2024 Q4 Treasury Working Group INV Allowance Refresh
Summary
Refresh the Treasury Working Group’s INV allowance so the management of liquidity incentivization can continue undisrupted, along with the facilitation of OTC swaps where all proceeds are directed towards paying down DOLA bad debt.
Background
Liquidity incentivization is crucial for attracting depositors to the DOLA and INV tokens beyond protocol-owned liquidity. While the DAO has accumulated a significant portfolio of emission-controlling tokens, additional INV spend is required to supplement incentivization to liquidity providers, ensuring depth is at the levels required to support current FiRM borrowing.
The existence of DOLA bad debt increases the challenge of liquidity operations for the DAO, increasing the DAO’s cost per DOLA in circulation and simultaneously reducing the revenue generated per DOLA. This is why reducing DOLA bad debt remains a top priority for the TWG, with 3,518,680 DOLA repaid YTD so far. Please see the bad debt dashboard for an update-to-date view.
Liquidity Management
DOLA maintains a strong peg and deep liquidity on various chains (Ethereum, Optimism, Arbitrum, Base and Polygon), on various protocols. This has been the case despite the recent success and rapid growth in the adoption of FiRM, Inverse Finance’s fixed-rate lending protocol, with new DOLA borrows tending to cause additional DOLA sell pressure. The various active AMM DOLA Feds continue to operate, expanding when DOLA demand is high and contracting when it falls. Liquidity incentives is currently the primary method for generating DOLA demand, and so remain a crucial aspect of operations needed to maintain and grow FiRM usage. The current strength of DOLA liquidity has allowed FiRM revenue rate to all time highs, surpassing $2m/year.
In addition to DOLA, INV and DBR liquidity requires incentivization in order to achieve liquidity depth that gives better trading conditions for those looking to enter or exit. The TricryptoINV pools has been incentivized for a while, which is relied upon for the INV price feed (utlizied by FiRM’s INV market), and going forward the TWG plans to begin incentives for TriDBR (on Curve), and 2 new pools on UniSwap V3 for DOLA/INV and DOLA/USDC, faciliated by a new partnership with Liquis (the “Convex” layer on top of Bunni).
OTC Swaps and Bad Debt Reduction
In addition to managing liquidity incentivization, the TWG plans to engage in OTC swaps to further support the reduction of DOLA bad debt. OTC swaps offer an efficient and strategic mechanism to secure the long-term stability and growth of DOLA. All proceeds generated from these OTC swaps will be directed towards paying down the outstanding DOLA bad debt, reinforcing the health of both DOLA and the DAO. The existence of bad debt leads to a more conservative approach to the amount that can be borrowed through FiRM. Eliminating bad debt allows for a more aggressive approach to the expansion of borrowing on FiRM.
Bad Debt: A Change in Policy
Since June 2022, when the DAO first made repayments against accrued bad debt, the policy was always to prioritize DOLA, with about 65% of free cash flow going towards DOLA bad debt and 35% going towards non-DOLA bad debt (ETH, WBTC, YFI, DOLA IOU). Given the continued deterioration of the DAO Treasury’s financial position, the TWG will be adjusting this policy to focus 100% on DOLA bad debt repayment. This is as DOLA bad debt directly impacts the DAO’s ability to expand lending capacity on FiRM, raises our liquidity costs, and affects our ability to maintain the DOLA USD peg. Demand for DOLA borrowing on FiRM currently far outstrips our available supply, constraining the growth and revenue of FiRM. As outlined in the DAO’s recent Season 1 strategy proposal, reducing DOLA bad debt is the DAO’s top priority today and we are taking a multi-pronged approach to retiring DOLA bad debt as quickly as possible.
Once there has been a significant reduction of DOLA bad debt, the repayment policy will again be revisited to restart the repayment of non-DOLA bad debts.
As a reminder, the Debt Repayer contract continues to operate, and remains partially funded. The Debt Repayer allows users who hold either ETH, WBTC or YFI on Frontier (represented by anETH, anWBTC and anYFI), to exit out their position into the underlying asset, at a discount. At the time of writing, the debt repayer contract holds the following assets (available to be used to sell out of by anToken holders):
- WETH: 14.988
- WBTC: 0.004737
Conclusion
The TWG requests an allowance of 30,000 INV to continue the current liquidity incentivization program required for the expansion of lending on FiRM, and to facilitate any potential future OTC swaps.
On Chain Actions
- Set TWG INV allowance to 30,000.