This proposal outlines a strategy for earning revenue from the ShapeShift Tokemak reactor. Specifically, the DAO would fund the reactor with between 20-30 million FOX, and in return would likely generate a substantial revenue stream in the form of TOKE rewards.
The Big Picture
The ShapeShift DAO is sitting on a large amount of untapped potential in the form of its extensive FOX treasury (roughly $300 million at the time of this writing). Thanks to DeFi, there are myriad ways in which we can generate yield on those assets. That revenue, in turn, could potentially be used for treasury diversification and redistribution to FOX holders, and employed in other beneficial ways.
What’s the potential upside?
Assuming current prices of FOX and TOKE, as well as an average Fox Reactor APR of 50% (currently it’s at 57%), a deposit of $30 million worth of FOX would generate about $1.25 million in TOKE rewards per month. ($30 million at 50% = $15 mil/yr or $1.25 mil/mo)
Note that this proposal entails funding of 20-30 million worth of FOX - not $20-30 million USD worth of FOX. This amount is of course identical if FOX is at $1.00. The USD amount is used above for the purposes of calculating potential USD rewards.
TOKE also bears significant value to ShapeShift DAO as the governance token of the Tokemak protocol, which is used to allocate both TOKE rewards and vault liquidity, helping secure deep FOX liquidity and offsetting the need for ongoing liquidity mining programs.
Further, TOKE rewards can also be staked for additional TOKE yield of 50%+ for maximum yield.
What are the potential downsides and risks?
Due to the “balancing game” mechanics behind Tokemak, a sizable deposit of FOX would lead to a substantial decline in the reactor’s APR for FOX rewards–not great for those staking FOX in the pool. However, the very same balancing mechanics would likely lead to a recovery in that APR within a few days: when the APR on the FOX side of our reactor goes down from a large deposit, the APR on the TOKE side goes up, incentivizing the “rebalancing” of the rewards. This, in turn, should encourage TOKE voters to balance out the reactor and bring rewards back up to match the deposit.
With respect to risks: in the worst-case scenario, a smart contract bug or exploit could completely drain our Tokemak reactor, leading to the loss of all of the DAO’s reactor-held funds. 30 million FOX at $1.00 would represent roughly 10% of the DAO’s treasury. While the DAO would live to fight another day, losing up to 10% of its treasury would certainly be an unwelcome development–a setback in terms of both optics and almost certainly the short-term price of FOX.
However, this proposal assumes that the risk of a smart contract is small enough to risk a relatively large about of FOX. Tokemak has been live for several months, has a published audit from Quantstamp (https://certificate.quantstamp.com/full/tokemak), and is currently protecting more than $850 million in TVL (Tokemak Protocol: TVL and stats - DefiLlama). This suggests (although certainly does not guarantee) that there are no game-stopping smart contract bugs lurking in the shadows. Similarly, the game theory behind TOKE has worked fabulously thus far, as seen by its steady success across various projects’ reactors. This also bodes well for its continued success.
Given Tokemak’s track record of liveness and security thus far (including, more recently, our own reactor), the risk/reward profile of this proposed strategy appears favorable enough to pursue it.
What exactly does this Proposal do?
YES: Between 20 million - 30 million FOX tokens (with the amount to be determined during this ideation period) would be deposited into the FOX Tokemak reactor.
NO: No changes are made.
- What maximum amount of FOX would you support using in this strategy?
- 20 million FOX
- 25 million FOX
- 30 million FOX
- I do not support this proposal.