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

IIP-XY: Transfer FLI Products in Treasury to Operations Account
iip: XY
title: IIP-XY: Transfer FLI Products in Treasury to Operations Account
status: Proposal
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

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

Strongly in favor.

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

4 Likes

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?

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.

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.

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

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