[SCP-93] Request for additional allocation of FOX tokens to the TMDC

Proposal Discussion
1
  • This proposal is to authorize the Treasury Management and Diversification Committee (TMDC) to:

    Advise on the allocation of certain limited assets located within the ShapeShift treasury, amounting to a new total of 180M FOX tokens (current TMDC allocation is 120M FOX tokens)

Summary

The current Shapeshift DAO treasury’s available holdings of FOX amount to 125 M FOX (Shapeshift DAO Treasury Zapper Link

  • )

    Therefore, if this proposal was passed, the FOX within the Shapeshift DAO treasury NOT managed by the TMDC would now amount to ~65M FOX.

  • Sablier stream income to the Shapeshift DAO Treasury amounts to 162.5M Fox streaming through June 2, 2024 (Meaning total DAO Treasury holdings of FOX not managed by the TMDC now and through June 2, 2024 amount to 287.5M FOX)

    If this proposal passed, the FOX within the Shapeshift DAO treasury, including the sablier stream income, would decrease from 287.5M FOX to 227.5M FOX.

The TMDC was established for a trial period in SCP-36 in Nov 2021 and subsequently continued on an indefinite basis by SCP-62 in Feb 2022. SCP-36 authorized the TMDC to advise over the initial 60M FOX tokens to carry out its mandate. Upon nearing the exhaustion of the initial allotment (60M FOX; SCP-36), SCP-77 requested a renewed, similar allotment of 60M FOX tokens (with the new total of 120M FOX tokens under TMDC allocation) to carry on its mandates.

The TMDC may again exhaust its allotment of FOX from SCP-36 and SCP-77. Consequently, the TMDC is requesting a renewed, similar allotment of 60M FOX tokens to carry on its mandate. This would bring the amount managed by the TMDC to 180M FOX.

Abstract

If this proposal is passed, the TMDC will be authorized to advise on the allocation of an additional 60M FOX tokens in the Shapeshift treasury. This would bring the total allocation under TMDC advice to 180M FOX.

Motivation

This document summarizes the TMDC placements and outcomes since inception TMDC FOX Allocations - Google Sheets

  • . As can be seen from the “TMDC FoxAllocations” tab, From the TMDC inception (October 2021) to the middle of July 2022, TMDC made placements currently amounting to 86.76M FOX of the 120M FOX allocated.

    Most notably, the placement of FOX into the Olympus bond programs has resulted in the following benefits to the DAO:

    $10M in USDC has been accrued since October 2021 through our USDC Olympus bonds,

  • $6M USD equivalent in FOX/ETH LP tokens have been accrued
  • $862k worth of WETH was accrued. Olympus bonds accruing in a similar period, all while at the same time taking action to ensure payroll and operational expenses were met in USDC.
  • With 33M FOX of the 120M FOX tokens remaining and available for TMDC management, from SCP-36 and SCP-77, the TMDC is now asking for additional assets to advise placement on. If it is to be able to continue to fulfill its mandate and accrue stablecoins, a new allotment of FOX is needed.

    Authorizing a new allotment of 60M FOX will enable the TMDC to advise on the deployment of the additional tokens to acquire stable coins to meet monthly payments and to build resilience in the DAO treasury.

    Benefits

    Continue to stack stablecoins for the Shapeshift DAO treasury

  • Continue to make stablecoin payments
  • Improve TMDC’s ability to manage and create new balanced Defi positions
  • Drawbacks

    Opportunity costs of asset placements.

  • Not everyone can vote on the allocation/management of the additional 60M FOX

Votes

2

I posted this on the last version and I haven’t seen an answer yet. Could you talk to how much of the current allocation is tied up in the loans taken out by the TMDC in the Rari platform?

I am a no at this point.

3

Thanks for the question. The TMDC has allocated 53m FOX tokens for collateral in the Rari loans.

4

so almost the entire amount is requested by the TMDC for additional allocation.

what would the runway look like if the loans were paid off at this time, instead of issuing an additional allocation?

5

also, instead of paying between 5 and 100% APR on the loan, wouldn’t it be cheaper for the dao to continue to issue USDC bonds at a discount at Olympus(or other) at 10-20%(where we saw a lot of initial bonds) and not end up having to pay back in stables, but rather pay the discount in fox, which would over the course of the program end up costing the DAO fewer stables/runway over time.

Has the tmdc done a cost analysis of the two programs to date to compare what it would cost the dao over the next 6 months, and how it affects the runway over that time frame?

6

Good questions. The past couple weeks we went through a pretty heavy analysis of it. That resulted in us making some significant pay-downs on the loan. Balance is currently $803k. The paydown also temporarily brought the APR down to 9%. Paying down the loan always brings the rate down, it’s how the algorithm works. It will go back up when the suppliers of the collateral withdraw our recent paydown.

We will also pay down the loan at $50k per week going forward. It’s hard to do the math with the fluctuating APR, but with the paydown to $803k and the $50k per week going forward, this does get us into a situation where the principal will decrease over time, rather than us always playing catchup.

To your point about the Olympus bonds, that is what we are using for the $50k per week, the proceeds from the bonds. I don’t think we went so far as to think of increasing bond sales to pay off the loan faster, but it is something worthy of consideration. Of course downside is more indirect sell pressure of FOX. We did debate whether we should just pay the whole thing off right now, using the stablecoin treasury, but it was decided that losing the future optionality of those funds was not worth it.

It would be great if you wanted to come to the TMDC meetings and discuss further.

7

In an effort to address the questions had, and building on what discussed above, I’ve analyzed the Rari loans here:

https://docs.google.com/spreadsheets/d/1tsnq4EMQkosyUpZJt8rW4zxh_bB_DtpOaQ_ZPMWXITQ/edit?usp=sharing

Please draw your attention to the following tabs:

Runway: Post-Payoff: Let’s say we pay both Pool 7 ($765,500) and Pool 79 ($255,000) off immediately. Using our current treasury and most recent runway projections as a starting point, this would a.) Leave us with just under $3 million USDC, and b. ) result in a runway that runs out in May 2023.

Runway: 50% APR: The base case, where we’re repaying off only accrued interest on Pool 7 at 50% APR each month, has our runway ending in July 2023.

Runway: 100% APR: Paying off only accrued interest on Pool 7 at 100% APR each month, has our runway ending in June 2023.

So setting aside any specific analysis of the loans, we can pay off those loans immediately at the expense of either one or two months of runway, depending on Pool 7’s average APR (50% vs 100%). Of course under the scenario outlined in the 2nd and 3rd tabs, the principal would remain, since we’d only be paying interest each month. But at least this gives us a sense of the impact on our runway.

The next question that follows is…how much would it cost us to continue to pay these loans off each month?

I’ve modeled out that scenario in the following tabs. (Note that I’ve only analyzed pool 7 here, since pool 79 is much smaller ($255,000) and has an interest rate under 5%, or about $1000/month.)

200K / month @ 50% APR: This most closely models the current conditions, where we’re able to spend $50,000/week on both our interest, and on paying down the principal. (50% APR is actually way above the current 9% APR, but I’m being conservative in projecting that this rate will soon bounce back to a higher number, consistent with what we’ve seen in recent months).

If we’re able to continue paying 200K/month, we’ll pay off the entire loan by January 2023. The total cost of that interest will be roughly $86,000.

200K / month @ 100% APR: Let’s say instead we continue to pay 200K/month, but the APR goes all the way up to 100%. In that scenario, we’ll still pay off the loan by January 2023, but the total interest payments will be more like $195,000.

What if market conditions change and we’re only able to pay $100,000 toward the loan each month? I’ve modeled this scenario out in the last two tabs.

100K / month @ 50% APR: We pay off the loan by May 2023 and pay around $175,000 of interest.

100K / month @ 100% APR: We pay off the loan by September 2023 and pay just over $500,000 of interest.

TAKEAWAYS:

1.) Paying off the loans now takes 1-2 months off our runway, even factoring in the savings we’d achieve via not making interest payments.

2.) If our current payment regime continues (200K /month) and pool 7’s APR averages 50%, we’ll wind up paying around $86,000 in interest before the loan is paid off in January. That feels pretty reasonable. So does paying more like $195,000 in the event the loan’s APR spikes up to 100%…that’s not as great, but spread out over six months is manageable.

3.) The time horizon for paying the loan off stretches out an extra four months if we wind up paying only 100K/month and the APR averages 50%. However, the total cost of interest payments remains relatively low at $175,000.

4.) The “worser case” scenario–where we pay 100K and the APR is at 100%–is where costs really balloon, with total interest costing us just over $500,000. It would also be roughly a year before we paid off the loan. (edited)