PWN x Sushi Proposal: Revenue generation & Bond issuance

Multi-Authored by: PWN (Josef - @JosefJ_, Steve - @steve_fau, Dimple - @dipilalwani) & Sushi (Truda - @Trudahamzik)

PROPOSAL 1: REVENUE GENERATING: SET ASIDE 350,000 USDC FROM THE TREASURY TO FUND SUSHI LP LOANS ON PWN

# Summary/Objective

To set aside 350,000 USDC from Sushi’s DAO Treasury which represents less than 2% of SushiSwap’s Treasury to fund Sushi LP loans on PWN. The goal for this is to reduce sell pressure from Sushi users by providing them an alternative avenue to extract liquidity from their positions during this bear market and therefore extend the time their position remains open on Sushi’s protocol.

# Background

The derivatives market now makes up 69% of total crypto volumes. Despite growing volume in the crypto derivatives market, the instruments and infrastructure underlying the market are relatively less mature when compared with traditional financial markets.

Whilst Sushi currently has an option for Sushi holders to deposit their LPs in Onsen farms to earn triple rewards, this is not available for every pair, plus around 10-30% fall through the crack due to network fees not being worth if the position is less than $300-$500.

# Motivation

Given the purpose of Sushi’s DAO Treasury is to provide liquidity stability, depth of liquidity, and long term liquidity, aka to support and maintain the Sushi protocol in perpetuity, PWN sees a great opportunity to diversify the DAO’s Treasury to include earning a decent yield (circa 10%-20%) on loans provided by Sushi LP holders thus providing them additional support during these bear market times. This serves as a great way to increase the longevity of the liquidity in the Treasury as well as diversify from the current strategies in place.

# Solution and Specification

The DeFi & NFT ecosystem has captured outstanding value, first enabling permissionless on-chain swaps, over collateralized loans, stable coin generation or now even wide acceptance of digital assets like art or virtual properties to accrue value. PWN is the next component which will enable leveraging the value of arbitrary assets (like derivatives or NFTs) and thus further boost liquidity of on-chain capital.

PWN is a hub for peer-to-peer (P2P) loans backed by digital assets. PWN users can use any ERC-20, ERC-721 & ERC-1155 as collateral, with no risks of liquidation until the loan expires. There are no liquidations based on price on PWN due to the contracts not having any external dependencies like on-chain oracles. The protocol’s goal is to not create another unhealthy debt system in DeFi, and instead create a ‘healthy’ debt ecosystem that will help the economy.

Additionally, unlike other protocols in this space, there are no whitelists which means any ERC-20, ERC-721 & ERC-1155 can be used on the protocol via the Ethereum or Polygon blockchain.

This proposal’s goal is to set aside the first 350,000 USDC from Sushi’s DAO treasury to fund Sushi LPs providing Sushi users with a value service and reducing the risk of selling their LP position during the bear market which if it becomes a multi-year bear market like 2018-2019 could really have a negative impact on the protocol’s revenues and growth.

# Next Steps

Given PWN is a P2P marketplace with no on-chain pricing oracles, borrowers on PWN can specify the duration of the loan as well as the Loan-To-Value (LTV). The LTV is not restricted though given lenders who post offers on the loan requests are able to counter-offer and offer an alternative amount of capital based on their risk tolerance of the value of the collateral.

As a next step, the following terms should be discussed for Sushi, including:

  1. What token pair sets would the DAO Treasury want to fund? The loans could be restricted only to the largest token pair sets by TVL, potentially starting with the top 15-20 popular pools and then expanding thereafter.
  2. What LTV would the Treasury want to accept. Would this be circa 40% for all loans?
  3. Maturity date of the loans: This could be a 12 month standard?

Additionally, in order to approve the $SUSHI collateral, we would need to discuss whether a multisig committee would be required and if so, who would that be. There would need to be a conversation as to whether the multisig committee would be the same people elected in this proposal.

On the technical side, Sushi LPs are fungible in their unstaked form, meaning if they were to be used as collateral, they wouldn’t be able to receive $SUSHI or other rewards, only trading fees. This would be something that the PWN team would work on once the proposal is approved in order to allow LP holders to receive other rewards as well.

Financial Impact to Sushi and Sushi LP holders:

Total $ value in Sushi LPs at the moment as of September 29 2022 is of $376 million or 281k ETH

Assumptions:

  • % of LPs that would take out a loan using their LP as collateral: Currently, 20% of Sushi tokens are staked. For the purposes of this proposal and to set a budget, we could assume that 20% of Sushi’s LPs would be interested in extracting liquidity from their LP position.
  • Loan to Value (LTV): We could assume a 40% LTV
  • Maturity Date: Loan duration of up to 12 months
  • Interest rate on loans: We can assume a 10% interest rate for a 1 year loan

Total $ value in Sushi LPs at the moment x 20% (utilization) x 40% (LTV) = $30 million

Assume an interest rate of 10% for a 1 year loan. Fees earned on above $ figure = $3 million

# Conclusion

DAO Treasury diversification is an incredibly important topic for every DAO to survive the bear market and increase the longevity of their DAO. Our goal at PWN is to build technology that allows that. For example, in September 2022, the Nation3 DAO approved issuing a bond with $NATION as collateral on PWN. You can read the full article by Nation3DAO which currently has a total treasury size of $30m.

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PROPOSAL 2: TO ISSUE AN OVER-COLLATERALIZED BOND TO RAISE 100,000 USDC OF CAPITAL FOR OPERATIONAL EXPENSES

# Summary/Objective

Given the current market circumstances and Sushi DAO’s Treasury mission to increase the perpetuity of the Sushi protocol as well as making the protocol as self-sustainable as possible, it is particularly important to ensure the DAO has different ways to raise capital to cover operational expenses. While Sushi’s current income streams include trading fees, fees from Kashi and the Bentobox strategies, there is another way to raise capital for operational expenses – to issue a bond.

To reduce the sell pressure from Sushi’s DAO members, this proposal encourages the DAO to NOT sell their SUSHI tokens, but instead, issue an over-collateralized bond to raise 100,000 USDC using SUSHI tokens as collateral. By encouraging the DAO not to sell now, the DAO could keep the treasury until the market reverses again.

# About PWN

The DeFi & NFT ecosystem has captured outstanding value, first enabling permissionless on-chain swaps, over collateralized loans, stable coin generation or now even wide acceptance of digital assets like art or virtual properties to accrue value. PWN is the next component which will enable leveraging the value of arbitrary assets (like derivatives or NFTs) and thus further boost liquidity of on-chain capital.

PWN is a hub for peer-to-peer (P2P) loans backed by digital assets. PWN users can use their fungible tokens or NFTs as collateral, with no risks of liquidation until the loan expires. This is because the contracts don’t have any external dependencies like on-chain oracles and, unlike other protocols in this space, there are no whitelists which means any ERC20 token or NFT can be used on the protocol via the Ethereum or Polygon blockchain.

The current market circumstances alongside the potential of the PWN protocol is what helped Nation3DAO to successfully issue a bond backed by $NATION tokens on PWN. You can read more about the experience of Nation3DAO via this link. After this use case, PWN realized the potential of the use case for DAO’s to issue bonds using a peer to peer protocol with no risks of liquidation until the loans expire.

# Solution and Specification

The proposed solution is to sell a bond with the following terms:

  • Amount to raise: 100,000 USDC at a 40% LTV
  • Use of funds: Operational expenses
  • Maturity date: 180 days
  • Collateral: SUSHI
  • Platform: PWN Protocol

PWN does not need to whitelist the $SUSHI token as collateral on the protocol because of the uniqueness of its protocol whereby any ERC 20 and NFT can be used on PWN as collateral.

Additionally, there are no liquidations on PWN before the end of the loan period. If the value of the Treasury’s collateral drops below the value of the loan, nothing will happen.

# Next Steps

  1. This proposal gets approved
  2. The offer to sell the bond is posted by the Sushi DAO
  3. Once the offer is posted, lenders would publish their offers and counter-offers stating their desired interest rate for the loan
  4. The DAO would set a time limit of 48 hours to choose a lender from the list of offers for the bond
  5. The SUSHI Operation multisig would be responsible for accepting the best counter-offer, and receiving the USDC loan

# Financial Impact to Sushi:

Highest value of $SUSHI token in the last 12 months was on November 3rd 2021: $13.45

Current value of $SUSHI token: $1.078 as of September 29 2022

Calculation One: The DAO would need to sell approximately 92,764 SUSHI tokens in order to cover the cost of 100,000 USDC as of today. Taking into account the highest value of $SUSHI token in November 2021 @ $13.45, this would be a ‘loss’ of 85,329 $SUSHI tokens which at a price of $13.45 would represent $1,147,675.

Calculation Two: For a 100,000 USDC loan, the collateral required would need to be 231,910 SUSHI tokens which is approximately worth $250k. If we use an example where the cost of the loan could be approximately 6% interest rate, this would be 6,000 USDC which is only 5,565 SUSHI Tokens at present value.

These calculations show that by the Sushi’s DAO Treasury issuing a bond to raise 100,000 USDC on PWN, the DAO would be saving approximately (92,764 - 5,565) 87,199 $SUSHI tokens. This would equal:

= 94,000 USDC at current value

= 1,172,827 USDC at the value on November 3, 2021

# Conclusion

Whilst the utilization of DAO treasuries is something we’re only starting to really talk about and explore in Web3, the issuance of corporate bonds has been around for centuries. The reason we’re initially proposing to take out a ‘smaller’ loan of 100,000 USDC is so that Sushi’s DAO Treasury can test out PWN and once comfortable the future possibilities could be to issue a bond of for example 100,000 every 6 months to cover operational expenses of the DAO.

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PWN has posted both proposals on the same link however the goal is to showcase two different opportunities of how PWN and Sushi can work together rather than just picking one. Both can work simultaneously and for different reasons, one to generate additional revenue and the other to raise capital.

Official links:

  1. Dev docs link - https://docs.pwn.xyz/
  2. FAQ link - https://faq.pwn.xyz/
  3. Audit Report - PWNAudit.pdf - Google Drive
3 Likes

Adding a poll for this

  • Proposal 1 is cool!
  • Proposal 2 is cool!
  • Both Proposals are equally cool!
  • I don’t think we need this right now

0 voters

I certainly agree, Pwn is a decent product, ready to boom. Both proposals are great, but i think the first revenue generating one is more suitable.

1 Like