IIP-XY - Finance Nest Autonomy Act Amendment #1


Title: Finance Nest - Autonomy to Act Amendment #1
Status: Propose
Author: @Finance.Nest, @ElliottWatts and @Matthew_Graham
Created: 06/04/2022


Simple Summary

The Finance Nest has a strong track record and is one of the most advanced Treasury teams in Defi. This proposal presents the community the opportunity to expand Finance Nest remit and transition Finance Nest into a back office function. Building on IIP-123 this proposal includes the ability to attain and manage a line of credit that will be used to support creating, growing and maintaining our products/business, and the ability for Finance Nest to manage any amendments to the signers on the Operations and Investment Account multisigs. This operational flexibility will help the community to realise our ambitious growth objectives.

The intent is to reduce operational burden and place more responsibility and trust in Finance Nest. Finance Nest will be transitioning more towards becoming a back office that can service the DAO autonomously with monthly forum status updates, replicating the success of the FLI pod.

Abstract

Finance Nest seeks the approval of the community to extend the current guidelines/boundaries enabling the ability to act with more autonomy. This proposal expands the Finance Nest remit to amend the signers on the Operations and Investment Accounts and the added ability to utilise debt for growing the business. Do note, some of the icETH liquidity is already funded using over collateralized debt via Rari Fuse Pool 8 to support the product launch which is different to a line of credit facility.

Debt is a widely used and powerful tool that can be utilised to accelerate growth and provide operational flexibility for how capital is deployed. Finance Nest seeks to expand upon the Autonomy to Act remit to include the ability to attain lines of credit to support the growing Index Coop’s business. Any debt will be used to support growing the business both directly and indirectly through things like Protocol Owned Liquidity (POL) and through deploying capital into delta neutral strategies in order to acquire strategic assets which help us attain our growth ambitions.

Motivation

In recent times, Index Coop has greatly increased the rate at which products are being launched. We expect this to continue and anticipate some of these products will require more capital to launch than today’s products in circulation. Protocol Owned Liquidity has absorbed all of our revenue as we continue to reinvest into growing the business.

Our growth ambitions are great and rather than try to juggle several different initiatives, Finance Nest recommends obtaining a line of credit to provide additional operational flexibility to the community. Key drivers for seeking the ability to attain a line of credit that provides extensive operational flexibility:

  • Rate at which products are being launched is increasing
  • Product pipeline features several capital intensive products
  • Various delta neutral strategies within defi enable Index Coop to accumulate strategic assets

As we increase the rate at which we create products, we need to scale our ability to launch and maintain those products. Currently, our revenue is not growing fast enough and we could use our stables but the opportunity cost of the stables exceeds the cost of debt. To support Index Coop’s growth ambitions we need to enable the business to pursue growth without unnecessary capital constraint.

With minimal financial engineering, Finance Nest will deploy several strategies that act to generate cash flow exceeding the cost of any debt. Essentially, Index Coop will have no price volatility risk, will be able to borrow debt at a lower interest rate than the yield we earn, thus making a profit. This is known as a delta neutral free-carry trade. We are essentially creating a self repaying loan which frees up capital to be deployed supporting various growth initiatives across the business. Ie: Some debt is used to generate an income to maintain and pay back the credit line, whilst other debt is directly invested into growth initiatives like POL.

In addition to the above, Finance Nest is proposing the responsibility of updating/maintaining who is an Operations and Investment Account multisig signer. Finance Nest has submitted many IIPs in effort to optimise the signers on the accounts to keep up with people coming and going from the DAO along with improving the responsiveness of the signers on the wallet. Rather than continue to present IIPs, Finance Nest intends to perform these tasks in the background and provide monthly updates on each account detailing any amendments to the signers or signer requirements. Please note the signer requirements are still to run through the IIP process, it is just the ability to change who is a signer will be passed to Finance Nest.

Specification

This proposal builds upon the permission granted by the Index Council for Finance Nest to engage with other DAOs offering lines on credit within DeFi. There are a number of DAO bringing various debt offerings to DeFi and Index Coop has the ability to be a launch partner whilst also attaining much needed operational financial flexibility.

This proposal grants Finance Nest the ability to enter into agreements with other DAO for attaining a line of credit. All reporting will be via the monthly reports which are shared on the governance forum. This will be how Finance Nest communicates what are the loan terms, what is the debt is being used for, what is the return on investment and how this is contributing to Index Coop realising its ambitious growth targets.

Various DAO that are coming to market offer widely varying services with very different requirements. Index Coop has been for some time now engaging with several DAOs and is now approaching the late stages of discussion. Finance Nest did hope to have the line of credit in place by now, but hope to have it in place soon. This line of credit will bring the operational flexibility we need to grow at the rate we desire.

In scope parameters

  1. ​​Type of collateral supporting the loan
  2. Limit of exposure ie: Debt ceiling
  3. Selecting counterparty / DAO(s)
  4. Borrow and repay funds online
  5. Agreeing to interest rate and fees
  6. Terminating line of credit

Implementation

The Finance Nest gains the following autonomy:

  • Ability to engage with other entities to create and manage a line of credit
  • Ability to deploy (deposit, transfer etc…) capital as required to support initiating and maintaining the line of credit
  • Ability to update signers on multisig as required
  • Reporting will be monthly via existing reporting channels
  • Reporting will detail how the funds are being used

Voting

FOR:

DO delegate additional autonomy to Finance Nest.

AGAINST:

DO NOT change the existing arrangement.

Copyright

Copyright and related rights waived via CC0.

6 Likes

If I am understanding this properly this is two proposals to give Finance Nest more unilateral decision making power across two high-impact areas:

  1. Capital Structure - change the Index Coop’s capital structure and add a line of credit of unknown size/parameters/impact etc…
  2. Who controls Index Coop funds - no longer use IIPs to change singers on two major wallets (3-of-11 Operations and 4-of-7 Investment accounts). Instead, Finance Nest decides itself and reports after the fact.

On the first point, changing the capital structure is a big decision that needs considerable discussion amongst the largest stakeholders. We are against such a decision being delegated to a small group of individuals outside the visibility of INDEX holders and large stakeholders. We support well thought out plans, which - knowing you :slight_smile: - I am certain you already have / can create.

→ Do you have a plan already that you can share such that the specifics can be assessed/discussed before any decisions are made?

On the second point, it is a well-known best practice in crypto to add/remove signers on major wallets via vote (i.e. Yearn). You seemed to have advocated for this recently. We are against removing the IIP requirement for adding/removing signers to major Index Coop wallets. There are other solutions to this problem that don’t involve removing such a critical decision from INDEX holder purview (i.e. choose signers who are less likely to churn).

→ Curious to learn: Why has your thinking changed on whether IIPs are needed to add/remove folks from major wallets? What alternatives have you considered to the problem(s) you are facing?

4 Likes

I will be voting AGAINST.

  • I’m firmly against uncollateralized loans (read: claim on the future labor of Owls, managed by one department);
  • I’m against removing the governance process from adjustments made to the holders of hard power in the DAO and Index Coop Ecosystem of partnerships.

This also seems to advocate for less transparency, as a feature, which is incredibly frustrating to see from an elected leader in the DAO. In effect signals a move away from a decentralized decision-making and transparency without any appreciable automations (in a software sense, not a delegated-thinking sense).

Most DAOs don’t have finance departments and this one is becoming an ever increasing burden on other resources. The more I have to defend the self-serving ideas being put forth out of our most opaque nest the more it puts strain on the DAO and ecosystem. Please endeavor to adjust as I expect members of the Index Council and Nest Leads to be focused on our mission, not these extracurricular endeavors that I’m constantly required to divert attention to.

I would recommend that this above effort be redirected to responsibly supporting our liquidity pod/situation as that’s our most critical resource (directly supporting our products and users) outside of contributors here at the DAO. Further the rewards process has been the subject of constant debate and after months of rescoping through the nest/pod process it looks exactly the same as it did prior (for non-core) and I have no better support from your nest in terms of tooling or written guidance.

In the ways that matter Finance Nest seems to do min-viable for the DAO; you push out information but don’t engage in a transparent iterative improvement process that serves the DAO. In short, imo, you’ve not garnered the trust you seek here.

Hi Matt,

I will also vote AGAINST. Debt of any kind is not something to be taken lightly. Long-tail, catastrophic risk is a reality of our business, and any debt we take on increases the chance of financial disaster.

I’d explore any alternative to managing our working capital needs before I took this step.

3 Likes

@Matthew_Graham, I don’t see the need for the change to the signers. Can you elaborate more? My going assumption is that IIP for each signer is best practice.

Regarding the credit line, at a high level, I am open to the idea of taking on debt. Debt is a very normal part of most organizations’ capital stacks. That said, to be supportive of debt, I’d want to first know the specific terms (which at the moment are TBD) and we need to be more prescriptive with the intended uses.

At the moment, I don’t have enough information to vote in favor of this proposal. I would recommend getting terms for the line and spelling out/ring-fencing specific uses. It would be much easier to analyze a proposal that read “We propose an $Xmm credit facility that will be used to finance Y initiative or to fund $Zmm of W product launch, with an eye to repay the loan within M months.” That will really help.

2 Likes

Hi Mel,

In regards to the rewards process, this is the first I’ve heard of it being a problem for any nest lead, we have not had that feedback from any other lead allocating rewards. Please do let us know what specifically is the problem from your perspective? This post -[Flexible] Contributor Rewards 2.0 was published on the forum at the beginning of season 1 to provide guidance for leads and contributors on flexible rewards. We are always on the lookout for any tooling that we could adopt to improve processes.

This is diverging from the topic of the proposal so feel free to DM or happy to discuss over a call.

3 Likes

Based on the feedback to date, it looks like the best path forward is to do an IIP each time we change a signer. To date, there has been little engagement in these proposals and it is a slow process that requires a lot of vote whipping.

Perhaps instead of IIP, attaining IC approval or something more operationally efficient would be an improvement on what we have but also a way forward that has an approval process. I’m not sure if the Council wants to do this or delegate it to a nest.

Context here, we had signers announce they are going on a lengthy unplanned holiday, poor attendance/responsiveness and we have had a few signers leave to work at other DAOs. It has been an iterative process to onboard new people, try balance time zone coverage and have diversity from across the DAO. Having the most senior people in the coop on the multisig is not a magic bullet and is somewhat like using a Ferrari to pick up the milk.

The next proposals to the Operations Account was to replace @dylan with @anthonyb.eth and @Pepperoni_Joe with @Mringz. The downside is this makes the multisig Liquidity Pod and Product Nest heavy.

@nic is there anyone from Set keen to do +7hrs on a multisig to launch products and manage liquidity ? (Exchange issuance normally comes laters, so its a very manual launch process and a bit adhoc)

1 Like

This is a fair point that gets at the rationale for including this. Matt has seen this movie before. We as a community must view these multi-sig votes for the important decisions they are and be sure to vote when the time comes, as selecting by IIP is the best practice. Let’s commit to helping out on this front. Thanks for the context, @Matthew_Graham.

2 Likes

Is there a middle-ground. I think @Metfanmike and others make a very valid point that those two items: control over the orgs multi-sig and taking on debt are major decisions. But would it be acceptable to IIP delegate that decision down to a contributor vote using our forthcoming contributor voting mechanism?
I can honestly see both sides of the discussion. One side being that control over accounts is control over the organization and no matter how tedious that should ultimately rest in the hands of the $Index holders. The flip-side being @Matthew_Graham points that these votes have historically been very low engagement anyways so why not put the tactical decisions of changing a signer in the hands of the (small but high context) active DAO members.