PoolTogether

Treasury Management: Buy ETH + More buybacks

Something we’ve discussed lots on discord but haven’t been able to formally push through is Pooltogether treasury being a holder of ETH. As a protocol we require ETH for much of our operations and I think it would be wise to make a large ETH purchase for our treasury using USDC. I propose that we convert 1MM USDC to ETH and I think now is the perfect time to do so with the market down. It’s not so much about the investment but about owning a utility that we will need to operate.

Convert 1MM USDC to ETH to further diversify our treasury and cover future needs.
  • Support
  • Oppose
  • Abstain

0 voters

Additionally I think we should discuss continuing buybacks. Pooltogether price is more than 30% below our treasury diversification sale price and I believe it is undervalued. I think we should continue the buybacks conducted by @RegisIsland @underthesea and myself. I would even lobby for larger buybacks at these prices but we should in the very least continue with what we were doing.

Would you like to see more POOL buybacks?
  • Yes
  • No
  • Abstain

0 voters

Amount of future buybacks.
  • Increase
  • Decrease
  • Same method as before

0 voters

This sounds good, but we have to move fast. Would rather try to buy Ethereum under $3000.

Do we actually need ETH for our operations long-term? Isn’t the idea to move gas costs to Chainlink keepers, which will be paid in LINK?
Maybe those plans have changed and I missed it.

I don’t think buying ETH as diversification is a good strategy, as the entire crypto market is highly correlated. If a market downturn causes the value of POOL to go down significantly, ETH will likely be affected the same way.
USDC is a much better hedge to this scenario, which I think is the major existential threat to Pooltogether.

2 Likes

We should also buy Link. There are expenses beyond rewarding the prize so we’d need both. ETH going to 10K dude, buy it now or pay more for it later.

I do like the idea of having some ETH in our treasury, if only for reimbursing gas costs of different operational teams. However, I don’t think we should buy it with our ScUSDC. I like having a USDC war chest in preparation for an unevitable bear market.

Given that our treasury is 90% POOL tokens, I would much rather sell a small part of those to further diversify. I would not sell $1M worth at this moment because I feel the POOL token is undervalued at the moment though.

I do think @Torgin correctly points out there is a massive correlation between crypto assets and we cannot really argue adding ETH is true diversification, but I still don’t think it’s a bad strategy.

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We could have the buyback team purchase ETH with a portion of the reserve, but I still think some sort of lump sum purchase should happen. I don’t agree that POOL and ETH are that closely tied to each other though. Over the last 6 months POOL has fallen and ETH has grown. ETH has utility and much more demand.

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Hmm, this is an interesting one. When i heard about the discussions to hold ETH in the discord i thought it would be just enough to cover regular gas costs, but this is a more significant treasury investment of our USDC to convert to ETH than i was thinking.

Still, i do see the overall value and kind of envision the protocol holding rETH or something in future that allows an ETH holding in beaconchain staking to perpetually keep the protocols’ activities on mainnet sustainable, regardless of POOL or ETH price.

As for POOL buybacks, i really dont think we should be considering this until pool reserves are growing at a pace to justify it, and i dont think we are there yet. At this point, we would just be re-buying the POOL back we sold in the first place for the USDC we gained in the treasury diversification initiative. Yes, a good trade as we sold it at a higher price originally, but do we want to maintain that diversification or do we want to be market traders?

Serious questions for the currently undefined treasury team such as it is :slight_smile:

Maybe I’m a little over excited on the amount and we could scale that back a bit. It would be nice to have 2 years worth of ETH set aside to cover operations and a I also think we should hold 1-2 years of LINK tokens to cover that portion. Current annual ETH budget is $273,000.00. If ETH were to pump to 10K it would suddenly cost us a lot more annually and we should be prepared for any scenario.

The USDC we gained in the treasury initiative wouldn’t need to be touched for the POOL buybacks. It can continue to come from a portion of the reserve take on the pools. I think these buybacks help ease concerns of potential investors in seeing that when price is this low we take some actions. If we buyback now at these low prices we will have the tokens needed to further diversify when the market heats up.

I think the situation the Ethereum ecosytem is in right now is fairly unique in that its in a transitioning phase to L2 and PoolTogether is basically forced to use the expensive L1 to have a presence in the ecosystem currently. I think PoolTogether could move most of its on-chain operations including prize drawings and maybe even governance to one of the L2s and be less reliant on the expensive high-gas tx of the L1.

Maybe a better question for someone like @Brendan in that regard.

But my point being, the historic cost of PoolTogether operating on the L1 need not continue into the future. I think a modest ETH holding might be prudent, but doesnt necessarily have to be the significant holding you suggest for now.

Long term, I also think we could eventually probably have the protocol treasury be self sufficient in that it can hold just enough ETH earning direct ETH apy in something like RocketPool that it can fund its operations that way, without ever having to touch reserves. If as you say, we are spending around 273k in ETH to run the protocol, we would need an ETH holding of ~1900 ETH earning 5% ETH interest to sustain the protocols operations at current levels. Would love to see some stats on actual ETH spent by the contracts because my napkin math could be way off here :sweat_smile:

I do agree that if we do it, it should probably come from some of the Pool reserves as I consider that direct protocol revenue. Treasury should be used for growth, Pool reserves for day-to-day running of the protocol and sustainability. Otherwise, if we dont think about it in those terms, we will have an ever dwindling treasury just to keep the protocol operational.