AIP #44: Constitute a Depeg Contingency Fund

AIP #44: Constitute a Depeg Contingency Fund

Tl;dr: Constitute a Depeg Contingency Fund (DCF), coming initially from the DAO’s SPELL emissions budget and later on from other sources of revenue of the DAO, to step in and improve MIM peg and collateralisation in situations of extreme stress.

Introduction

In our industry, stability is paramount.

For Abracadabra DAO’s stablecoin, MIM, maintaining its peg to the US dollar at $1 has been a hallmark achievement, even amidst turbulent market conditions and crysis we have navigated together.

Despite weathering numerous crises with resilience, the time has come to fortify MIM’s systems further. With a steadfast commitment to enhancing stability and resilience, we are proud to propose for SPELL holders voting a groundbreaking initiative: the creation of a Depeg Contingency Fund.

This strategic reserve is poised to elevate MIM’s collateralization mechanisms, solidifying its peg to $1 and ensuring its steadfastness in the face of future challenges. Join us as we explore the rationale behind this initiative and its profound implications for the stability of MIM within the DeFi ecosystem.

Proposal

In response to recent events and with a keen eye on fortifying our defenses against potential adversities, the following proposal is to propose the establishment of a Depeg Contingency Fund (DCF) in the imminent future.

The DCF, if instituted, will fall under the governance of the DAO and will be secured by our DAO Multisigners, ensuring transparency and robust security measures throughout its operations.

Designed with the primary objective of stepping in during critical junctures that exert pressure on the peg of MIM, the DCF is a wallet funded with different assets, that will mobilize its resources to acquire MIM from the market or be used to collateralise the infrastructure further. Note that before acquiring MIM, a snapshot vote will need to be created, for SPELL holders to vote upon these strategical deployments of funds.

Multiple lending protocols have similar ecosystem funds created to be ready to be deployed in case of extreme conditions.

It is time for the AbracadabraDAO to have one as well.

These acquired assets will then be strategically deployed followings DAO votes (some examples of how these funds could be used are: staking them in the MIM savings rate to bolster DAO revenue while reducing MIM circulation, or by securely holding them to maintain stability).

As the DCF becomes an integral part of our DAO operations, it will play a central role in enhancing the stability of MIM and LPing activities within our ecosystem. This participatory approach underscores our unwavering commitment to the democratic values of decentralization while fortifying the resilience and sustainability of Abracadabra Money DAO in the ever-evolving landscape of decentralized finance.

The first step towards creating the DCF is replenishing it with one of the main assets the DAO has: SPELL.

The DAO has plenty of SPELL in its Liquidity Mining treasury, and which should be used also to improve the overall protocol setups. As a start this proposal aims to mint 6B SPELL tokens towards a new multi signature that will be composed of the same members of the one found here, that have helped secure MIM since its inception.

The goal is to create a DCF as diverse in composition as possible, tapping in not only SPELL, but also several others assets in the future.

In the future, further proposals will be submitted to use other assets to replenish the DCF.
An example, to be discussed in a further proposal, would be to have part of the DAO treasury, airdrop and overall revenue to be sent directly to the DCF to further strengthen it.

For the assets in the DCF to be used, a Speedlaned AIP will need to be created, that will permit SPELL holders to decide on it, while also being able to act swiftly addressing market concerns.
Similarly, any other action that the DCF will take will need to follow this practice.

The following SAIP would follow the template #AIP 44.X, to adhere to the DAO usual practices, but there will be no predetermined time commitment, to make sure it can be deployed swiftly and timely.

If this proposal was approved, the DCF would be constituted, seeded with SPELL, and nothing more. More proposal would be needed to start using parts of those assets, as well as adding other assets into it.

Voting

Considering the time sensitive nature of this proposal, a snapshot vote will be created soon to allow SPELL holders to vote upon it.

Voting will go live today 07/02 and last 72 hours. Snapshot can be found here.

If voting was to pass, the fund multisig would be created and seeded with SPELL, and no further actions would be taken before further DAO votes.

Voting has succesfully passed, the DCF multisig can be found here.

I support AIP #44 and the initiative to establish the Depeg Contingency Fund (DCF), which is a strategic move to enhance MIM’s stability using SPELL tokens, representing our equity. The key here is to find the right balance in how we respond to financial challenges, choosing between leveraging our treasury resources or the DCF.

While I stand behind the DCF’s creation for its potential to protect and stabilize our ecosystem, I advocate for a careful approach in deciding how and when we utilize these funds. It’s crucial that we manage our resources wisely, ensuring we neither hinder our development capabilities by draining our treasury nor compromise our equity’s value through excessive reliance on the DCF.

This balanced approach will allow us to navigate financial challenges effectively, safeguarding both our operational runway and the long-term interests of our stakeholders.

1 Like

Is the DCF being used to cover the exploit or has the treasury already done that? Is there outstanding debt from covering the old bad debt? If not could this be used as an opportunity to restore the 75/25 split for SPELL holders as a sign of good faith for these emissions?

I am very open to any proposals to restore the fee sharing, I would support it with my SPELL.

The core idea of the DCF is to get ready a new basket of assets to protect the protocol for future situations of stress. Hope this makes sense!