[Proposal] Authorize Treasury subDAO to Allocate BAL to Turbo

This is a proposal by the Treasury subDAO, specifically Solarcurve, Zekraken, Luuk, and Xeonus.

Motivation

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.

KPI

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.

Risks

  • 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.

Specification

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.

2 Likes

I think the proposal is advantageous to the Tribe DAO.

Assuming the objective is to provide leverage opportunities to Balancer’s users and find a good use for the DAO’s holdings of Fei and Bal, I see two major issues:

  • Why do you need to commit to sharing 80% of revenue in the first place? You can create a pool for BPTs + other stablecoins, including Fei, and accrue all revenue to the DAO. You can source stablecoin liquidity at zero revenue share. assuming there is a demand for leveraging BPTs. In fact, stablecoins such as USDC/USDT/DAI are far more stable and therefore cause less liquidation risk to borrowers.

  • BAL loan-to-value: At roughly 10%, LTV is set too low. Even Aave sets BAL’s collateral factor at 20%.

You can improve the proposal in the following ways:

  • Allow other stablecoins in the pool alongside Fei and BPTs. Let holders of BPTs choose what assets to borrow.

  • Change revenue split to 80% in favor of the subDAO. The current split, even if reduced to 50/50, is extremely high relative to the value Fei provides. A fair split should be 80/20 in favor of the subDAO, not the other way around. At the current suggestion, subDAO would probably make much higher APR borrowing any stablecoin against BAL and lending it to BPT holders in the pool rather than minting Fei.

Final thought
Fei is not free to issue. It does cost to mint it but it is a matter of who is paying the cost. In this proposal, I see subDAO paying it.

2 Likes

All good points,

I believe the 10% LTV has been set as a very conservative value to avoid liquidation.

Regarding revenue split, I’m also in favor of a 80/20 to the BalancerDAO treasury given the capital deposited.

1 Like

The revenue split is not something we can control. Tribe DAO has sole discretion to set that.

If the proposal is yours why do we need to show the two different options (50/50 or 80/20) if we actually have no authority on changing that?

Also, under which conditions we should start to consider this exercise not a good option in terms of capital allocation? Does the Treasury subDAO have a number of KPIs to be used against? In other words, under which conditions the Treasury subDAO would consider withdrawing its capital?

1 Like

The different options were presented at Jared’s request, for context I think.

Since the choice is between BAL sitting in our wallet or this, and this is a positive ROI (even if a very tiny one) versus sitting in our wallet at 0 ROI, I think the only condition we’d want to withdraw from Turbo is if there is literally 0 borrow demand in Fuse Y.

1 Like

Why the choice is only between sitting on our wallet or this? why not AAVE for example? We are great partners with AAVE and built boosted pools for them.

AAVE offers an average of 2,2% APR and has an utilisation rate of 42%. If the metric is only interest generated, why is the Treasury subDAO deploying capital on an unproven product instead of a battle-tested one such as AAVE?

1 Like

The reason to use Turbo is because of the utility of Fuse Y (borrowing using BPT as collateral). Speaking for myself, earning a tiny yield on our BAL is not really important. I wouldn’t suggest we deposit to Aave to earn 2.2% because there’s not enough benefit to justify the (tiny) risk of a smart contract bug.

The metric is to spur usage of Fuse Y by providing a deep enough starting amount of FEI to make it worthwhile for users to borrow against their BPT. If Fuse Y does not get used, then there is no reason to use Turbo.

I understand but I assume you guys had enough conversations about this and I’m not really looking for personal opinions even tho I really appreciate yours.

The question I’m asking is simple: what are the conditions for cancelling the program? this should be integrated in the proposal to better reflect conditions of capital deployment: again, KPIs.
Defining that we are not seeking interests on the capital deployed but just a service to potential Balancer users should also be clearly stated.

I think the proposal, as it stands today, is incomplete.

1 Like

appreciate the feedback. Treasury subDAO has discussed and we’ve added a KPI of 50% utilization on borrowable FEI in Fuse Pool [y] which will be assessed 30 days after our deposit into Turbo. Failure to meet this would signal that Turbo is not an effective use of capital.

2 Likes

Hi - this is Brianna from the Fei founding team. There is a lot to digest in this post, and I have a suggestion on breaking up the content into subsequent discussions.

First, the Balancer DAO can discuss the pros/cons of opening Balancer DAO’s own Fuse pool to enable BAL & BPT holders to borrow against their assets, and also deploy FEI in the Treasury as a borrowable asset. The Balancer DAO could parameterize this pool and further incentivize it with lowered management fees (subject to Tribe governance vote). Example here: FEI Lending Partnership - Rari Governance Forums. Balancer DAO could use FEI from their treasury and add other stablecoins to their pool as borrowable or collateral asset. That is one of the benefits of Fuse, it is permission less.

Second, once the Balancer DAO opens a Fuse Pool, subDAO should consider a more efficient use of BAL in the Balancer Treasury, by using it in Tribe Turbo vault to mint additional FEI at 0% interest, and deploy in Balancer DAO’s Fuse pool to ensure deeper FEI borrowable liquidity, and potentially other whitelisted strategies (other approved Fuse pools and protocols). Tribe Turbo parameters for LTV and revenue split of yield generated from minted FEI deployments are configurable and negotiable parameters.

1 Like

Thanks Brianna, very helpful information. The Treasury subDAO has the power to allocate non-BAL assets so there is no governance vote required to create a Balancer DAO Fuse pool and deposit our FEI into it (Treasury subDAO has already agreed on this course of action).

This proposal only deals with depositing BAL into Turbo as that does require a governance vote.

Great, let’s get the pool created. Once it is created, you can request it be verified on the Tribe forum under the Fuse section, and also request a reduced admin fee. The example I linked above (FEI Lending Partnership) shows an example of requesting the reduced admin fee, and you can do something similar combining the pool also being verified in the post. Here is an example of a verified pool request.

Tribe Forum:

1 Like

The DAO should consider whitelisting ecosystem tokens in the Balancer Fuse Pool once it’s live. AURA BPT should be a no brainer once it’s live.