[DAO Discussion] Treasury Advisor - yieldchad

Governance DAO Discussion
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Treasury Advisor

In order to reduce the regulatory liabilities, it was agreed between myself and the team that an advisory role was more appropriate for Wonderland’s treasury, rather than serving in the role of TM. Thus, I am presenting a proposal to serve WL as an advisor to the treasury.

While the titles may be different, my commitment to working just as hard for WL’s treasury and driving value for wMEMO holders remains steadfast.

The Role

The idea of the Treasury Advisor is simple - the TA will look after treasury operations and advise on how to deploy the capital, while the treasury committee, as laid out in WIP 15, makes the ultimate decision on whether or not to invest. Ultimately, the TA is expected to develop and suggest investment strategies, protocol partnerships, and generally look after the wellbeing of the treasury. Similar to the TM, the TA is expected to work with a team of treasury operators once they are voted in through governance.

The role of Treasury Advisor will be similar to that of Treasury Manager, with a few key differences:

  1. Not on the multisig

  2. Not an executive decision making role – the Treasury Advisor will make recommendations which the multisig will decide whether or not to execute

Tenure

The Treasury Advisor will serve an initial term starting from the end of the snapshot vote (if elected) until 31 October 2022. If no proposal to replace the treasury advisor is made by 15 October 2022, the treasury advisor’s term shall be renewed on a rolling basis for 6 months.

Strategies

As Treasury Advisor, I will suggest strategies similar to my proposal outlined here: [RFC] - WTM - yieldchad

Compensation

Because the amount of capital officially advised by the TA is thus uncertain, in order to ensure that the TA is fairly compensated, I propose a changing fee structure based on the amount of capital ultimately falling under strategies devised by the TA. Please see below image for full details on compensation.
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Risk

Per legal advice, the Treasury Advisor proposal will include common legal disclaimer wording on risks associated with Wonderland. This will be presented in the RFC.

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You would have made a fine TM given the circumstances, unfortunately due to legal issue which complicated the matters it’s still good that we will have you as advisor. I support this proposal.

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I support this and we need to get others to comment and participate if they want things to move forward
and try to start generating some profits.

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I think in the absence of disastrous directional positions the goals are very easy to hit with just stable type positions. I think a more progressive style of compensation would be better. For example if you help the treasury make 30% that would entitle a higher cut. While 10% on 50mm should be quite easy (lol DeFi), 4% on it would still net 200k annually.

So a more sliding scale is what I’m suggesting. The more earnings, the higher the cut.

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Thanks for the comment.

I agree with you that a sliding scale is a more appropriate form of compensation, but the issue we run into here is that of complexity, and adequate compensation in a bear market scenario. We would need to agree hurdles, base case returns, and then incentive fee above hurdle. Happy to go this route as I feel it is better incentive alignment, and really pushes me to get outsize returns for WL.

However, one thing to keep in mind is avoiding a scenario in which the Treasury Advisor performs very well relative to market, but due to market conditions earns only a 7% return, and thus gets very little compensation. Only one month ago the highest yield on convex was 11% on the D3 pool (high risk) - it may become very difficult to get the returns we have all been used to in DeFi for the past year.

Here is an example of a hurdle rate package that I would be comfortable with (happy to play with these numbers)

image

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Explanation:

  • A target return (hurdle rate) is chosen for each tier of AUM (less AUM → higher hurdle rate).
  • On all profits up to the hurdle rate, TA receives X%
  • On all profits above the hurdle rate, TA receives Y%

Please let me know your thoughts!

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Here is a google sheet with the compensation packages: TA Compensation - Google Sheets

Please let me know if you have any suggestions.

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At the end of the day, we need someone who is accountable and responsible for the performance of the WL treasury. Having a treasury advisor on top of a treasury manager might be a solid strategy but it seems premature to have a treasury advisor before a treasury manger is found.

If it is stated that a TA vs TM is a legal nuance and that the direction of the treasury strategy is created & designed by yieldchad but ultimately has to be “officially executed” by the treasury management team then that is fine. But an advisor role without someone that is ultimately responsible for the WL performance seems ill advised.

I believe there needs to be more clarification and definition about who officially & unofficially is responsible for treasury performance.

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Hi jhardyc,

You raise a very valid concern here. For all intents and purposes, similar to the treasury manager position, the treasury advisor’s performance shall be judged based on the overall performance of the treasury.

It should be noted that similar to how it would be with a TM, if WL DAO elects to hold some directionals in the treasury, the TA/TM shall not be responsible for the performance of these directionals if the TM/TA does not advise to purchase them.

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So first off, let me just say that it is quite frustrating that you will be unable to fill the official role of TM given the circumstances and the results of the voting. With that said, it is understandable though given the situation and circumstances and I suppose this is the next best compromise for the DAO. The compensation requested seems reasonable given the risks of the bear market, low yields on many farms, Yieldchad not having any multisig access, as well as many other potential issues that could arrive. Lots of hurdles to overcome to perform well in this role, but I have faith in his abilities based on our discussions. Lower AUM allocations will eat into yields a bit as a % of profits, so it would be nice to determine the allocation allotted beforehand although this may be difficult and will likely fluctuate with future redemptions. The “hurdle rate package” you proposed in response to Ruian would also work but may actually be less advantageous for WL if we do enter a bull market as we will pay a larger % of our profits to management fees. This hurdle rate package also may encourage more risk taking, more directional exposure, etc. as it encourages attempts to meet the hurdle for a higher profit % (not sure if we want to encourage this?).

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Active Investment Managers are typically paid a reasonable base fee + an incentive fee for outperformance relative to a benchmark/hurdle rate. The incentive fee should be subject to a high watermark and ideally based on a longer term timeframe for measuring performance (3-5 year total return). I agree with @ruian11 that the presented hurdles are quite… erhm… low. Simply staking AVAX will yield between 8%-9% unlevered. The whole thing needs reworking so hes incentivised, whilst also being a good deal for WL. I dont like the short term nature of the appointment -continuity is important when managing money. Happy to chat further and provide deeper thoughts/insights. Thx

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I’m really happy to see this proposal, it’ll be an obvious yes from me. I’m also pretty annoyed that this process is even necessary but I have great respect for your steadfast commitment to respect the governance process. I can’t wait to see this breeze through and get to work.

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agreed, I think adding official advisors to the roster is worthwhile in and of itself.

@yieldchad what would the underlying role of an advisor be? To suggest strategies? To what extent would you be rewarded for this? Or would the role more likely be to analyze potential strategies brought to the table? For instance, could you delegate your duties further and reward those who bring you profitable suggestions by use of your “performance fee”?

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From a legal stand point are we still in the clear if we have an advisor that is US based?

Given the unfortunate circumstances, this is the best compromise we have.

Fully support.

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What im wording if this compensation is additional to the 15k salary per month? Or is the carry on the returns the only compensation?

Generally his proposed compensation is pretty fair. 5% - 10% carry on the generated profits is a normal rate for the industry.

But for 7% return we dont need a treasury manager if you ask me. I think should do the incentive/carry structure in a way that it increases a lot when we generate more profits.

For example:
Treasury base case return >5% = YieldChad incentive 0.5% of returns
Treasury base case return =10% = YieldChad incentive 5% of returns
Treasury base case return >15% = YieldChad incentives 10% of returns…

Numbers can vary but you get the idea…

We should’nt pay someone a lot of money for having a stagnating treasury… We could probably do that as a DAO.

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Hi,
I understand the reason why @yieldchad can’t be a TM but TA.
Now, who will be the TM or as mentioned in the proposal, who will be the authorizing committee who will actually execute TA’s recommendations? Do we have them in place now or are we planning to recruit a new team for this? I’m not quite sure so checking on this.

My main question here is, with this structure, are we opening a new position just to onboard @yieldchad and we as a community paying extra compensation for TA and the committee?

I would like to clarify this point before going into any compensation discussion for @yieldchad

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Fair point and will present two compensation packages for vote in the RFC - one with a hurdle structure as you mentioned.

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Yieldchad - thanks for the response. The main value of the TM position is to place financial decision making into the hands of a capable & accountable person. This is a highly specialized skill set that the common DAO member doesn’t possess and I don’t believe the DAO should be voting on individual investment activities (it would be too slow & uninformed). The proper mgmt fee structure and incentive package should communicate the DAO’s preference on risk appetite. I think your skill sets are solid for the TM position but I think it is prudent for WL to first find someone who can lead from the front before picking & paying for an advisor that would most likely lead from the back.

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2 important points & a question that need to be reinforced and integrated which could be important for the informed voters:

  1. a predetermined allocation of funds for the TM to manage
  2. a longer tenure would be more advantageous both from a strategy development and risk aversion perspective
  3. IS there an exit clause that can be executed by either the TM or WL based on performance or inability of the advisor to perform his duties to personal reasons?
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I would like to have someone who can judge what is necessary for the job look at yieldchads qualifications. That could be someone in the industry who is TM for another big project, or it could be someone from another Defi project, or someone from other fintech.

It would be worth spending some money for someone to analyse candidate(s) and suggest a remuneration package respective to what the actual work will be.

How much actual work is this for a month? Why pay 200k per year for a strategy that gets worked out in a week, and then takes a few hours a week to operate? Isn’t this something we can do ourselves?

The baseline, earning zero, should be whatever minimum strategy we can work out between ourselves. We only want to pay for something over and above this.

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@yieldchad

This compensation plan should optimise the risk-return ratio for wMEMO holders.

This compensation package has two clear flaws.

  1. This package incentivises risk-taking. Currently, the majority of coins is in stables, we are risk-averse. What prevents a TA/TM from putting all of the treasury in volatile assets?
  2. The package disincentivises obvious value-creating measures such as buybacks below backing, and redemptions below backing. For Wonderland these are real arb opportunities to increase the value per wMEMO.

Without incentives to perform buybacks and redemption actions and incentives to be risk-averse, the risk/return for wMEMO holders is not optimised.

I’d be in favour of a stable salary, e.g. 100k for half a year.

If you’d really want a flexible component, it is very difficult to align the incentives to optimise risk/return. One way to do this is to have a flexible bonus component, voted by the community. E.g. 50k for half a year + 0-100k bonus, dependent upon snapshot vote by the community.