[1RC] Simple diversification mechanism for 1inch DAO Treasury

1inch DAO General Proposals
#1
  • (Yes) In favor of this proposal.
  • (No) Against this proposal.

0 voters

Simple Summary

This proposal seeks to diversify the 1inch Network DAO’s Treasury composition be enacting the following strategy:

  • Do not exchange a whitelisted set of tokens for USDC before sending to the 1inch DAO Treasury.
  • These whitelisted tokens shall be: ETH, WETH, WBTC, DAI, and USDT.

Abstract

Currently, all of the Swap Surplus revenue stream is collected in varying tokens and swapped to USDC before being sent to the 1inch DAO Treasury. To start the diversification process of the treasury funds, the protocol can keep some incoming Swap Surplus tokens as collected (not swapping them for USDC).

This proposal aims to whitelist the following tokens for this treasury collection strategy:

  • ETH
  • WETH
  • WBTC
  • DAI
  • USDT

Motivation

The 1inch DAO Treasury is 100% composed of USDC. USDC is a fiat-backed stablecoin pegged to USD managed by Circle.

USD experienced record inflation over the last 12 months, and will experience some degree of inflation for perpetuity. As such, the marginal spending power of the 1inch DAO Treasury is weakened unless the DAO deploys the funds in a manner that can outpace inflation.

These assets are viewed as risk-on diversification assets for the treasury:

  • ETH – the native asset of the Ethereum blockchain
  • WETH – ETH wrapped in an ERC20 wrapper
  • WBTC – Bitcoin (BTC) is the oldest and largest digital asset. WBTC is Bitcoin wrapped in an ERC20 wrapper

Stablecoins also have inherent risks such as smart contract risks and centralization risks. Diversifying the stable coin holdings of the 1inch DAO Treasury aims to hedge against these risks. These assets are viewed as risk-off assets for the treasury:

  • DAI – the decentralized collateral-backed stablecoin issued by the Maker Protocol. DAI is soft-pegged to USD
  • USDT – the fiat-backed stablecoin pegged to USD and managed by Tether

Specification

To implement this proposal, GovernanceLeftoverExchanger should transfer ETH, WETH, WBTC, DAI and USDT directly to the treasury the same way it transfers USDC. All other tokens should still be converted to USDC as they are now.

Rationale

The crypto market cap took a decline in recent months. With token valuations depressed, it may be a good time to start accumulating non-stable tokens to grow the treasury.

Since exchange transactions cost some Ether to pay for the gas fees, eliminating the swapping step for these whitelisted tokens will increase the capital efficiency of this operation. It is also for this reason that large stable coins such as DAI and USDT, should be sent directly to the treasury.

Considerations

The current stablecoin composition of the 1inch DAO Treasury ensures that the Treasury is insulated from bearish market cycles. However, this also means the treasury’s funds have no way to keep pace with the rise in inflation. Adding ETH, WETH and WBTC increase both the risk and the potential rewards.

This proposal does not call for any actions to be taken with the funds currently held by the 1inch DAO Treasury.

7 Likes
[1RC] Collect 1inch DAO Treasury Revenue in 1INCH Token in Addition to USDC
[1RC] Collect 1inch DAO Treasury Revenue in 1INCH Token in Addition to USDC
[1RC] Collect 1inch DAO Treasury Revenue in 1INCH Token in Addition to USDC
#2

Good Point .

  • Out of All 5 options , WBTC is the only 1 I’'d vote for
  • Eth and USDT have infinite supply & thus i don’t want treasury funds to be in such assets .
  • INFACT , If possible i’d like to put forth a suggestion towards @zumzoom to build a contract that auto buy the dips or use DCA to accumulate more BTC or 1inch from Big Dumps like - 20 to - 30% .

Also , 1inch RN is at heavy discount and 1IP-09 also hints towards buying 1inch from market to be used in governance .

MY Recommendations -

BTC & 1inch

1 Like
#3

I disagree on this. Personally, I’m far more into ETH as a store-of-value asset than BTC. If I had to vote one of those assets off the list it would be WBTC, but I don’t see any harm in keeping a little of it.

EIP-1559 introduced fee-burn (deflationary pressure). Combine that with the PoS merge that will occur in a few months and ETH will be fully deflationary by end of year (years before Bitcoin will ever be at a net issuance of 0).

However, I recognize that some others see real value in BTC, so I don’t think it is a bad asset to add to the treasury.

Also , 1inch RN is at heavy discount and 1IP-09 also hints towards buying 1inch from market to be used in governance .

Stay tuned for another governance proposal coming :eyes:

4 Likes
#4

Burning implemeted to control printing but btc doesn’t need it because of finite supply . Just Imagine if BTC start burning like that …

Better be Good …

1 Like
#5

I don’t really want to get too far into the BTC vs. ETH debate, but I wanted to address this point you make here before I pass the mic:

Just Imagine if BTC start burning like that …

BTC daily fee revenue is consistently <10% of the daily ETH fee revenue. BTC still wouldn’t be deflationary even if they started burning their fees today. On top of that, the Bitcoin network cannot burn its fee revenue without totally changing its longterm economic security plan which currently hinges on sustaining the PoW miners through purely fee revenue once the last new BTC is mined in ~100 years.

2 Likes
#6

That High Fee mostly comes thro High Gas costs because of congestions user has to pay to use Eth chain . One we transit to pos & sharding fee will reduce & so will the gas cost too .

1 Like
#7

Totally understand the discussion around value of different assets proposed. There is a little reference that wasn’t clearly stated in the proposal. Historically, those (ETH, WETH, WBTC, DAI, USDT) are the top 6 most popular assets in DAO treasuries .

Also, dropping here a Dune Analytics query made by @Belac that showcases pretty much the same distribution.

2 Likes
#8

Once we transit to pos & sharding

PoS is scheduled to happen in autumn which will cut ETH issuance by heavy margin. Sharding on the other hand is not scheduled and with all those L2s can easily not happen at all. So I wouldn’t expect radical fee cut on Ethereum in the near future.

3 Likes
#9

Then it Maybe Better to get that 32ETH buyback from treasury which can earn significant yield as a POS validator after Mainnet goes Live …

1 Like
#10

I view this proposal as the first step towards more advanced treasury management strategies.

I really like the idea of tapping into the staking yields of ETH as they are a sustainable way to earn yield. Also, there is no need for us to run the validator ourselves – we can use liquid staking solutions by swapping the treasury’s ETH for Lido’s stETH or RocketPool’s rETH. That way we can get most of the yield of staked ETH without any of the work/worry of running a set of validators.

With that said, I’m 100% in favor of this proposal in its current form. It is an easy to implement way to start actually diversifying the treasury’s funds.

FYI – zumzoom is the Lead Blockchain Engineer and Architect in the group of 1inch core contributors. Awesome to see him here in the governance forum :slight_smile:

4 Likes
#11

This is a really nice and simple proposal, as it presents a simple first step to diversify the treasury. I like it for 3 reasons:

  1. It is automated. Once implemented, no manual action is required to maintain the strategy.
  2. It is scalable. As 1inch volume grows, so will the Treasury’s diversified basket of assets.
  3. It follows the 80/20 Pareto principle. Crypto has always been dominated by a handful of assets followed by a long tail of all the others, and this strategy focuses on the historical top performers.
3 Likes
#12

This is a great proposal. Strong support. There are small risks involved and the short-term return may not be huge but we believe it is an important step in the right direction.

It definitely matters which assets we want to include in the 1inch treasury. Given the current markets - severe downturn, more downside possible but long-term upside very obvious for top assets - the selected assets are stable &or of highest quality with long-term upside, hence fully agree with assessment:

  • USDC, USDT, DAI: Top 3 stablecoins

  • WBTC: Bitcoin is still the most secure, most decentralized chain and BTC has highest marketcap, solid upside potential and best downside potential if the bear is longer.

  • Eth/Weth: Ethereum is still the most dominant, secure, decentralized, smart contract chain and Ether is the native reserve asset on Ethereum, and mid-to-longer term the only real contenter to Bitcoin on monetary premium

4 Likes
#13

Agreed .

I Was also thinking if we Should Include Gold reserves in 1inch Treasury too like PAXG ?

2 Likes
#14

We like the simplicity of the proposal and its implementation (a cost/complexity improvement vs. today)

Additional active treasury management - whether that includes short-term trading, yield farming or long-term gold, even government bonds or stock - is probably more interesting in v3.

Re: Active management strategies: We’d also benchmark to stEth/rEth = ETH + 4%

5 Likes
#15

I like this proposal and as @tradersnow said it’s a passive/simple way to diversify the treasury.
Based on the surplus sold to USDC it seems a majority of the surplus will still always be in stable coins and could provide earning opportunities in the future with some sort of treasury management and would also make it easier for the DAO to use the more diverse set of tokens.

So far it seems the treasury has sold around 2000 ETH so I think it’s fair to say no buy-back of ETH is required if the treasury keeps the surplus ETH.

I don’t know of any decentralized gold other than on Synethix on Optimism. To redeem PAXG you have to go through paxos and since they have the authority to freeze/pause PAXG at any time it might not be the best thing to hold in a DAO. This is the same with XAUT, centralized by Tether and you must be allowed to trade it by tether.

I like the idea of converting the the wETH/ETH collected into ETH 2.0 staking derivatives. In fact, some has even been collected by the spread surplus in the past:

image
image1119×251 9.6 KB

I’m wondering if it’s worth exploring wrapping a portion of the stables up too. probably this idea is best for another proposal.

5 Likes
#16

With stETH currently trading at ~3.5% below Net Asset Value (NAV), and rETH trading at ~1.5% below NAV, this seems like a low-risk way for the treasury to obtain low-risk staking yield on any ETH it collects.

We’ll come out ahead as long as the following will occur before we actually need to spend those treasury funds on anything: a) the PoS merge will occur; and b) validator withdrawals are enabled.

I still see value in keeping some as vanilla ETH since ETH is, by definition, a more secure asset than ETH derivatives built on Ethereum. But, stETH trading at a lower price than its underlying value makes it extremely attractive as an investment.

TL;DR – ETH staking liquid yields are approximately 4%. stETH trading at nearly 3.5% below its value means that someone who purchases stETH at this discount, and holds it until validator withdrawals are enabled, will be making an additional 7.5% compared to vanilla un-staked ETH.

3 Likes
#17
  • ETH
  • WETH
  • WBTC
  • DAI
  • USDT

I don’t know but i’m still a bit hesitant to include USDT

Should be -

  • ETH
  • WETH
  • WBTC
  • DAI
  • 1INCH

And Buying Strategy can be

  • Switch from buying USDC with Swap Surplus revenue to buying 1INCH when the 30D Avg. Price of 1INCH is GREATER than Current Price
  • Switch from buying 1INCH with Swap Surplus revenue to buying USDC when the 30D Avg. price of 1INCH is LOWER than or equal to Current Price

Same can be applied to other assets like ETH & BTC With a buying weightage of 50% 1inch

2 Likes
#18

FYI – this proposal is live on Snapshot:

[1IP-12] Simple diversification mechanism for 1inch DAO Treasury
(see edit)

It looks like there was a miscommunication and the Phase-3 in-forum temperature check was skipped. I understand that is not idea, but I didn’t see any major gripes with the proposal so Phase-3 might have been redundant. Are there any objections with this counting as the canonical Phase-4 vote?

In the future I’ll be more proactive about progressing proposals to Phase-3 if it is clear that no further edits are needed. Or maybe we should look into making Phase-3 optional like Aave does in their governance? Thoughts?

Edit – The phase-4 vote has been cancelled and won’t resume until the proper phase-3 temperature check vote has run its course.

3 Likes
[1RC] Collect 1inch DAO Treasury Revenue in 1INCH Token in Addition to USDC
#19

If we use this and look at the data I collected we can see

  • ETH/wETH - $2,300,000 or 15% of the current treasury
  • wBTC - $173,000 or 1% of the current treasury
  • USDT - $1,400,000 or 9% of the current treasury
  • DAI - $700,000 or 4.6% of the current treasury
  • 1INCH - $12,000 or 0.08% of the current treasury

I’m not sure if leaving $1INCH as a leftover asset would seem viable. Buying back would expose the treasury to a lot more $1INCH if the other proposal passes though.

6 Likes
#20

We’ve heard your feedback and have canceled this Snapshot vote so that the proper phase-3 temperature check vote can take place.

I have edited this post to include the temperature check poll and moved it to phase-3.

2 Likes