Account to make stablecoins productive. The strategies proposed here consist of collateralized lending strategies such as Aave, Compound, Element, mStable, Notional, Rari and structured yield generating strategies such as Ribbon. As more protocols are added to this list in the future, they will be included in separate proposals. To actively manage these reserves as the yields and risk profile of these protocols change relative to the overall market, this IIP will authorize the Finance Nest to deposit and withdraw freely into these strategies.

Motivation

The Investment account was designed to hold and productively deploy assets that are not needed for current or near term liquidity. It is our intention to make investments to generate sustainable returns in order to support the long-term financial viability of the Coop. The Investment Account presently does not have an authority to deploy stablecoins for productive use. To that end, the Finance Nest seeks to start deploying stablecoins held within the Investment account productively with a limited number of protocols in order to earn income for the Index Coop, to demonstrate competency, and earn trust to deploy a greater percentage of treasury assets in the future.

Specification

Overview and Rationale

The Finance Nest seeks approval from the community to utilise the following protocols to earn yield on stablecoins within the Investment Account. Do note, this is the list of protocols that the investment strategies can be selected from. Funds are to be selectively allocated across some, or all, of the protocols listed below. The rationale is detailed within each sub-section.

Aave

Aave is the largest non-custodial liquidity market protocol measured by TVL. Depositors provide liquidity for passive income while borrowers take out over-collateralized perpetual loans and flash loans. Participation in certain Aave markets as either a depositor or borrower is incentivized with AAVE tokens that provide a beneficial improvement to the net APY. The Finance Nest may seek to accrue AAVE for additional meta-governance power for the INDEX token or sell for current income.

Compound

Compound is a protocol similar to Aave, operating as a decentralized liquidity market protocol. Participation in lending and borrowing earns a “distribution APY” paid in COMP tokens. The Finance Nest may seek to accrue COMP for additional meta-governance power for the INDEX token or sell for current income.

Balancer

Balancer is an automated portfolio manager and trading platform. Providing liquidity to Balancer pools is similar in many ways to providing liquidity on AMMs like Uniswap. Stable pools on Balancer aim to bring lower fees and improved value to traders. The liquidity mining incentives offered by Balancer make up for the low swap fees. As an example, the current liquidity mining yield on the DAI/USDC/USDT pool is 10.65% giving a total yield of 11.21% inclusive of swap fees of 0.56%. The Finance Nest may seek to accrue BAL for additional meta-governance power for the INDEX token or sell for current income.

Rari Capital

The Rari Fuse pools are forks of the Compound code base and although they hold around $1B in funds, the contracts at Compound are well battle tested and are also in use by Cream. Rari offers two yield aggregator products, for USDC and DAI, that aggregate yield across the Fuse pools. The current ROI is just beneath 20% and represents the yield of depositing across multiple fuse pools. This becomes increasingly more lucrative if Rari Capital was to offer Liquidity Mining rewards. Index Coop already has an existing relationship with Rari Capital having founded Fuse pool 19 together. The FN may seek to earn RGT for additional meta-governance power for the INDEX token or sell for current income.

Element Finance

Element offers fixed and variable rate markets. It supplies demand for fixed income in DeFi and enables sophisticated users to repurpose capital locked in vaults while retaining their APY. The Element Protocol works by enabling users to split their yield generating positions, such as a Yearn vault or an ETH2 validator, into two separate, fungible tokens: the Principal Token (PT), and the Yield Token (YT). These tokens can be traded on custom AMMs called Element Pools for their base assets. Advanced users can put their capital to work in more places without borrowing or liquidation risk by selling their PT for its base asset at a discount. Passive users can buy these discounted PTs to earn fixed APR since they’re always redeemable 1:1 for their base asset at maturity.

Notional

Notional is a protocol on mainnet that facilitates fixed-rate, fixed-term crypto asset lending and borrowing. Users who want to lend their currency at a fixed interest rate can buy fCash. A lender exchanges their currency at the time of trade for a greater, fixed amount of that currency at a specific point in the future. The exchange rate that the user gets implies a fixed interest rate on their loan between the moment they trade and the time that their fCash matures. Currently, loans maturing in 4 months time have a 8.5% APY and those maturing in 10 months have a 8.9% APY. The rate is determined by the current market’s supply and demand and will vary for each individual loan. However, once executed, the user’s rate is fixed for the duration of the loan and will not change. Like other lending protocols, borrowing on Notional is supported by deposited collateral. The amount of collateral is conservatively set to 150% for Ether or wrapped BTC and 120% for less risky assets like DAI.

Ribbon

Ribbon.Finance T-yvUSDC-P-ETH vault, a vault that earns yield on its USDC deposits by running a weekly automated ETH put-selling strategy, where the put options are collateralized by yvUSDC. The vault reinvests the yield it earns back into the strategy, effectively compounding the yields for depositors over time. At present, the vault is projected to generate a 29% yield. The primary risk of this strategy is that the vault incurs a weekly loss, which occurs when the price of ETH settles below the strike price of the written puts. However, such an event is expected to occur 5% of the time based on backtesting simulation and remains adequately compensated by the substantial yield. This is achieved by writing sufficiently out of money and keeping the duration risk relatively small.

mStable

mStable is an autonomous and non-custodial infrastructure for pegged-value crypto assets. It offers a non-custodial savings account as a way of earning yield. User deposits are used to mint mUSD. mStable generates yield by lending the underlying assets behind mUSD to decentralized lending pools such as Compound Finance and Aave, as well as returning all fees generated by the protocol to all holders of mUSD. The base interest rate from lending protocols is further increased by distributing mStable Swap fees and liquidating external protocol incentives.

Technical Specification

Some protocols have apps built-in to Gnosis Safe and others are available through Wallet Connect. It is unlikely that any technical lift is going to be required.

Voting

FOR:

DO Authorize the Investment Account for Aave, Compound, Balancer, Element Finance, Notional Strategies, mStable and Ribbon Finance.

AGAINST:

DO NOT Authorize the Investment Account for Aave, Compound, Balancer, Element Finance, Notional Strategies, mStable and Ribbon Finance.

Copyright

Copyright and related rights waived via CC0.

6 Likes

Hi @mel.eth, @sixtykeys, @Mringz,

Can we please have an IIP number assigned here.

Hi @mel.eth, @sixtykeys, @Mringz. Would we be able to queue this up for snapshot today please, 29th November

An IIP number 115 has been assigned to this proposal. Since it has spent the minimum 48 hours in the proposed state, this proposal will be queued for snapshot at the date called by the author.

cc: @mel.eth

1 Like