Productive Treasury Proposal by PieDAO

[alexintosh]

Summary

PieDAO is proposing to deploy the current Treasury into a productive, sustainable state without creating selling pressure for SUSHI.

Motivation

Treasury management is vital for Sushiswap’s continued growth and success. A strong and resilient strategy for the productive use of treasury funds will allow Sushi to fare better during market downturns, prolonged periods of volatility and ensure continuity of operations by creating an additional revenue stream independent from the Sushiswap core business.

Background

Sushiswap holds funds across 3 different addresses.

Despite having a treasury worth over $50M, the Sushiswap DAO is currently generating zero yields on its assets leaving millions of dollars on the table.

To date, there have been multiple attempts within the community and by third parties to establish processes for the management of treasury funds, despite that the situation stays unchanged and funds are held in an unproductive state.

We believe part of the reason why those proposals weren’t successful is related to the focus by operators on trading and portfolio management.
Our proposal, at this stage, aims instead to tackle the most obvious low-hanging fruit, generating yield for SUSHI holders by moving the treasury to a productive state.

Proposals

Our solution is a yield strategy specifically designed to align with Sushiswap’s priorities. The proposal has been designed following three main guiding principles:

• Zero SUSHI tokens ever sold, zero pressure on price.
• Avoid dilution of yield for xSUSHI holders across DeFi marketplaces.
• Risk mitigation on strategies & Keep Sushi in control

We propose to:
a) Deploy the farmable assets such as ETH, WBTC, TOKE, and Stables (~6.4M at the time of writing) on highly productive neutral strategies in order to protect the principal and generate yield across opportunities which may include option vaults, lending, and selected liquidity provision.

b) Employ the SUSHI tokens (+10 million at the time of writing), to be used as collateral money in Compound Finance and potentially Fuse, ultimately aiming to borrow ~$19M of additional farmable assets (Estimation with CF < 50%).

Appropriate liquidation risk mitigation strategies will be implemented by constant manual monitoring of the collateral factor by a team of experts in combination with the use of the DeFi Saver automated leverage management tool to provide automatic repayment during sudden volatility as a complementary measure to always maintain a healthy ratio between borrowed assets and supplied assets.

NOTE: Aave provides a market for xSUSHI which has been discarded to avoid diluting yield for the holders since it would inevitably require wrapping SUSHI tokens to xSUSHI.

Use of profits

Profits generated will be utilized to accrue value back to the Sushiswap DAO, as per DAO governance choice. A possible profit allocation we would like to suggest is a SUSHI buy-back to boost xSUSHI yield, compounding, and accumulation of stablecoins to fuel operational growth.

Business Model & Performance Fee

Our business model consist on a performance fee applied only on the alpha generated on farmable assets on top of a “risk-free” benchmark.

Such a model purposely makes the service free of charge under 6% (stables) which is considered a nearly “risk-free” rate, and aligns our incentives, further motivating us to outperform the average farming market.

What this proposal is not about

• Handling payroll
• Trading with treasury assets

Specification & Multisig policy

The Treasury Farming will be operated via a Gnosis Safe shared between the Sushiswap Core Team and PieDAO Treasury Committee configured with a confirmation policy where Sushiswap retains total control of funds.

ie: 6 Signers, 4 Sushiswap and 2 PieDAO.

This model could be further scaled as per your need, remaining true to the following principles:

a) Total control for the Sushiswap Team (PieDAO addresses < multisig signing policy requirement)

b) Sushiswap can move funds autonomously (The Sushiswap addresses >= multisig signing policy requirement)

c) Address redundancy brings fallbacks (Shall any address be lost at some point in time, this won’t affect control over funds)

For instance, by applying a “4 addresses signing policy”, PieDAO could manage up to 3 addresses, while The Sushiswap should control > 4 addresses with signing rights.

This model allows PieDAO to produce the relevant transactions, always controlled and simulated, and requires the Sushiswap team to notarize such actions effectively preventing any potential malicious action.

Deliverables

• Develop a shared performance tracking tool for timely reporting and transparency (NAV, Alpha vs benchmark)
• Propose an initial strategy compatible with the community goals and risk tolerance
• Present a Quarterly report to the Sushi Community

Tools

• Gnosis [multisig]
• Hardware wallets (Ledger | Grid+) [signers]
• MEV Protection [RPC / Infra]

Processes

Signers to be publicly announced via Twitter and forum with Handles/Address publicly documented.
New Signers added via formal proposal.
Current Signers removed via formal proposal.

Why us

Proven playbook, trusted by the best

• We deployed our Treasury Management on our own assets~24% return
• The Sandbox Foundation choose PieDAO treasury management & advisory

Decentralized, collective intelligence
More than 360 active voting members (70% participation rate) in the DAO governance regularly suggesting new strategies, projects, and partnerships

We invest in our community
An innovative model launched in October ’21 to distribute most of the Treasury Farming proceeds to the DAO’s members

Built by DeFi veterans
PieDAO was born in early 2020 and is the community of choice of many of the best known DeFI anons and OGs.

Action points & Desired outcomes

1. We aim to confirm the direction of this proposal and its alignment with Sushiswap’s strategy.
2. Define Sushiswap risk appetite for the farming protocols, chains, and rollup to be used.
3. Define a starting allocation (aka “t0” allocation) to use as a benchmark for performance tracking
4. Define a “risk-free” rate for each asset class (below risk-free: zero fees)

Conclusions

This post aims to set out the foundation and the building blocks for constructive discussion around the proposal for treasury management between PieDAO and Sushi and will be utilized for a temperature check and signal to indicate the direction and will of the community.

The suggestions presented are not set in stone and are open to modification. I encourage the community to provide feedback and initial thoughts which will allow us to shape the direction of future interaction.

–

For
Define the parameters for the farming initiative.

Against
Maintain the status quo.

• Make the treasury productive
• A productive treasury is not required

[probatacta]

PieDAO retains 20% of the profits above a risk-free rate (really a hurdle rate). My concern is moral hazard: PieDAO is incentivized to invest in riskier strategies to exceed the hurdle rate whereas capital preservation of the Treasury is not incentivized at all.

Ex. PieDAO could invest our Treasury well for the first year, earning a 20% return. Above a 6% hurdle rate, they keep 20% of a 14% return. Great for everyone. The next year, we lose 20%, Treasury is worse off and PieDAO is not paid. PieDAO is now incentivized to further dial up the risk so that they get paid.

To reduce moral hazard, we should consider paying PieDAO a fixed management fee of 1% or 2% and perhaps dial down the hurdle rate while also bringing down their performance fee. Something along the lines of 4% hurdle rate with 10% profit sharing feels much better for capital preservation than incentivizing PieDAO to shoot for the moon.

[0xMaki]

Probatacta raise a positive point could be a good idea to make sure things assume we never loose treasury or on stablecoins only strategies potentially ?

Overall anything to productivize the treasury at this point would be best rather than keep it idle. Putting some Sushi on Kashi, Compound, Aave (Polygon) would go a long way to then borrow a little stable to farm in addition funnel back all the revenues to the DAO or xSushi.

Thank you for posting @alexintosh and hope you can join the next Sushi Forum to highlight the need for it.

Supportive 99% just important to make sure there is guardrails to preserve capital.

[hhk]

Big fan of PieDAO and making our treasury productive.
Thanks for the detailed proposal !

But I have some concerns:

• @probatacta raised a good point, current fee model if probably not ideal.
• Some of these elements could be easily done without collaborating with PieDAO, for example the toke voting is just a single transaction and currently gives 27% APR, giving 20% performance fees over 6% seems a lot for an easy task like this.
• I’m struggling to see what PieDAO really brings that an internal treasury team don’t. (We currently don’t have such a team, but we could create one).

[BoringCrypto]

Capital invested is capital at risk. The only investments I would support are LPing in Sushi products, such as Kashi. Also giving the treasury access to ops is a step backwards. Currently the treasury is managed by community appointed treasury multi-sig members.

I’d rather see more focus on building great products that generate revenue. Effort is better spend tripling the price of SUSHI than it is trying to get 20% yield on the treasury.

[pocketsquare]

Nothing in crypto is “risk free” imo. You are susceptible to hacks and exploits with every sign you take. There will be a time and place when treasury management is something we should consider but I dont think we are there yet.

[probatacta]

In TradFi, if a company has excess capital their job is to return it to shareholders and not spin up a hedge fund. Currently there is no revenue flowing to Treasury from the core business (besides emissions).

Perhaps we can stake some Sushi for xSushi – maybe half of the current Sushi holdings.This would mimic the traditional model of companies retaining some earnings and distributing the excess to shareholders.

If we have an itch to diversify, we can put the rest in Eth if we want to de-risk from the Sushi price. But borrowing against Sushi to then buy and lend stables puts our Sushi at risk if the price shoots up quickly; we would be somewhat short Sushi which is a bit counter-intuitive, all things considered.

[Neiltbe]

Would prefer some treasury diversification (for more runway stability) & focus on investing in building great products instead of worrying about treasury yield.

[50ShadesofGwei]

Hey there - so I think we’re actually on the same page here; one of the benefits of outsourcing the treasury management to a third party is that the brainpower of your DAO can be levered to work on internal issues (building products, pushing up sushi price etc) without having to divert energy away into yield farming. Our proposal aims to create a system where the sushi treasury is mobilised and will then run in the background so you don’t have to worry about it - additionally, a consistently appreciating treasury can only serve to create upwards pressure for the token it represents. It won’t moon the price of sushi overnight by any means, but it will be another arrow in the DAOs’ quiver for sure.

With regards to the risk involved, I’d ask you to shift the perspective of the question; instead of the risk of deploying the assets for farming I would ask that you consider the risk of leaving the assets in an unproductive state. How much potential revenue is being missed out on? 5 years down the line, what will the impact of keeping the treasury idle be?

To compare these risks and come to a conclusion is ultimately what we’re here for, so if you have any thoughts please shoot them my way. Thanks!