Q3 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 and increase revenue through AMM Fed utilization.
However, liquidity incentivization has been challenging due to the existence of approximately 9 million DOLA bad debt. In order to maintain the USD peg of DOLA, the entire DOLA bad debt needs to be incentivized, making it a high priority to reduce the DOLA bad debt within the DAO.
Liquidity Management
DOLA maintains a strong peg and deep liquidity on various chains (Ethereum, Optimism, Arbitrum and Polygon), on various protocols. This has been the case in spite of recent success and rapid growth in adoption of FiRM, Inverse Finance’s fixed-rate lending protocol. An additional 15.8M DOLA (FiRM’s Total Value Borrowed) in sell pressure has been absorbed, thanks in part to our the Fed Chair’s ability (via our Velo Fed, Convex Fed, and Aura Fed) to contract and thus rebalance key liquidity pools and in part to liquidity incentivization to drive new depositors in. Granting an INV allowance to the TWG will allow for liquidity incentivization management to continue uninterrupted, and ultimately will contribute towards greater FiRM lending capacity.
In addition to DOLA, INV liquidity also needs to be incentivized. In particular, the new TricryptoINV pool on Curve will require incentivization to attract liquidity to migrate over. This pool is expected to play a significant part in the ability to restart modest lending against INV collateral on FiRM, pending further DAO votes and risk assessments.
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.
Conclusion
The TWG requests an allowance of 20,000 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 20,000.