IIP-87: Transfer FLI Products in Treasury to Operations Account

Governance Proposal
1

title: Transfer FLI Products in Treasury to Operations Account
status: Proposed
author: Matthew Graham (@Matthew_Graham) Accelerated Capital (@AcceleratedCapital), PrairieFi (@prairiefi)
created: 2021-08-23

Simple Summary

This proposal seeks to transfer all FLI products within the Treasury to the Operations Account.

Operations Account: ‘0xFafd604d1CC8b6B3B6CC859cF80Fd902972371C1’

Abstract

Currently, the Index Coop Treasury holds over $300K of FLI products and the fee collector contracts have not been called in over 20 days. The TWG recommends calling the fee collector contracts and transferring all FLI products in the Treasury to the Operations Account. FLI products will continue to be transferred from the Treasury to the Operations Account up until when IIP-72 is implemented.

From the Operations Account, the TWG intends to periodically sell all the FLI revenue to ETH. The swap transactions are to be performed soon after being received within the Operations Account. The ETH would remain unused until a subsequent IIP approves authority to use ETH productively or spend on other operating needs.

Motivation

IIP-72 details how future FLI revenue will be deposited into the Operations Account. This proposal is to capture transferring all FLI products from the Treasury to the Operations Account. The reasoning for transferring all FLI products to the Operations Account and selling for ETH is the same as outlined in IIP-72.

At the time of writing, the Treasury holds more than $300K of FLI products and the Fee Collector contracts have not been called in over 20 days (i.e. over 20 days of fees have accrued within the Set vaults).

We believe that holding ETH instead of the FLI products is a prudent risk management decision for Treasury assets.

Specification

Perform the following transactions:

  1. Call Fee Collector contracts across all FLI products (anybody can do this)
  2. Transfer FLI products from the Treasury wallet to the Operations Account (Treasury Multisig Signers)
  3. Sell all FLI products for ETH (TWG Operations Account Signers)

These transactions are to be performed Monday 30th August or Tuesday 31st August which coincides with month-end reporting.

The above steps are to be repeated until such time as the fee revenue from the FLI products is rerouted to the Operations Account as per IIP-72.

Operations Account: ‘0xFafd604d1CC8b6B3B6CC859cF80Fd902972371C1’

EDIT: Due to the fact that the dates above have already passed, the transactions will take place in early October instead of the dates stated above.

Voting

FOR:

DO call Fee Collector contracts and transfer all FLI and future FLI product revenue received in the Treasury to the Operations Account. FLI products are to then be exchanged for ETH by the TWG.

AGAINST:

DO NOT change the existing arrangement and allow FLI products to remain within the Treasury.

Copyright

Copyright and related rights waived via CC0.

9 Likes
2

Strongly in favor.

Curious if there is a reason BTC2x-FLI is being converted to ETH instead of BTC (added diversification)?

4 Likes
3

I support this but suggest that TWG wait until IIP-72 has passed and FLI revenue collections have redirected to the Operations account before proceeding. The motivation behind this is that FLI revenue in the Treasury account has to be collected just once, rather than having to do so multiple times.

As I see it, this is not a time-sensitive issue. Since IIP-72 is already on snapshot, we can safely assume FLI revenue that continues to accrue in the Treasury account will move to the Operations account before the end of August.

Is there any reasoning behind holding ETH rather than, let’s say, some more stable assets?

4

Personally, I’d like to see a record of safely managing & deploying funds for at least a couple months before this account balloons to 1M USD+ in size.

5

Strongly in favor of this proposal.

We have had several weeks of positive growth in the price of the underlying. This has placed us in a strong position to realize the value accrued. As these kinds of leveraged products are vulnerable to a mean reversion, it is highly desirable to actually realize the value of the assets during these current positive market conditions.

I also wonder about this. This is a really good question.

You ask some interesting questions too @sixtykeys. I have a few thoughts on them:

I do see this as a time sensitive issue. Much of this revenue was generated when the price of FLI was 300-$400. We missed out on the opportunity to realize that value because we did not have the capability to act. The fact that we are now back in the black on the overall revenue from these products, and have the capability to act on it, is an opportunity that should be capitalized on.

Currently the treasury has over $7M USDC. That makes up about 10% of our total treasury, and is a prudent allocation to stable assets.

I would argue that ETH probably has the best risk to return of any asset available for this transaction. Accumulating ETH now opens up a number of excellent revenue streams for us in future such as LPing pairs on our own products and running validator nodes.

6

IIP-72 vote will end within 24 hrs so it will effectively not go to vote until that IIP is decided. For distinction though, I do not think that this post should wait until IIP-72 is executed/implemented by engineering, as that timeline is not set. IIP-72 is a permanent fix, the subject IIP is a stop-gap until IIP-72 is implemented.

August 31 is no longer feasible, but still important to get passed timely to deleverage from 2x. This specific date was the result of drafting the IIP earlier in the month and not accounting for the time it would take to go to Snapshot. We can adjust the post to remove August 31 references.
A FOR vote would still be for someone to call the contracts and signers on the Treasury account to execute this transfer to the Operating Account manually monthly until IIP-72 is completed on the Engineering side. IIP-72 does not give authority to sell ETH2x-FLI that sits within the Treasury wallet, rather to redirect revenue to the Operating Account as a new process. The subject IIP will transfer existing ETH2x-FLI to the Operating Account so that it can be sold for ETH.

1 Like
7

Great question - we view the Operations Account as a working capital management account. It’s composition should primarily be comprised of assets that are regularly used for Index Coop operations. This would consist of stablecoins, INDEX, and ETH, along with LP pairs for seeding liquidity for our products. While it is correct a wrapped bitcoin asset would provide treasury diversification (and it is our goal to include an allocation to wBTC in the Investment Account), here we are seeking to collect assets that are more short-term and transactional in nature. If in the future we find the Operations Account sufficiently funded and would prefer to divert revenue flows to the Investment Account, then we could revisit the strategy since it would make sense at that time to sell for assets on an as-needed basis accounting for rebalancing.

The rationale is that this was primarily a de-levering from 2x to ETH and less about accumulating more stablecoin. To @afromac’s point, we have a larger allocation to stablecoins already, yet our ETH reserves stand at essentially 0%. As most operations in DeFi rely on ETH, we believe it is prudent to increase this allocation in the short-term. It has the benefit of providing more diversification outside of INDEX while simultaneously being a highly useful asset in our ecosystem. In addition, the risk/return capital efficiency of ETH is additive to our existing portfolio of assets. This is not to say that we do not plan further increasing our stablecoin allocation, but in the short-term (which this IIP is a short-term stop-gap), acquiring ETH makes more sense to us.

2 Likes
8

Hi @mel.eth @sixtykeys

Could we please schedule this proposal for Snapshot commencing Monday 27th September.

Thanks in advance.

9

Hey @Matthew_Graham, an IIP number has been assigned to this proposal. I will update this post with the snapshot once it has been queued for voting.
cc: @mel.eth

3 Likes
10

Hey @Matthew_Graham, @AcceleratedCapital, @prairiefi , could you please update the dates here and any other time related mentions before this can go to snapshot. Thank you.

11

Hi @sixtykeys , @AcceleratedCapital

If the vote was to start on the 27th September and finish on the 29th September. It is possible the transactions could be performed on the 30th September. Otherwise, we can just do the transactions early in the following month.

Is it possible to schedule a vote for Monday 27th September based on the above ?
@sixtykeys if you have edit rights, please do amend the original post with an edit note.

12

Hey @sixtykeys,

I am unable to edit the post to correct the date. The edit button doesn’t appear anymore.

13

This proposal is set to go live today at 1800 UTC, with voting ending on September 30, 2021 at 1800 UTC.

Snapshot here

cc: @mel.eth

1 Like
14

Confirming that this IIP has passed with 314.27k INDEX (100%) voting FOR. :white_check_mark:
Snapshot here

15

Hi @dylan @puniaviision @anon10525910,

As the folks on the 2 of 3 Nest wallet on the Treasury. Can you please initiate the transaction and then either @setoshi and @asoong can approve?

Would be great if this transaction was processed not today (for end of month reporting reasons) but soon thereafter.

Thank you in advance.

16

Sounds good! :+1: We’ll get this prioritized next week.

@dylan - is there a form i should submit to get this in to the eng. queue of work?

side note – I imagine it’d be helpful for context building/sharing if we shared the execution doc (when ready) for this transaction here

17

Yes, please submit an engineering request here:

We’re continuing to get more organized on the EWG side and consolidating the different ways EWG gets inbound requests.
I’ll get this added to the backlog for EWG sprint planning from there.

4 Likes
18

Done :slight_smile: and thank you for letting me know.
The form was super easy to use.

2 Likes
19

This work has been queued up for execution in this week’s sprint.

1 Like
20

This IIP has been executed.
FLI products have been transferred to the TWG Operations Account.
The Execution doc is here:
https://docs.google.com/document/d/1LevH_LnKOERXWfwAUuDzQnBy80EMnr_TjZa_WZIB8XA/edit

4 Likes