RFC Allocate Treasury Funds of the Balancer DAO to sGYD

General Chat
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Summary

FTL Labs, the initial development company of the Gyroscope protocol proposes that the Balancer DAO acquire 350k GYD to diversify its treasury, enhance risk management, and further develop its ecosystem. By staking the obtained GYD into sGYD, Balancer DAO could achieve an estimated APY of 12%.

This strategic move allows Balancer to:

  • Strengthen Balancer’s financial stability outlook
  • Support a key participant within the Balancer ecosystem

About Gyroscope

Gyroscope combines innovations that put stablecoin risk control on autopilot and supercharge liquidity.

In 2020-2021, Balancer Labs granted the development team of Gyroscope a grant to get the initial R&D efforts started. After a long period of research and development:

  • Gyroscope’s total AUM across all products is 40mn USD (as of 29 July 2024)
  • The total AUM of GYD is 2.5m USD (as of 29 July 2024)
  • Gyroscope pools are creating 14% of Balancer’s volume with about 4% of Balancer’s TVL

Gyroscope’s core products:

  • E-CLPs: Unique concentrated liquidity pools.
  • GYD: A decentralized stablecoin collateralized by a basket of other stablecoins, generating yield for sGYD holders.

Motivation

Strengthen Balancer’s financial stability outlook: holding sGYD affords the Balancer DAO enhanced diversification and risk management for its treasury:

  • Diversified Collateral: GYD is backed by a basket of stablecoins, partitioned to avoid risk spillover and selected for optimal diversification.
  • Automated Risk Controls: Features sophisticated onchain mechanisms such as optimized minting and redemption bonding curves, robust oracle systems, and circuit breakers for added security.
  • High Liquidity for Its Size: GYD maintains a tight peg with deep liquidity, directly redeemable through primary markets.
  • Competitive Risk-Adjusted Yield: Expected yields of 9-10% on reserve assets, with sGYD offering amplified yields of 12-15% APRs.
  • DeFi native risk-controls: currently about 17% of the Balancer DAO’s treasury are stable assets, but 90% thereof is in USDC. GYD affords Balancer one-stop diversification in a DeFi native manner. GYD requires no further trust assumptions and represents the best of DeFi: sophisticated, automated logic on top of existing assets.

Support a key participant within the Balancer ecosystem: obtaining (s)GYD fulfils the dual purpose of supporting a key ecosystem participant, Gyroscope:

  • Initial PMF for E-CLPs is clearly demonstrated: Gyroscope pools are performing exceptionally well, generating 14% of Balancer’s volume with about 4% of Balancer’s TVL.
  • The Gyroscope stablecoin is similarly slated for growth: with the launch of sGYD the v1 infrastructure for GYD is feature complete. Gyroscope is also moving towards its decentralization event, supporting a strong growth push. If Balancer was to allocate a part of its treasury assets to GYD this would also send a strong signal to other market participants, making future growth initiatives easier.
  • Aligned Interests: It is in Balancer’s interest to have a closely affiliated stablecoin and a strong Gyroscope building on Balancer. Gyroscope exemplifies the “Build On Balancer” campaign, fundamental to Balancer’s branding, growth, and success.

Detailed description of sGYD

Detailed GYD features

Allocating assets of the Balancer DAO treasury into sGYD will significantly enhance diversification and risk controls while providing a competitive risk-adjusted yield. Here’s how:

Diversification and Risk Management

By incorporating sGYD, the Balancer DAO gains one-stop exposure to a basket of stablecoins that jointly collateralize GYD. Basket assets are weighted, partitioned to avoid spillover risk, and are deliberately selected to diversify the exposure to any single asset or yield-generating protocol.

In addition to automated risk diversification rules, GYD features further advance onchain risk controls, such as:

  • optimized minting and redemption bonding curves that guide the protocol on how to use reserve assets to maintain stability: GYD can be redeemed 1:1 to underlying assets if the reserve is fully collateralized. In the event of a collateral shortfall, an encoded minting/ redemption pricing seeks to promote long-term stability, autonomously balancing the goal of maintaining a tight peg with the goal of long-term GYD stability in the face of short-term crises.
  • a new resilient oracle and circuit breaker system: Gyroscope’s oracle minimizes trust on single oracle systems such as Chainlink and improves fault tolerance. The oracle also features flash crash circuit breakers and an excessive flow rate circuit breaker that is designed to act as a last resort to protect against oracle exploits as well as smart contract bugs and unknown exploits. It operates by measuring ultra-short term flows within the protocol and triggering safety mode if they would exceed thresholds. Atomic exploits are also limited by adding a respective threshold amount.

Note, most reserves are currently held in AMOs which helps with early-stage growth. AMOs are designed to loosely mirror the reserve calibration. Protocol owned liquidity from AMOs will be cycled back into the reserve that enforces extra protections (e.g., diversification rules, oracle protections, and smart contract risk mitigations) once sufficient organic secondary market liquidity of GYD exists.

Liquidity and Capital Efficiency

As GYD is entirely non-custodial, Balancer DAO governance can undertake a liquidation at any time. The VWAP GYD price is closely tracking parity, with a maximum deviation of 6bp.

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GYD liquidity management is based on the following three pillars:

  • Primary market: GYD is directly redeemable through a primary market against reserve assets.
  • Secondary market: the total TVL of E-CLPs that include GYD is 3.7mn USD. 70% is currently on Ethereum, 24% on Arbitrum, and 6% on Polygon zkEVM.
  • Bootstrapping pools: GYD is launched with ‘bootstrapping pools’, or AMOs, that allow a pre-set amount of GYD to be minted in a simplified manner against a specific reserve asset. These pools provide deep liquidity on Ethereum (up to 20mn USD), Arbitrum (up to 2mn USD), Polygon zkEVM (up to 200k USD). As organic secondary market liquidity scales up, POL from AMOs will be cycled back into the reserve and AMOs will fade out.

Risk-Adjusted Yield

Gyroscope’s stablecoin, GYD, is not just a tool for stability but also a yield-bearing asset. It leverages a diversified basket of stablecoins, which are deployed to generate yield. This generated yield is then passed on to sGYD holders, offering a competitive yield. sGYD aims to provide a boosted yield rate on stablecoins for less risk, taking advantage of Gyroscope’s automated risk control innovations.

As a reminder, the reserve will comprise of the following crypto assets, in the following proportions, after the GYD bootstrapping pool (which provides a preset amount of GYD which can be minted against sDAI) is unwound:

  • 20% fUSDC (yield bearing USDC)
  • 12% aUSDT (yield bearing USDT)
  • 48% sDAI (yield bearing DAI)
  • 20% LP shares of a Gyroscope LUSD/crvUSD Rehype pool

These vault weights achieve the following risk diversification:

  • 38% exposure to centralized stablecoins
  • 43% exposure to decentralized stablecoins
  • 50% exposure to RWAs

Yield sources:

  • Protocol for Loanable Fund interest (aUSDT, fUSDC, rehypothecated LP shares)
  • Yield from swap fees
  • RWA yield

Volume metrics

Since its launch in December 2023, GYD has realised significant volume metrics. The 24-hour GYD volume stands at 120% of its circulating supply, equivalent to 3mn USD. This volume is able to outpace GYD supply, showing that GYD’s liquidity and stability is scalable.

GYD has a total trading volume of 168mn USD. Additionally, the 30-day moving average velocity of GYD is at 30%, reflecting the continuous trading activity over the past month.

GYD deployments/ presence

At the time of writing, GYD has been bridged from Ethereum to Arbitrum and Polygon zkEVM.

Audits

The GYD system has been audited 4 times, twice by Nethermind and once each by Runtime Verification and Trail of Bits.

Latest audit reports:

  • Security Review: Protocol - Nethermind - 08/15/2023
  • Security Review: Governance - Nethermind - 08/15/2023
  • Security Review: E-CLPs - Nethermind - 08/17/2022
  • Security Review: Bridges - Nethermind - 25/6/2024
  • Security Review: sGYD - Nethermind - 18/7/2024

Other audits:

Call to Action

Acquiring 350k GYD will provide Balancer DAO with enhanced treasury asset diversification, superior risk management, and attractive yields. This move will also support the ongoing development and success of a key participant within the Balancer ecosystem.

We invite comments and feedback from the Balancer community on this proposal.

5 Likes
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Thanks for the proposal. A few comments from my side - personal opinion, of course:

  • sGYD is a new product with certain risks attached. The community should be aware of that. In any case, Balancer DAOs position shouldn’t exceed $500k in the near future.
  • As it currently stands, we can’t allocate any of our liquid USDC or blue chip token positions. The only way I see to allocate any funds to sGYD is through positions managed by @karpatkey . Reason being: BAL reserves are running thin, other assets are strategic positions from past token swaps, and our USDC reserves are being earmarked to fund SPs

An alternative I see is that we use our idle USDT position we received from Fjord fees (approx. $273k) on mainnet.
I would be more comfortable to say we swap that position for sGYD and reduce the ask of this proposal to $250k. In that regard, I would be curious why you are suggesting 350k sGYD in the first place. $250k sounds more reasonable.

Finally, I would value a clear technical specification that would outline the acquisition of sGYD, so we can prepare a payload for the DAO multi-sig.

3 Likes
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Hello! Thanks for the proposal!

Where can I find more info about sGYD? I gave a look at your website and docs and there is not that much in there.

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Thanks for the feedback here

Want to add a little color on how I see the risks of sGYD (and the GYD underlying). While the GYD system is newer, and so perhaps has more smart contract risk than some other systems, it is designed to be less risky in most ways. It is built with top of the line onchain risk controls for a stablecoin (including for mitigating smart contract risks), which you won’t find anywhere else still. It’s also directly redeemable, and so there’s always an exit route.

I think it’s also reasonable to think of sGYD as a place to park stables until they are needed. The usual caveats about the risks go with this, though I think it’s important to remember that there are risks to any stablecoin (like experienced in the USDC depeg last year), and GYD is meant to protect against these in a fairly conservative way.

In terms of size, 250k would also be very welcome and we’re happy to revise the proposal for that if that’s the consensus.

We will also add a technical specification for doing this on Ethereum.

3 Likes
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Hey @jameskbh

You can find all the documentation about sGYD here.

If you want to examine the repos, the sGYD contracts are here and the yield calculation scripts here.

sGYD was very recently audited by Nethermind - you can find that report here, too.

1 Like
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Great proposal, GYD is a nice product.

Question: how does this proposal drive value to veBAL holders?

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Jumping in this one as well, thanks for bumping the conversation @Franklin

I think the value proposition is clear on asset diversification and yield bearing strategy. Supporting the DAO’s runway and Treasury is a support for veBAL value proposition (hence CRV recent situation), while supporting a partner built on Balancer is even more honorable.

That being said, I believe this is a decision that Governance has already delegated to @karpatkey as Treasury managers so that public discussions of asset allocations wouldn’t be necessary. My suggestion is that these types of engagements are kept contained within that realm of service providers, and the DAO doesn’t override their mandate for case-specific investments.

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@FTL_Labs,

Following discussions with the Maxis and in response to @0xDanko’s comment, we are pleased to integrate sGYD into the karpatkey managed treasury.

We are happy to include it as part of our ever-growing array of strategies to achieve a sustainable, diversified, non-custodial treasury for the DAO.

Diversifying into sGYD through our infrastructure would require the DAO to take two specific steps:

  1. An equivalent amount of USDT transferred from the DAO Treasury to the karpatkey owned treasury.
  2. An approval of a payload containing the following whitelisted actions:
    a. Deposit & withdrawal into GYD / sGYD (using your smart contract infrastructure).
    b. Swap in / out of sGYD from / to whitelisted stablecoins.

These steps will enable us to fully integrate sGYD as an asset that is monitored and managed in line with our on-chain security standards, alerts, and best practices.

We’re glad to collaborate on the technical specifications and support you in executing this endeavor with the necessary payloads from our side.

3 Likes
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For reference, the specific execution proposal has been submitted here.