DOLA bad debt elimination proposal

Inverse Finance DAO
1

Summary

This proposal outlines a comprehensive strategy to eliminate the remaining ~$6M of DOLA bad debt through two funding sources: (1) Some of DeFi’s most prominent investors have committed to immediately repay $2.6M of DOLA bad debt in exchange for a vested INV swap provided by the treasury. (2) Securing up to the full remaining $3.4M bad debt through a non-liquidatable protocol loan collateralized by the DAO’s veAERO and veVELO NFTs. We believe this plan has the potential to eliminate DOLA bad debt within weeks while aligning new strategic stakeholders with the DAO.

INV swap

This proposal seeks DAO approval for an agreement with Temple, DCF God, Chud.eth, Greenfund, Octoshi and SS (Ethena) to collectively repay $2.6M of DOLA bad debt within four days of the proposal’s execution. In exchange, they will receive 104,000 INV tokens at a rate of 25 DOLA per INV, subject to a six-month lock-up period from the date of the proposal’s execution.

The 104,000 INV will be minted and transferred to a designated custom smart contract responsible for enforcing the terms of this agreement, including immediate bad debt repayment, INV compensation, and vesting schedule. The locked INV tokens will be deposited into sINV for the lock-up duration until claimed by their future owners. The designated contract is already deployed on Ethereum and its source code is verified. The contract address is available for review in the on-chain actions section of this proposal down below.

While this swap will result in a one-time dilution of approximately ~17% for current INV holders, we believe the benefits significantly outweigh this cost. The elimination of DOLA’s bad debt, coupled with a substantial reduction in DOLA’s risk premium and costs of capital (incentives), along with the potential for growth among new users and partners, are some of the benefits we can expect from a 100% healthy DOLA.

Protocol loan

This proposal also seeks authorization for the Treasury Working Group to utilize its existing veAERO and veVELO NFTs as collateral for a non-liquidatable protocol loan of up to $3.4M provided by the lending protocol 40acres.finance. This loan, if taken, will be automatically repaid over time from the veNFTs cash flow. The DAO will also reserve the option to repay early if funds become available. This proposal authorizes, but does not guarantee, the issuance of this loan as 40acres is still undergoing due diligence and code review by the DAO’s Risk and Product working groups.

This loan is intended to eliminate DOLA’s bad debt. It also ensures the DAO can retain its veNFTs, which are strategic assets crucial for DOLA’s growth following bad debt resolution.

The current 40acres pools cannot be used to cover this loan due to their low collateral factor. The 40acres team are in the process of deploying new veAERO and veVELO lending pools which will provide the TWG with sufficient borrowing power to cover the remaining bad debt, contingent upon sufficient lending liquidity. The existing 40acres veAERO deployment alone has attracted over $5M in lending supply, demonstrating that the 40acres team is able to attract sufficient lending liquidity for our needs.

Why now

  1. A consortium of prominent DeFi investors has been assembled who, if aligned with the DAO, have the potential to deliver strategic value to the DAO beyond bad debt repayment including marketing, product usage and future investments.
  2. The 40acres team has provided assurances that the DAO will be able to borrow up to 40-50% of the value of its veNFTs, establishing a viable path towards full bad debt elimination
  3. Current market sentiment appears highly positive. INV risks missing out on the benefits of a favorable environment due to the burden of bad debt. Once unburdened, the upside potential may be well worth the short term dilution.

On-chain actions

  • Mint 104,000 INV to the DAO treasury
  • Approve 104,000 INV to the RepayRewardEscrow contract
  • Call RepayRewardEscrow.start()

The source code of the RepayRewardEscrow contract can be reviewed here (WIP): https://github.com/InverseFinance/OTC-deal/blob/feat/bad-debt-contract/src/RepayRewardEscrow.sol

2 Likes
2

As stated previously, it is a great and needed proposal. Eliminating bad debt will unburden DOLA and allow for turbocharged growth of sDOLA and lending opportunities.

I do think the terms are a bit too friendly. The DAO is leaving money on the table and it is not entirely fair to existing tokenholders.

I think a 30 DOLA per INV price is more than reasonable and a lock-up period of 1 year should be the minimum. 25 DOLA is close to the minimum price ever experienced by INV, so it is giving a large chunks of the protocol at the smallest price possible. (which wouldn’t be possible in the spot market with this size). There is also no access for retail to the same terms. Hopefully those investors will bring concrete value apart from simple capital.

The lock-up period of 1 year is critical IMO, as it would signal long-term conviction (as opposed to a basic cash grab during a bull) in Inverse Finance and bring more attention and value to the DAO.

Currently, the tokenholder distribution doesn’t allow for real lobbying, and as long as Nour and Temple DAO are in accord, the proposal will pass. But I urge those stakeholders to re-evaluate the terms a bit.

2 Likes
3

Valid points, thank you!

I’m also in favour of the deal, although the details could have been outlined earlier so we could have discussed it in an open manner. Anyway, 25 Dola is ok, but the lock-up is imo also quite short. It also could have been daily distribution and not all at once after half a year.

I’m aware that my comment won’t make any difference and the “DAO” with a single wallet will settle the deal. This is how it is now. I’m still grateful that this issue goes away. The fact is also nice that the team is able to raise capital.