[Incubation] Porter Finance Launch Partnership

Summary

Gm Foxes! :fox_face:

I’m Jordan Meyer from the Porter Finance team. At Porter Finance, we are creating a protocol for DAOs to borrow against their project tokens at fixed rates with no liquidations. We believe our products can be of great benefit to the ShapeShift DAO and we would be honored to have ShapeShift DAO as a launch partner. In return for launching with us, ShapeShift DAO will receive ownership in our protocol and have all fees waived!

Abstract

Porter Finance will be launching our first products in the next month: Simple and Convert bonds. These instruments allow DAOs to borrow at fixed rates with no liquidation risk. Here’s how they work:

Simple

This is our take on a simple DeFi bond. They are intended to be sold to investors at less than $1 and redeemable at maturity for $1. The difference between the sale price and $1 creates a return for the investors. To create Simple bonds, a DAO chooses some configurations (maturity date, amount, number and type of collateral tokens), deposits collateral, and mints the bonds to their wallet. The bonds are then sold via auction or OTC through the Porter Finance marketplace. At maturity, $1 is repaid for every bond sold. Refinancing can be handled through a new issuance.

Convert

This is our version of a convertible DeFi bond. It is functionally identical to Simple except it adds convertibility. This allows the lenders to exchange their bonds for some collateral tokens up until maturity as configured by the DAO. This gives a call option to the bond holders while reducing borrowing costs for DAOs.

We propose ShapeShift DAO use either Simple or Convert bonds to eliminate your current interest rate risk and liquidation risk.

Motivation

Currently, ShapeShift DAO is taking on interest rate risk and liquidation risk while borrowing in Tetranode’s Rari Fuse pool. These risks should not be taken lightly. Earlier this year, while borrowing from the Fox and Frens Fuse pool, ShapeShift’s borrower interest rate went from single digits to 28% when lenders withdrew their capital from the pool. The variability of rates presents an existential risk to ShapeShift’s access to credit.

In addition to interest rate risk, ShapeShift DAO also takes on liquidation risk. If the price of FOX were to fall precipitously during a flash crash, ShapeShift DAO’s lending position could be liquidated at ridiculously low prices, creating painful losses for the DAO. Taking out a loan through Porter will eliminate the interest rate risks and liquidation risks ShapeShift DAO currently faces.

In true web3 fashion, ShapeShift DAO will also receive ownership in the Porter protocol for being part of the launch cohort. This aligns Porter with ShapeShift DAO’s interests and also rewards ShapeShift DAO for their early support.

Specification

Issuance specifications

Issuance specifications will be determined after community input.

Compensation specifications

We propose compensating ShapeShift DAO with 0.00000005% of the Porter fully diluted supply per bond issued and sold at launch. For example, if ShapeShift DAO issues and sells 5M bonds, they will receive 0.25% of Porter FDV. If we assume Porter to be valued at $100M FDV, this equates to $250k. This should act to subsidize ShapeShift DAO’s borrowing costs with a venture investment unavailable to other investors. We have not yet released our governance token, therefore ShapeShift DAO will receive either an NFT or ERC-20s that will be exchangeable for Porter tokens upon release.

Additionally, we will wave the 1% fee we would normally charge on any debt issued.

Benefits

  • ShapeShift DAO will be removing liquidation risk and interest rate risk from their lending positions.
  • ShapeShift DAO will receive ownership in the Porter protocol, subsidizing their borrowing costs and aligning our interests.

Drawbacks

  • Borrowing at a fixed rate with no liquidation risk increases the risk a lender takes. Therefore, ShapeShift DAO may pay higher interest rates than what is offered in Fuse at the moment. Currently, ShapeShift DAO is borrowing from Fuse at ~5% variable rate with ~400% collateralization. At the same amount of collateral, Porter can offer an ~11% fixed interest rate.
    • However, if ShapeShift DAO increases the amount of FOX they are willing to use as collateral, that Porter borrow rate can decrease to as low as 5.5% fixed.
    • ShapeShift DAO could also reduce their borrowing cost by making their bonds convertible into FOX tokens. Currently, a Convert bond with 400% collateralization convertible into 1 FOX token ($0.38 at time of writing) would provide ShapeShift DAO a 5% fixed interest rate.

Vote

Vote options will be determined after community input.

Gratitude

Thank you for your time and attention. I’m energized by what ShapeShift is doing and I can’t think of a better launch partner for Porter!

4 Likes

Thank you for posting this @Jordan - I am very interested and excited for the potential of the DAO to try out Porter and be a launch partner. On top of that the ability to gain some governance tokens this way would be an awesome added benefit.

Definitely interested to push this proposal forward and continue to iterate on ways for ShapeShift and Porter to work together!

2 Likes

Thanks for being so methodical with this process, Jordan…this proposal is a great follow-up to the info you’ve dropped so far on our calls. Looking forward to digging in and finding ways we can make this work.

3 Likes

I also support this method for the DAO to diversify its treasury. I look forward to a discussion on what parameters we might launch this with.

3 Likes