Scope:
Request DAO approval to purchase an additional $4.5mm in Chicken Bonds
Current Governance Limitations:
Per WIP #27:
Any seemingly valid strategy has to be properly vetted by the Risk Officer, voted by the treasury council and go through the proper governance process when applicable.
While the proposed investment can be voted by the Treasury Council, the above guidelines cannot be followed as expected due to the current lack of Risk Officer, a TMP is being used to assist treasury personnel with decision making by having the DAO review the proposal, assess the risks and make the final decision.
Objective:
- Purchase $4.5mm LUSD and deploy through Chicken Bonds.
Rationale:
The Wonderland Treasury still has a lot of unallocated funds and given the current market conditions there are limited opportunities. It is believed that the nature of this proposal is relatively safe and will provide decent returns while waiting for market conditions to improve.
This is a fairly straightforward stable farm strategy with relatively low risk. In the absence of a Risk Officer, the DAO is being asked to accept the risk by providing its approval.
Plan/Strategy:
Wonderland currently has roughly $2.5mm in Chicken Bonds deployed and Treasury Operators (TO) are seeking DAO approval to deploy an additional $4.5mm (for a total of $7mm).
The purchase of LUSD will be made in small amounts (e.g. $500,000 to $1mm) to minimize slippage, and timed to take advantage of price dips in LUSD.Total allocation deployment may take a few days to take advantage of dips in the price of LUSD. The LUSD will be used for depositing and creating Chicken Bonds (using Liquity.app) as LUSD is accrued.
Example bonding yield scenario:
While a Chicken Bond has no end date, it does present a few milestones (e.g. break even date & optimal rebond date). This bond could be canceled at any time to recover the initially deposited LUSD.
- Wonderland deposits $1,000,000 LUSD to create a Chicken Bond on December 5th.
- Break-even date would be January 3rd
- Rebond date would be January 23rd.
Estimated yield would be 27.24% Max APR under current market prices assuming continuous bonding and claiming at the rebond time.
Assuming an investment of $4.5mm and a yield of 27.24% APR , Wonderland would achieve a yield of $3,358 per day.
Realized yield may fluctuate based on a wide variety of factors. The Treasury Operators will monitor the positions to maximize profitability and manage risk.
Chicken Bonds Background:
Chicken Bonds is a novel bonding mechanism which allows protocols to bootstrap liquidity at minimal cost and provides better user protection than existing bonding alternatives.
Bonding offers an amplified yield-earning opportunity for LUSD holders. Holders can “Chicken Out” at any time, effectively canceling their bond and claiming their principal back. This makes bonding a low risk endeavor for Wonderland aside from some minimal risks (detailed below).
Bonding LUSD in exchange for bLUSD will offer Wonderland a boosted yield compared to depositing LUSD in the Stability Pool.
Docs/Resources: Official Chicken Bonds Documentation - LUSD Chicken Bonds
Snapshot:
https://wl-l.ink/Snapshot/TMP-8
Voting options:
- Approve Deployment
- Deny Deployment
Risks/Concerns
Redemption Impact
Chicken Bonds will be considered liquid as they can be redeemed at any time by “Chickening Out” to regain the original principal deposited. Therefore, there will be no impact to the redemption price.
Sifu Vision (SV) Exposure
SV currently has $9.2mm in Chicken Bond exposure. Wonderland owns roughly 60% of SV tokens, giving us an additional $5.5mm in SV exposure to Chicken Bonds.
LUSD Price Risk/Peg Stability
There is some price risk as LUSD has been trading over peg for several months (currently trading at $1.03), and could peg back to $1 (or depeg under $1). The TOs believe the likelihood of LUSD depegging below $1 is very minimal due to the overcollateralization of LUSD and lack of centralization risks.
Smart Contract Risk
Since Chicken Bonds deposit funds to B.Protocol and the Yearn Curve LUSD vault, users implicitly assume the smart contract risk of those external protocols when using Chicken Bonds. Chicken Bonds, Liquity.app, Yearn, and B. Protocol have all undergone audits.