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.
Background
Liquidity for both the DOLA and INV token needs to be incentivized to attract depositors beyond the protocol-owned liquidity. While the DAO has built up a sizeable portfolio of emission-controlling tokens (Aura, sdCRV, sdBAL, veVELO, veTHE, veRAM, etc), there is still the need for INV spend to supplement the incentivization and in some cases, increase revenue via AMM Fed utilization.
Liquidity incentivization is particularly expensive for Inverse Finance DAO due to the existence of ~10M DOLA bad debt. In order for DOLA to maintain its USD peg, the DOLA bad debt in its entirety needs to be incentivized in AMMs while also incentivizing the other side of the pairing. When the cost of DOLA liquidity is high, this becomes a very expensive operation and highlights why reducing the DOLA bad debt is a high priority within the DAO.
As a reminder, the majority of INV token emissions go towards INV Stakers (dilution protection), DOLA liquidity incentivisation (managed by TWG) and bonding (managed by the Policy Committee).
Motivation
During the last couple of months, DOLA went through various stress tests, namely the USDC depeg and Euler Finance incident. Despite this, DOLA maintains it’s peg, has expanded to new chains (BNB Chain, Arbitrum, and Polygon), and holds deep liquidity across numerous LPs on various protocols, spreading risk.
Since mid-February, the TWG’s liquidity strategy shifted in order to start bringing additional profits to the DAO, utilizing the DAO’s AMM Fed product to take advantage of profitable bribe economies (>$1 in rewards from $1 bribe). The DAO profits through a portion of rewards being sold to stablecoins (used for covering DOLA opex and bad debt repayments), and another portion being locked as emission-controlling tokens (giving future income and reduced reliance on INV token). While bribe efficiencies are high, this is seen as more beneficial use of INV spend than ramping up DOLA bonds to the previous levels seen in 2022. 117,227 DOLA in February and 183,097 DOLA in March was realized as profit to the DAO via implementing this new strategy.
Below is a liquidity snapshot for DOLA and INV, taken Apr 7th, 17:00 UTC. For up-to-date figures, refer to the liquidity page on our transparency portal here.
DOLA Liquidity
| Total TVL: | $82,395,215 |
|---|---|
| Avg. DOLA weight | 54.94% |
| Pairing Depth | $37,127,686 |
| DOLA Balance | $45,267,529 |
| Protocol Owned | $36,129,762 |
| Avg APY | 18.36% |
INV Liquidity
| Total TVL: | $1,624,267 |
|---|---|
| Avg. INV weight | 50.11% |
| Pairing Depth | $810,306 |
| INV Balance | $813,961 |
| Protocol Owned | $1,128,818 |
| Avg APY | 78.94% |
In order to continue this positive momentum, the Treasury Working Group requires an INV allowance refresh so that the management of liquidity incentivization can continue undisrupted.
Year-to-Date Results
The table below summarizes INV spent in 2023 to maintain DAO operations. It is not meant as a guarantee for INV token’s rate of emission for the future. However, the TWG is committed to maintain the liquidity management policy of reducing reliance on new INV emissions in the long term. This is achieved by both reducing DOLA bad debt, and increasing the DAO’s Treasury holdings of emission-controlling tokens.
| Month | Liquidity Expense | Bond Expense | Contributor Expense | Other Expense |
|---|---|---|---|---|
| January | 2730 INV | 940 INV | 574 INV | 0 INV |
| February | 2074 INV | 1052 INV | 508 INV | 25 INV |
| March | 5287 INV | 1006 INV | 698 INV | 0 INV |
Notes:
January and February were marked by an overall reduction in INV inflation through the new liquidity strategy all whilst significantly increasing DOLA TVL. DOLA supply hit a new all-time high, and the Policy Committee was able to reduce the INV rewards going to INV stakers down to 29.62% APR while still maintaining full dilution protection.
March brought about a large increase in liquidity expense (incentivization) after both the USDC depeg and Euler incident. The USDC depeg led to also a temporary DOLA depeg whilst waiting for Proposal 96 to execute; this led to DOLA liquidity becoming more expensive for the DAO to incentivize, due to the increased risk premium. This has happened numerous times before with other “black swan” type events in crypto, and we slowly have to earn back trust in DOLA which reduces the cost to incentivize liquidity. In the meanwhile, INV staking APR was increased and now sits at 68.15%, quantifying this period of increased spend.
Conclusion
The TWG requests 14,000 INV to continue the current liquidity incentivization program and facilitate any potential future OTC swaps.
On-Chain Actions
- Set TWG INV allowance to 14,000