As the DeFi space continues to evolve and grow, it has become clear that yield farming has the potential to be a valuable tool for protocols like Abracadabra, to generate returns on idle treasury assets. We believe in the tools our protocol provides, and so we believe it makes sense to use our treasury funds to take advantage of the platform we have built.
This AIP proposes the implementation of “protocol-owned farms” (POF) where Abracadabra itself participates in yield farming in order to generate returns for its users. This approach has several potential benefits:
Increased treasury growth for Abracadabra: Abracadabra can generate additional profits for itself, which will be used to repay bad debt and fund operational expenses.
Increased returns for SPELL holders: By fully repaying bad debt and getting to a sustainable path towards profitability, a bigger percentage of protocol revenue could be distributed to SPELL token holders who could see price appreciation as well as reduce costs of capital
Increased efficiency of idle assets: The current MIM-3Crv pool is incredibly strong. Every week, Abracadabra pays bribes to LP providers to maintain the peg and TVL. It is therefore inefficient for us to not constantly utilize the liquidity that we are paying for.
Private Cauldrons
In order to enable POF, we need the engineering team to create self-contained POF cauldrons. This will allow Abracadabra to assign special borrow limits for the protocol and will also allow for unique, reduced-fee borrowing terms for the protocol.
We propose to create up to 3 Stargate cauldrons across Ethereum, Avalanche, and BNB. Each of these cauldrons will have the following terms:
Each of these cauldrons will produce $300K worth of profits over the course of a year. These chains were chosen due to their liquidity depth, their safety profile, and their high APYs. Abracadabra could pay down ~$1M of bad debt (over the course of 1 year) simply by deploying private cauldrons across these three chains.
Because Abracadabra will own these positions, we can easily adjust leverage up and down, repaying as needed to increase liquidity for other strategies. The main goal for these initial Stargate USDT cauldrons would be to simply take advantage of the large amount of idle 3Crv that is not being used on Curve.
Beyond Stargate
We are excited to introduce POF to the community as we believe there are several other highly profitable strategies we could deploy funds into (e.g., GLP).
We believe that the implementation of protocol-owned yield farming could be a valuable addition to Abracadabra and will help to drive future growth and adoption of the protocol. We would be happy to discuss this proposal in more detail and to work with the Abracadabra team to explore the potential benefits and risks of this approach.
I personally really like this proposal. I believe that deploying our funds in a battle tested strategy like the USDT Stargate one, will gives us few benefits:
It allows us to close the position whenever the peg is at risk.
It allows us to farm one of the best possible yield on the market.
It helps increasing treasury revenues.
Overall, I would say the best Risk-Reward strategy we have right now!
I am in favor of Utilizing Protocol owned assets to seek yield.
As we keep in mind, risk observations, for example Avi attack on Aave, could become detrimental to protocol. Discussion around abrupt events and how to handle situations that could or may result in capital loss should occur before hand , allow treasury to maneuver DAO treasury funds back to safety prior to authorization by vote. Of other note, managing leverage on behalf of users crosses some traditional finance laws. Hedge funds notoriously do not need special procedures when operating capital at an amount less than X and that do not utilize leverage. While i do not think this is of great concern for us at the time being. I think it is worth a comment before utilizing leverage as a treasury.
As to farming with Curve. I would suggest alignment with spell holders, lending out crv to spell holders via a non liquidateable loan contract , and curve would be maneuvered into ycrv lp for X amount of time. Could stagger the distributions as to when it comes to withdraw as we are not creating any liquidity concerns. The “loan” would be paid with a % of ycrv earnings. This provides an “perk” for owning spell.
In order to do this
withdraw from sspell,
deposit spell in crv loan contract
crv from treasury is deployed to crv-ycrv LP
rewards are farmed, sold for MIM, 50% to treasury, 50% to spell holder
at 16 week contract end: ycrv:crv liquidity is withdrawn , and spell is available to be withdrawn by holder
this does two things:
Utilizes CRV in treasury
Gives spell holders yield not seen in sspell/mspell for the time being.
removes spell from sspell to boost yield for remaining sspell holders.
provides additional “perk” to owning spell and utilizing to earn a cut on treasury operations, which currently, earnings do not align with.
This could also be done for stablecoin farming operations.
The protocol then has three markets which spell has “interest in”
stable coin operations
curve ecosystem operations
MIM operations.
In a way, giving spell these “perks” is similar in concept to my flexible index vault. Protocol aligned distribution of capital which benefits spell holders. We need to remember that while these are treasury funds, they are also Spell governance holders funds as well. They should have the capacity to benefit from any operations they undergo.
Lastly,
Opens the capacity for outside market participants to deposit into a “Flexible index vault” that co-mingle with treasury farming operations. Funds deposited into flexible index vault engage the same farming operations as the ABRA treasury. Passive fund that abra takes a fee for.
I like the general principle! Why not also look at POL deployed to Velodrome on Optimism(or other similar model AMMs on other chains?)
We could farm MIM liquidity on these platforms also and reduce our emissions to Curve.
The CRV in the treasury are already being utilized towards curve bribing. The protocol is receiving SPELL refunds from these bribes from yearn.
Thats exactly why, these funds should be used in a capital efficient way, and not just sit idle. A strong protocol treasury opens lots of possiblities. Would love to see 0xWardo’s proposal implemented, then results should be tracked and assessed on how we can further improve the idle treasury.
The idea of fee sharing the treasury is an interesting one, i do believe it needs a bit more work though. Would love to explore it after PoF is launched and results have been assessed…
I’m not totally against this proposal, especially with the current ratio of MIM-3POOL. However, it should be considered that the evey borrowed MIM puts more downward pressure on the MIM peg. And if these cauldrons only produce 6% APY, the yield is below the taget of the most recent cauldrons. Anyhow, unutilized liquidity is worse… I’m also curious about why BSC instead of Optimism and Arbitrum?
How different will this be from what Alameda is doing with FTX. How can we ensure risk is managed within reasonable parameters and what will be those acceptable parameters.
Agree that we should utilise treasury funds to generate returns and improve capital efficiency on those assets, but can we do so without leverage?
In the past events, such as UST and FTT, felt that Abra is taking on high risks for high returns and have blown up multiple times. How can we take on a more measured approach to mitigate our impact from these events. These events are bound to keep happening.
I think OP / Arb are good options as well. I was just pulling highest USDT APYs from Stargate (at the time of writing the post), but they’re all so similar that I don’t think it matters significantly. OP might be the better chain to move towards… Will make some changes.
To me, the key difference is that we are doing this in the DeFi landscape where everything will be fully auditable and seen by the pubilc. You will be able to see how much leverage the protocol is taking, who are the counterparties, etc. In the case of FTX, none of that was even remotely possible due to its centralized, off-chain nature.
To your point, and several others earlier in this thread, leverage can be risky. However, I also feel that it is strange to be worried about using the protocol’s own product. If the protocol would not put their own money into their strategies, then why should it recommend its customers to do so?
This is a good point. The protocol has been carefully looking at how it can better diversify risks and, at the very least, be appropriately compensated for the risk it undertakes (a problem it’s had in the past). In DeFi, nothing is ever completely safe and so I think the best anyone can do is to practice risk mitigation.
Thanks for the response @0xWardo. Agree with you that we should not be afraid of taking risks, but to make calculated risks.
I think we can learn a strategy or two from the TradFi folks in terms of risk management, using strategies such as GARCH, CAPM, Fama-French 5 Factor model and etc but adjusted to the volatility in DeFi.
