Thanks for the follow up, Leighton. Can you elaborate on this comment:
I personally would actually be in favor of a more radical approach and converting even more to ETH… however, I’d only be in favor of that if it was a part of a broader overhaul in how POOL protocol treasury is managed.
I’m not sure I understand what you’re looking for, and I’d love to continue this discussion to understand your reservations.
I’ve outlined my thoughts below, so you can see where I’m coming from, as well.
Past treasury management decisions
Before the council and the TBR process, the first working group formed by community members, including myself, and ratified through a PTIP was the Treasury Working Group (TWG).
One of the TWG’s mandates was to review treasury management; this now falls within the purview of the Finance Team and, to a wider degree, discussion within the council. However, this process has always been open to any POOL holder that has a strategy that benefits the treasury and the protocol at large.
When the Treasury Assets Management #1 discussion took place, there was wide support to deploy a portion of the DAI held by the treasury into Aave v2 to earn yield and to deposit USDC into PT v4 to held increase prize network liquidity.
POOL holders voted to accept PTIP-54: Treasury Assets Management #1 at that time, which deployed the DAI were discussing now to earn yield in Aave v2.
Right now, the DAI in Aave v2 on Ethereum mainnet is earning 1.51% vAPY. After almost a year, the treasury has earned ~$8,449.55 in interest. With Aave v3 launched on Ethereum mainnet, it’s likely that the APY on Aave v2 drops and the treasury earns less interest.
At the time PTIP-54 was discussed, the goal was to offset the prize subsidy, which caused sizable outflows from the treasury. While the TWG then and Finance Team now have worked to decrease the subsidy from the treasury, the protocol still earns less yield than prizes awarded, which means that funds flow out from the treasury.
The interest earned from nearly one year in Aave v2 offset about one week of prize subsidy; during times when the subsidy was high, this interest may have offset the subsidy for one day.
Point being, the interest earned is intended to maximize the protocol’s funding, which is used to fund community-driven teams through the TBR process; provide prize network liquidity, which the prize network cannot operate without; and to provide subsidies for prizes when yield < prizes awarded in any given day or week.
Diversifying into stETH
If the 488,449.554 aDAI were traded for stETH, the protocol would hold ~297.10 stETH. If you take into account slippage and trading fees, this is likely ~296 stETH.
At the 4.9% APR available on Lido, this would earn the treasury 14.504 stETH in one year’s time. At current prices, that would be the equivalent of 23,845.3012 DAI, or 282%+ the yield we would earn on Aave v2.
This would subject the protocol to market risk, but there’s clear upside potential, given yield + demand for stETH may increase after the Shanghai upgrade. There’s potential to earn significantly more should the price of ETH/stETH increase in USD terms and there’s the risk of losing value in USD terms if ETH drops in price.
However, if the long-term belief is that ETH will be higher than it is now and the protocol will have use for ETH in the future and will benefit from further diversification, I don’t think there’s a wider discussion necessary for treasury management, but I also want to hear your perspective, @Leighton, as I believe POOL holders should have community input with an array of viewpoints before making any decision.
To date, the community has been supportive of making the DAI in question productive. The USDC is used for prize liquidity and to fund community teams working to support the protocol.
stETH for sponsorship in the stETH Win pool
Even if $125k of the stETH were deposited as sponsorship capital, assuming this proposal is put to a PTIP as-is, then it would reduce yield for the treasury by ~25%.
Instead the treasury would earn:
- 17,809.02 DAI worth of value, at current prices
- 10.792255 stETH worth of value
This is still more than 2x the yield earned through Aave v2.
The stETH win pool could be used to highlight the potential ways to build frontends in v5 with a defined use case and product with a unique value proposition.
The ~3.71 stETH in yield generated for the stETH win pool would be an advertising expensive, so long as it is well marketed and used to showcase the benefits of composability and the improvements coming with v5.
I would be supportive of this proposal, as I do not see significant downside here. There are many reasons to hold stETH in the treasury, especially since native ETH cannot be held in and then withdrawn from the current timelock, so an ERC-20 ETH equivalent that earns yield would be all the better to hold.
Sponsoring a community pool built by a core community contributor that highlights a unique usecase for the protocol for a total expense of 3.71 stETH seems like a worthwhile endeavor. The community has issued grants for more with less value delivered to the protocol on a whole.
stETH win is aligned with the ethos and values of the PoolTogether community. In this case, we can see a working product that is generating yield for depositors and donating a portion of the yield to a good cause.
Overall, this proposal seems like a win-win-win for the protocol and community.
- Adds greater treasury exposure to ETH
- Increases yield earned by greater than 2x
- Upside potential of ETH
- A 25% allocation to a no-loss pool built by @underthesea that donates to charity and costs 3.71 stETH annually
Open to hearing other’s thoughts and views!