This is a proposal by the Treasury subDAO, specifically Solarcurve, Zekraken, Luuk, and Xeonus.
Recently, Fei Labs announced Tribe Turbo, a way for DAO’s to issue Fei at no cost into Fuse pools of their choice. The Treasury subDAO has been evaluating this opportunity and believes there is likely market demand for users to borrow against their BPT’s (Balancer Pool Tokens) while still earning any BAL or other token incentives. Credit to Jared for preparing this helpful infographic which illustrates what will take place.
As part of the recent treasury swap with Fei, Balancer DAO has 2.45M FEI. As an initial allocation to gauge market demand, we propose to deposit 100k BAL into Turbo (Fuse Pool [x]) and borrow up to 10% of the current market value in FEI - we will also add 1M FEI from our current holdings for a total of ~1.1 - 1.2M FEI to be deposited into Fuse Pool [y].
The Treasury subDAO will monitor the health of the FEI loan against our 100k BAL and either add more BAL collateral or pay down the debt using our existing FEI holdings to protect against any possibility of liquidation.
The initial list of BPT’s users can deposit into Fuse Pool [y] will be wstETH/WETH, WBTC/WETH, WETH/DAI, WETH/BAL, WBTC/renBTC/sBTC, FEI/WETH, bbfUSD (Fuse boosted pool DAI/FEI/LUSD), and bbaUSD (Aave Boosted Pool DAI/USDC/USDT). As previously mentioned, any liquidity mining incentives will still be captured so users do not miss out on any yield by using Fuse Pool [y].
Since Tribe DAO has a lot of experience managing Fuse pools, the Treasury subDAO will let them manage Fuse Pool [y]. However, the Treasury subDAO will retain decision making authority around adding/removing BPT’s and setting the maximum LTV for each BPT. Any decision would be given to Tribe DAO to execute.
An important final consideration is that any FEI borrowed through Turbo (Fuse Pool [x]) is subject to an 80/20 split of the borrow interest with 80% going to Tribe DAO and 20% to Balancer DAO. Treasury subDAO has provided feedback that a 50/50 split would make increased usage of Turbo more palatable, though for now the 80/20 split remains the most likely reality. Credit to Jared again for this comparison of both revenue scenarios.
Treasury subDAO is targetting a minimum of 50% utilization on borrowable FEI in Fuse Pool [y] as a sign that market demand does exist for borrowing against BPT collateral. This metric will be assessed 30 days after our deposit into Turbo to show either this is a worthwhile allocation of capital or we need to reconsider the value add.
Turbo is a new product that, while audited, is untested. There is the possibility of a smart contract bug which causes a complete loss of our BAL deposited as collateral to Fuse Pool [x].
- Mitigation: Tribe DAO has offered to give us an OTC insurance quote. This can be pursued if the Treasury subDAO feels it is appropriate.
If utilization of FEI is very high in Fuse Pool [y] and the price of BAL drops very quickly, it may not be possible to withdraw FEI from Fuse Pool [y] to re-pay the FEI we borrowed from Fuse Pool [x]. This scenario could result in liquidation of the BAL we deposited to Fuse Pool [x].
- Mitigation: Treasury subDAO should be prepared to add additional BAL collateral and/or use other liquid cash-equivalent assets in Balancer DAO’s treasury like USDC or FEI to re-pay the Fuse Pool [x] loan in an emergency. Additionally, it may take several days for the DAO Multisig to execute the necessary transaction(s) which must be factored in.
Tribe DAO calls the loan in Fuse Pool [x]. This would trigger a four week period where Balancer DAO must repay the FEI we borrowed in full or risk the BAL collateral being seized.
- Mitigation: Similar to the previous one. We cannot rely on being able to withdraw FEI from Fuse Pool [y] in such an emergency, so keeping cash-equivalent liquid assets ready to use in this kind of situation is important.
Manipulation of the oracle that prices BPT in Fuse Pool [y]. This could result in an exploit that drains funds from Fuse Pool [y].
- Mitigation: BPTs represent full range liquidity - previous instances of this manipulation in Fuse pools has been the result of relying on a Uniswap V3 oracle which represents concentrated liquidity in a specific range. Thus, the risk of this exploit should be very low. If it happens, we might lose the FEI we deposited to Fuse Pool [y] so we’d need to repay our FEI loan using our own funds.
The Treasury subDAO already has the authority to farm with idle non-BAL assets, so only a social vote of the subDAO signers is required to allocate FEI from our current holdings into Fuse Pool [y]. In order to make use of Turbo (Fuse Pool [x]), we require authorization from BAL token holders to use some of the DAO’s BAL holdings.
The Treasury subDAO requests that governance delegate us the power to allocate up to 500,000 BAL to Turbo (Fuse Pool [x]). This will allow us to scale up from the initial deposit of 100,000 BAL if we deem it appropriate.
Specification for the transactions required from the DAO Multisig will follow once it becomes available.