[RFC] Earn Yield on our 25m in ETH and BTC

Governance Archive [RFC] Request for Comment
1
  • Mint GLP on the GMX platform instead of holding raw BTC and ETH
  • Make No Changes
0 voters

Name: [RFC] - Earn Yield on our 25m in ETH and BTC

Scope: Wonderland should earn a safe yield on its 25m BTC and ETH position by using its BTC and ETH to mint GLP, a token paying 15-20% yield in ETH on the GMX platform

Link to previous [DAO Discussion] (GLP gained a majority of votes in the poll)

Objective: There are four objectives for this proposal:

  1. The core objective is to utilize our treasury assets more productively and earn a yield to increase treasury size or enable a higher revenue-share
  2. The first byproduct of this proposal is that Wonderland can move more of its operations on-chain, reducing any trust-vulnerability in executing TradFi style OTC transactions
  3. The second byproduct of this proposal is that Wonderland gains instant liquidity for buying or selling BTC and ETH through GMX rather than having to carry out slow transfers onto CEXs or OTC transactions which also take time to set up.
  4. The fourth byproduct of this proposal is that it enables Wonderland to more quickly deploy delta-neutral strategies in the future, per YieldChad’s previous proposal.

Provide a High Level Overview: GMX is a trading platform on Arbitrum and Avalanche, and GLP is a liquidity token on this platform. GLP can be seen as akin to a basket of BTC, ETH and USD and GLP can be minted or sold freely for its constituent assets. GLP holders are paid various fees for providing liquidity to GMX traders.

If this proposal succeeeds, Wonderland should bridge its WBTC and ETH to Arbitrum using the most efficient method and mint GLP using those assets. In order to increase or decrease exposure to BTC and ETH in future, Wonderland should mint or sell GLP, bearing in mind any future risks to GLP at the time.

Provide Low Level Details:

Currently, our treasury holds slightly more than 25m in BTC and ETH. These assets provide no yield and are acquired and sold through OTC trades which are slow, off-chain, not transparent and not trust-minimized. Wonderland should get its BTC and ETH exposure by holding GLP. Certain questions arise in executing this: (1) should GLP on avalanche or arbitrum be used; (2) how much liquidity is there for selling GLP into USDC; (3) what are the risks associated with GLP and are they acceptable; and (4) does this proposal tie the hands of our treasury team?

  1. Wonderland should prioritize investing in GLP on Arbitrum rather than on Avalanche, but subject to the need for maintaining sufficient exit-liquidity it can also invest in GLP on Avalanche. Although GLP on Arbitrum is paid a lower esGMX yield than GLP on Avalanche, Arbitrum is preferred as it has more than 2x the liquidity (250m vs 90m) and aligns with Yieldchad’s delta-neutral strategy as he outlined in his aforementioned proposal. Further, the esGMX yield vests over a significant period of time and is slightly less important to Wonderland than the yield paid in ETH. Finally, yield paid in ETH is more attractive than yield paid in AVAX, as Wonderland already has significant exposure to AVAX through its AVAX Liquid Staking project and in general ETH is considered a ‘better’ asset.

  2. How much liquidity there is for selling GLP into USDC: There is close to 100m of USDC, DAI and FRAX on GLP-Arbitrum. This enables Wonderland to safely acquire relatively large positions in GLP while being able to exit to USD-stablecoins. Even in the case where the composition of GLP is heavier on BTC and ETH, both those assets are also highly liquid and it is not problematic to sell GLP into them, and later sell those assets on other platforms or CEXs/OTC transactions as a last resort. If there are reasonable concerns by the treasury manager/advisor/council/operator as to the sufficiency of exit liquidity for GLP, then it is not necessary to attain exposure to BTC/ETH through GLP. To the extent that there are no such concerns however, this proposal necessitates that GLP ought to be the medium for BTC and ETH exposure.

  3. There are two main risks to GLP:

The first risk of $GLP is smart contract risk. The smart contracts on GMX have been audited and currently contain a TVL greater than $USD 200m across Avalanche and Arbitrum. They have not been exploited in the past despite the > 350 million dollar incentive that exists to do so (if you can exploit GLP and steal the underlying assets, you would gain close to 350m in BTC ETH USDC and other assets). Further, given the popularity of GMX as a platform, several commentators have examined GMX’s smart contracts and have generally not found exploits. One such piece of mature commentary and the corresponding response by GMX’s main dev can be found here.

The second risk of $GLP is that $GLP act as “the house” where GLP holders win when traders lose, and vice versa. Leveraged traders have consistently been unprofitable on the GMX platform. However, there is a foreseeable risk that in a grey swan event, traders win en-masse and $GLP holders experience depreciation of $GLP. This risk is slightly mitigated in a bull-market where traders win on longs as the BTC, ETH and AVAX component of $GLP would also appreciate and slightly offset trader-winnings. This risk is exacerbated in bear-markets where traders win on shorts as $GLP loses value both from traders winning and from the depreciation of BTC, AVAX and ETH. Over the past year of trading on GMX, traders have been consistently unprofitable. This pattern is not unique to GMX, it is relatively well-known that as an aggregate, traders tend to be unprofitable and this can be observed on other platforms such as Gains Network as well. Note, these are not the only two risks to GLP, but they are two that were selected as among the most prominent and clear risks.

  1. Does this proposal tie the hands of our treasury team? No, this proposal is not intended to force the treasury team to always use GLP no matter what. As mentioned above, there are limitations to GLP and those limitations can change day to day – it is for the decision-makers at Wonderland to assess the situation and make decisions based on risk, liquidity, transaction costs, urgency, and other factors. Further, if a comparable alternative to GLP with better risk-adjusted yield ever were to arise, this proposal should not prevent the team from deciding to redirect GLP-investments into the alternative. The goal of this proposal is to upgrade our investments in raw BTC and ETH to GLP, but not to hamstring Wonderland from finding even greener pastures elsewhere in the future.

Business and/or technical requirements of the implementation of the proposal:

GLP ought to be minted by directly depositing the treasury-held BTC and ETH on the GMX-Arbitrum platform in exchange for GLP. When minting GLP, one has a choice of using either BTC, ETH or USDC (among other assets) to do so. Different assets have a different minting-fee associated with them.

Currently it is cheapest to use BTC and ETH to dierctly mint GLP on GMX-Arbitrum, and those are conveniently also the assets our treasury has already. This whole series of transactions can be carried out within a day with relative ease, even accounting for the relatively slow speed of multi-sig transaction signing and execution. If this proposal passes, the multisig ought to immediately begin the processes required to swap our BTC and ETH into GLP.

Lastly, it should be clarified that this proposal does not impose a specific amount of BTC or ETH exposure on Wonderland or introduce any new processes by which managing members can utilize treasury funds. Instead, pre-existing procedures for attaining approval prior to using treasury funds are unchanged and it is by following those procedures that the Treasury Manager, Treasury Advisor, Treasury Operators and Trade Teams, as well as the Treasury Council (TOs, TTs and TC are all references to WIP 15) can decide how much exposure to BTC or ETH (through GLP) is appropriate.

Edits from Feedback

  1. Comments have been generally supportive but indicate a desire for keeping position sizing to <15% of Wonderland’s portfolio, or in this case around 10-15m. In line with this, Yieldchad has also indicated his view that 12.5m spread across Avalanche and Arbitrum would be well-sized. Deal has further mentioned that this proposal should indicate a figure for the GLP position rather than leaving it purely to discretion without any starting point. Accordingly, this proposal will now incorporate these suggestions as a soft-target that should be adhered to unless circumstances were to materially change or the risks inherent to GLP were to be seen by the treasury team as more significant than this proposal implies. In other words, if this proposal passes, the treasury ought to allocate 12.5m USD to GLP (and proportionally reduce BTC and ETH holding to reflect the transferrance of crypto-exposure from BTC and ETH to GLP). Further, this GLP should be spread across GMX-Arbitrum and GMX-Avalanche evenly.

  2. A misconception about this proposal (due to imprecision in my language) has been that by replacing 25m in BTC and ETH with 25m in GLP, we will half our exposure to BTC and ETH. What I meant in reality was that we will use GLP to mimic the same exposure to BTC and ETH, which would imply an even greater amount of GLP. Now that a soft-limit to GLP exposure at around 12.5m has been suggested, this means that around 6-7m of BTC and ETH would be replaced by GLP (as GLP is 50-55% represented by BTC and ETH, among other cryptoassets).

Since an RFC is a “work in progress” Proposal, not all of these points need to be filled out from the beginning. They can be added over time as the RFC evolves into a mature Proposal.

8 Likes
3

This is a no brainer, and we are leaving money on the table. If we want directional exposure, why not having something we can farm as well (current APR 21% paid in Eth). For those not familiar with Abritrum GLP, buying the token would give us the following targeted exposure (fluctuates slightly):

Eth (28%)
BTC (25%)
USDC (36%)
DAI (5%)
USDT (2%)
Chainlink (1%)
Uniswap (1%)
Frax (2%)

6 Likes
5

Mint the damn GLP already :smiley: At the very least it can fund our gas supplies in eth :slight_smile:

7 Likes
6

What if we lose 25 million?

7

Our treasury is 122m putting 25m into a single protocol is way out of the risk curve!

I would not risk more then 10% of our treasury into a single protocol.

Clear NO! for me.
5-10m into GLP is enough!

3 Likes
8

Let the cryptos work!

Perhaps a little more diversification? Why not using some other yield generating projects?

e. g. SNX, (pls)DPX, (cnx)CRV

1 Like
9

What we should do is deposit our 25m BTC and ETH into AAVE → borrow 40% ETH against it and deposit the borrowed ETH into GMX!

2 Likes
10

I’m not sure I follow. We are already in a position to lose money when we carry out offchain OTC transactions, buy speculative crypto assets such as SIFU, BTC, ETH, SPELL, CVX, etc.

The question is more of, what are we investing in and what are its risks. I have outlined the risk profile of GLP and GMX is an audited project with a track record and VC support. Nothing is immune to hacks but if Wonderland is about taking calculated risks on its funds to earn a reasonable return, GLP is objectively worth considering.

Its up to voters to consider the risk and reward and decide if its worth it.

11

If I had to choose a specific number I think a $10mm to $13mm allocation would be acceptable. Keeps it under the 10%, as you mentioned. We need to also keep in mind the opportunity cost of not farming as much of the treasury as possible, which is losing 5-10% a year to inflation (roughly $10mm a year at current treasury values lost to inflation). Not suggesting we take unnecessary risk, but we do need to be more aggressive at allocating to farms.

7 Likes
12

Arguably we put 18m into a totally speculative project with no track record, BSGG, and another 25m into Sifuvision after it had just lost a large % of its funds after the UST depeg due to an overconfidence in the UST peg (and I’m not being retrospective by saying this, you can search for my criticism of the UST concentration at SV 1-2 days prior to the depeg on the SV discord).

So I personally would be fine with 25m in GLP when comparing it to those previous investments. In any case, I do not wish to dictate the quantity of investment Wonderland should do in GLP as that discretion and consideration of the risks is up to the treasury team. If they view the concentration risk as significant, they will adopt your stance.

I would have rephrased the poll above to reflect this proposal’s agnosticism to the position-size of GLP, but I can’t amend it. In any case the proposal does go into detail about how the discretion of the treasury team in sizing the trade is untouched by this proposal so if you trust your money in wonderland to begin with, you trust their discretion on this matter.

1 Like
13

Do see my response to xdcc’s comment as it adds colour to the discussion you are having in your comment as well.

14

While you do present some interesting points about how much risk appetite we’ve had in the past, it doesn’t necessarily mean it should be repeated. The comparison to Sifuvision isn’t really valid because Sifuvision is quite a bit more diversified now (although I guess that can change). I think Sifu has a more diversified portfolio after the UST fiasco, in which his tokens dropped over roughly 60% due to overconcentration to UST. Definitely a lesson to be learned from that. You state you would like to leave the amount up to the treasury team, but that role is really being filled by the council in the interim (hopefully they will comment too). I would love to see Yieldchad’s opinion on a target allocation. As a comparison metric, SifuVision is currently sitting at 17% GMX exposure between Avax/Arbitrum networks so that gives us a 3% GMX exposure at it currently stands (indirectly through SV tokens).

2 Likes
15

Yes, I agree. The risk to consider is losing 25 million. Just putting it out there.

3 Likes
16

Hi, I like the idea!
I would say that maybe distribute the risk using 2 or 3 different protocols might be good as well… use the 10%, but distribute it between GMX, and other protocols… that way, we are not risking all the 25m at the same time in one protocol, if it get hacked, or depeged only 3-5% of treasury is lost… I understand yield will not be the same… we will not get as much yield, but it should be safer.

3 Likes
17

We have $130mm to allocate, farm, and/or invest. If we can’t allocate most of it to achieve any kind of return we should consider returning some of it in the form or stablecoin rev share to holders IMHO. With that said, I think the SAFU/high APR ones like GMX should have higher allocations. 3-5% allocated to GMX would be pretty insignificant. Not saying we need to dump $25mm here, but perhaps a 10% allocation would be good.

4 Likes
18

The fact that this isn’t already being done is disturbing.

This should be an implicit part of the TM’s/TA’s return generating strategy.

3 Likes
19

I strongly support this proposal. With regards to sizing:

$25mn too much

$5mn too small

$12.5mn feels just right at around 10% of treasury. This % will increase after the coming October redemption.

In the future, I would be comfortable going with more size as GLP matures and TVL grows, reducing chance of an exploit.

I would split it half on avalanche half on arbitrum to diversify risk.

6 Likes
20

As a general note, until we have hedging in place, I will not advise any directional exposure, as mentioned in my TM application - I largely avoid directionals. I have been waiting to work out an arrangement with a prime broker so that we can hedge this exposure.

Once this is arranged, an investment into GLP would have been advised to the treasury council, but with this RFC, it is no longer necessary.

Hope this makes sense.

21

For reference: previous funds I have worked on were limited to a max 15% portfolio allocation to any one investment.

3 Likes
22

Seems reasonable to me. Crypto is very risky so 20-25% in any one protocol is definitely risky for sure.

3 Likes