IIP-79: Authorize the Operations Account for Aave, Balancer, Compound, and PoolTogether Strategies

Governance Proposal
1

iip: 79

title: Authorize the Operations Account for Aave, Balancer, Compound, and PoolTogether Strategies

status: Proposed

author: Accelerated Capital (@AcceleratedCapital), PrairieFi (@prairiefi)

created: August 17, 2021

Simple Summary

This IIP will make the stablecoin reserve within the Operations Account productive by authorizing the Treasury Working Group to deposit stablecoin held within the Operations Account into Aave, Balancer, Compound, and/or PoolTogether. More protocols will be added to this list in the future.

Abstract

IIP-70 was recently passed authorizing the deposit of a stablecoin reserve into the Operations Account. Per the Stablecoin Asset Management Guidelines, the TWG recommends these funds be made productive. In order to actively manage these reserves, this IIP will authorize the TWG to deposit and withdraw into Aave, Balancer, Compound, and PoolTogether freely in line with the stated guidelines. Having this blanket authority will allow the TWG to act nimbly when managing the liquidity of the Operations Account as market conditions or the state of the Index Coop’s operations evolve.

Motivation

The Operations Account presently has no authority to deploy the stablecoin provided by IIP-70 into productive use. The TWG seeks to deploy these assets 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 TWG recommends the following protocols to earn yield on stablecoin within the Operations Account and the rationale is detailed within each 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 TWG may seek to accrue AAVE for additional meta-governance power for the INDEX token or sell for current income.

Balancer

Balancer is an automated portfolio manager and trading platform, similar in many ways to providing liquidity on decentralized exchanges like Uniswap, but self-rebalancing to maintain constant weights. Balancer launched stable pools, including a DAI/USDC/USDT pool, in July 2021 on Balancer V2. Participation in this pool is currently incentivized with BAL tokens, providing a substantial increase in yield. The TWG may seek to accrue BAL for additional meta-governance power for the INDEX token or sell for current income.

Compound

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

PoolTogether

PoolTogether is a decentralized protocol for no-loss prize games on Ethereum. Users deposit funds into a prize pool for the chance to win a portion of the interest generated on the total deposits while simultaneously earning a yield payable in POOL tokens, the native governance token of the protocol.

PoolTogether has been used by Yearn Finance within their DAI and USDC vaults due to its high yield and relatively lower risk profile. PoolTogether is dependent on Compound currently for its yield source, and so it is only impacted by one additional layer of protocol risk beyond Compound.

The TWG likes PoolTogether as a strategic investment. POOL tokens are not currently in any existing products, so accumulating them will accrue additional meta-governance power for the INDEX token in a well-established protocol in the DeFi ecosystem. The stream of POOL tokens provides a relatively high yield source for the Operations Account, and the chance to win the weekly drawing is an additional sweetener. To illustrate: a $250k deposit of DAI today would generate a 10.2% APR payable in POOL tokens with a 1 in 21 chance to win an additional $3.4k in DAI and COMP this week.

Technical Specification

Each of these protocols have apps built-in to Gnosis Safe and no technical work is required.

Voting

FOR:

DO authorize the TWG to use Aave, Balancer, Compound, and/or PoolTogether in the Operations Account within the constraints outlined in the Stablecoin Asset Management Guidelines.

AGAINST:

DO NOT authorize the TWG to use Aave, Balancer, Compound, and/or PoolTogether in the Operations Account within the constraints outlined in the Stablecoin Asset Management Guidelines.

Copyright

Copyright and related rights waived via CC0.

10 Likes
2

Strongly FOR this initiative. Would like to see Yearn or crv-3pool LP added to this list in the future (should risk profile be acceptable to TWG)

3 Likes
3

I support this IIP, and will certainly vote FOR.

3 Likes
4

Very much FOR this proposal.

1 Like
5

Also in support of this! Is there an overview for how the allocation (in %) will actually look like, or does that come in a separate post/IIP?

1 Like
6

Our recommendation is that as long as the TWG is within the constraints identified in the stablecoin guidelines, we would not need to identify the specific percentage allocation in this initial IIP or in future proposals. We recommend the ability to allocate money without a separate request each time. Part of the rationale is that we are starting with a smaller amount ($500k)by deploying that amount without excessive risk, and will work to build community trust before working with a larger percent of the treasury. The other part is that we can be more nimble and reduce the overhead and number of votes required to execute within the parameters we outlined with the guidelines and this post. IIP would be required to add new strategies, but not allocation.

The monthly financial reports will provide tracking on where stablecoins are deployed and the performance of those assets to provide transparency on the strategies employed.

4 Likes
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Hi @Pepperoni_Joe

Can we please have and IIP number assigned and for a vote to be scheduled for Monday 23rd August?

1 Like
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Thanks @prairiefi.

The Governance team will get this IIP assigned and scheduled for a vote on Monday 23rd.

@sixtykeys would you like to proceed with this one?

cc @mel.eth, @Mringz

1 Like
9

I am currently ‘against’, but would be ‘for’ with some clarity around the sizing of positions and controls put in place. What I see is a good strategy that needs to be better defined. Questions that would help build the context and confidence I need to proceed with a ‘for’ vote:

  • Breakout of IC accounts and amounts, on a USD, INDEX, and % basis;
  • An explanation of why the stables in the Ops account are the subject of this IIP, as opposed to the Investment account;
  • Proposed initial allocation (I see the examples, but I would like a clear indication of what the first allocation round would be); and,
  • A proposed mechanism to adjust future allocations (as far as I’m concerned, this IIP can establish controls that don’t rise to the level of future IIPs, but allow a simple vote or challenge process once a rebalancing is signaled in the forum).

That said, I like the proposed PoolTogether strategy as well, but you raise an interesting new proposition re unlocking metagov for assets held outside of our products. I would love to see more discussion of this, but it’s not a blocker to proceeding here, as I see it.

2 Likes
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IIP-70 will fund $500k into the operations account multi-sig 0xFafd604d1CC8b6B3B6CC859cF80Fd902972371C1 but as of the time of writing, there are no stablecoin in that account, only ETH2x-FLI, which we will sell to fund the BED liquidity. All other INDEX and the stablecoin remain in the original treasury wallet 0x9467cfADC9DE245010dF95Ec6a585A506A8ad5FC

The Investment Account is not yet funded with any assets. We are moving forward with the Operations Account first rather than launching both accounts at once.

Our rationale for not providing an initial allocation for this proposal other than committing to the stablecoin asset management guidelines constraints (no more than 50% in a single asset, no more than 50% in a single strategy) was the answer may change between when we wrote the original post and when we have the stablecoin and the approved authority to invest (which may be 1-2 weeks). Given that, I expect 50% USDC, 50% DAI, and to deploy into the optimal yield opportunity within these 4 protocols for those two assets, and we will adjust course as the optimal opportunity shifts.

I would be interested in more information on your recommendation here. With the limited initial stablecoin available to invest ($500k), the current constraints and the limited number of approved protocols, I would suggest the decisions we will make should be non-controversial optimization decisions within those boundaries that will be shared with monthly financial reporting, and interested community members always have the option of tracking the transactions within the Operations Account wallet.

2 Likes
11

I am also AGAINST, as from what I have perceived so far, the intention is to deploy the entire stable coin allocation to made productive, which goes against the ‘Stablecoin Asset Management Guidelines’, which explicitly state that ‘No more than 50% of the stable coin allocation should be concentrated into a single strategy or productive opportunity’. Therefore my recommendation would be that only half of the amount in the Operations account ($250k) be deployed productively, and the remaining half be used for the primary purpose of the Operations account, which is immediate financing needs of the Index Coop.

12

Hi @sixtykeys,

Thank you for bringing this up. We really appreciate feedback and welcome open discussion.

Currently, all working group and operational expenses are paid from the Funding Council. For context, the Operations Account is to start with a small amount of funds so the TWG can demonstrate competency. In time, we expect Operational expenses to be paid from the Operations Account. TWG will endeavour to built trust, demonstrate competency and enable the community to endorse running Coop wide operational expenses from the Operations Account. It is important to recognise this is $500K of $7.75M from the treasury. The treasury wallet breakdown can be seen here.

Please do express all question and queries here and the TWG will most certainly respond to the best of our ability.

7 Likes
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Hi @sixtykeys,

To add to @Matthew_Graham’s comments, the 50% concentration guideline is for an individual productive strategy. For example, no more than 50% of the stablecoin allocation can be placed into Compound. This is done in order to limit idiosyncratic risk exposure to any one smart contract or strategy (e.g. exploits, design failures, yield fluctuations, etc.). The language is not intended to be a limit on total productive opportunities.

In writing the stablecoin asset management guidelines, we had much discussion around keeping a portion of the stablecoin reserve unproductive. Ultimately, we elected to not include a constraint on how much should be productive vs unproductive since DeFi enables instant liquidity for yield-generating derivatives (e.g. unwinding aDAI into DAI can be done without much friction), so as long as we limit the amount of layered strategies (which is a constraint within the guidelines), there is limited unwind risk.

As the other TWG members have emphasized, expenses are still handled by the funding council wallet and are not paid out of the Operations Account at this time. However, if the Operations Account were currently handling short-term financing expenses, it would still be possible to distribute the yield-generating derivatives of the stablecoins no different than their unproductive counterparts (i.e. I can send aDAI to your wallet without having to withdraw it from Aave). Strategies where this kind of liquidity is not possible will be properly accounted for, but none of the strategies included in this proposal are thus limited.

I would also like to add that the lack of allocation percentages was an intentional design choice to allow TWG to be nimble when deploying, rebalancing, or otherwise modifying the breakdown. Our goal is to operate within the constraints outlined, be highly transparent through our regular treasury reporting, and to avoid clogging what is already a busy IIP pipeline with simple rebalancing decisions.

Hopefully this is helpful, and please feel free to ask any additional questions you have. :slight_smile:

3 Likes
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Thank you for taking the time to answer my question @AcceleratedCapital @Matthew_Graham, very helpful in understanding your proposed strategy.

1 Like
15

What’s the latest on this @overanalyser ?

16

I would prefer to see a more robust process. As it stands, this proposal along with BED liquidity would encumber the entire holdings of the operations account (and that should be made explicit in the proposal). If there are things that need to happen in order to get the investment account operational I think we should focus there first.

17

The operations account balance of $750k is approximately 1% of the Treasury assets ($73.4 million at the time of writing in the d5FC account). The BED liquidity decision is already voted on by the community and not directly relevant to the subject IIP of deploying the $500k. Although the $500k would not be in idle stablecoin, I would not consider them encumbered because we have agency over the use of the funds, to AC’s earlier point the unwind risk is low, and these funds are not expected to be needed during this quarter because the budgets were already funded to the Funding Council wallet.

This is the first iteration of the operations account. We will continue to work towards a robust future state but we start with limited assets (~1%) and limited authority.

The Investment Account will come soon after, but I disagree that it should come first. Earning a yield on idle stablecoin is a simpler strategy and a core competency we can develop.

5 Likes