RFC - Proposal to make a treasury deployment to Resonate for 50% ROI on MIM-3CRV

[RobAnon]

Hey everyone, I’m Rob. My group Revest Finance previously created the Revest Protocol and has since been building on top of that to create Resonate. You can find out more about it in our docs here.

For the past few months, we’ve been working with Romy on fine-tuning a proposal for you. I’ve attached it to this post and look forward to working with you to fine tune it more! We’re doing something fairly similar to the way Velodrome launched themselves, with a large lineup of pre-launch partners, and we’d like to have yall as part of that – as the proposal describes, the farm we’re looking to pair you with is Yearn, and they are onboard with co-marketing for this proposal should it pass and us become partners.

Scope: Approve deployment of 250,000 MIM to Resonate Yield Futures protocol within 2 weeks of the passage of this proposal or 1 week before the public launch of Resonate (whichever is later). This capital is to be deployed in 5-10 separate and staggered transactions, at the discretion of those to whom deployment responsibilities are delegated to.

Objective:

1. Become a launch partner with Resonate.
   a. Co-market utilizing Twitter, Medium, and any other social media platform.
   b. Display each other’s logos on one another’s websites.
   c. Include a link to the Resonate Dapp (or the relevant Resonate pool(s)) on the Abracadabra Dapp.

2. Deploy MIM and diversify treasury to DAI, USDT and USDC (at a 150% multiplier).

3. Lock-down $5M of mercenary liquidity for 12 months.

4. Offer upfront yield payouts on Stablecoin farming of 5%.

Summary

What are we proposing?

Currently, the Abracadabra treasury has been holding MIM. This serves no direct benefit to the treasury. Coincidentally, the treasury is sidelined from the Curve MIM Yearn Vault (composed of MIM, DAI, USDT and USDC), which could yield the treasury incredible returns (average APY of 6.7% over its lifetime). Resonate offers a solution that would allow Abracadabra to use its MIM treasury in a more productive manner. Using a Resonate pool, Abracadabra can emit MIM tokens in a lump sum to users in exchange for locking Curve MIM liquidity, while also redirecting the Curve MIM rewards on that pool to the treasury. (Yearn automatically harvests the CRV and CVX rewards for more Curve MIM).

Under this proposal, Abracadabra will deploy up to 250,000 MIM to a Resonate pool to incentivize users to deposit Curve MIM into the Resonate pool while earning a return of 50% on the MIM deployed. These tokens will be locked for a 12-month term and deposited into the Curve MIM Pool yVault, earning yield.

When a user deposits into the Resonate pool they forfeit the Curve MIM yield in return for an upfront payment in MIM tokens.

What does this mean for Abracadabra?

Through their ongoing acquisition of CRV and use of it to direct emissions onto the MIM-3CRV pool, we estimate that Abracadabra could earn an average return of 7.5% in MIM-3CRV (MIM, DAI, USDT and USDC) on the 250,000 MIM deployed. Abracadabra would diversify its treasury via a synthetic swap into other stablecoins while, simultaneously, earning a yield on those stablecoins through stablecoin boosting.

Through this program, Abracadabra incentivizes locking $5MM of mercenary liquidity into the stablecoin farm for a period of 12 months.

Learn more about Resonate here.

Overview

Resonate is a Yield Futures Protocol developed by Revest Finance and built on top of Revest’s Financial NFT (FNFT) technology.

Using Resonate, we’re able to separate the principle and interest components of a position by issuing two FNFTs—one containing the principle and the other containing the rights to future interest on that principle.

Resonate facilitates the commerce of the rights to future interest by matching Issuers—who want to sell off their interest rights for a one-time upfront payment—and Purchasers—who want to buy the rights to future interest for a one-time upfront payment.

Risks

For an issuer (typically ‘retail investors’ and ‘smart money’) the risks are minimal. Mainly, they’re restricted to token price fluctuations.

A purchaser, on the other hand, is exposed to opportunity cost. This implicitly points to the optimal candidate to take on the role of the Purchaser: DAOs and Protocols!

Normally, Abracadabra would be unable to deploy Curve MIM from the treasury to the farm as:

1. they would have to swap current treasury assets to obtain Curve MIM, and
2. their direct deployment would dilute the yield provided to that farm.

This means as a purchaser, Abracadabra will not experience any form of opportunity cost due to not being able to utilize these tokens to begin with.

Purchasers hold their principal within the Principal-FNFT and, therefore, retain a fully liquid FNFT throughout the term, allowing them to sell it on OpenSea, LooksRare or SudoSwap should the need arise.

Details

1. 5% of the principal is paid upfront in MIM to incentivize ‘retail investors’ and ‘smart money’ to enter the Curve MIM Yearn Vault, giving them instant yield paid in MIM.

2. Their Curve MIM is held within a Principal-FNFT for 12 months.

3. The FNFT remains fully liquid throughout the term, allowing them to sell it on OpenSea/LooksRare/SudoSwap should the need arise.

4. The Curve MIM is deposited into the Curve MIM Pool yVault on Yearn. Yearn supplies Curve MIM to Convex to earn CRV and CVX. These rewards are harvested by Yearn and sold for more Curve MIM, which is subsequently deposited back into this vault.

5. The Curve MIM rewards generated are delegated to the Interest-FNFT held by the Abracadabra treasury and these rewards may be claimed at any time.

*Please note that the “per 100 tokens deposited” is a standardized value and the minimum amount of tokens required will not be this large.

Implementation:

• Incentivize liquidity on Curve MIM farm

  • Utilize up to 250,000 MIM to incentivize Curve MIM deposits for 12 month terms

  • Pay out 5% upfront (in MIM) resulting in 125k of revenue for Abracadabra (an ROI of 50%)

    • Issuer receives 5% immediately rather than waiting 12 months for 7.5%

  • Adjustments to upfront payout may be made on an as-needed basis by switching pools. There is no limit to how many pools may be created on Resonate and movement between them is free.

• Projected TVL Gain within MIM-3CRV: $5MM

• Abracadabra ROI: 50% return, $125,000 profit

Business and Technical Requirements:

Resonate would deploy an adapter for Yearn that will allow Abracadabra to claim the interest in MIM-3CRV. This adapter has been audited twice and reviewed by BadgerDAO’s Solidity lead.

Fees: 5% on all upfront payments to the issuer; 5% on all interest generated through the lockup period to the purchaser. No fee assessed to principal on deposit or withdrawal.

Glossary of Terms:

• FNFT - Financial Non-Fungible Token.

• Yield Futures - the separation of a stake’s periodic interest payments from its principal repayment obligation to create a series of individual FNFT’s. With Yield Futures, the underlying stake becomes a principal-bearing FNFT and each interest payment can be claimed through the interest-bearing FNFT at any time.

• Principal FNFT - This is the FNFT where the original sum of tokens staked is held.

• Interest FNFT - This is the FNFT where the interest from the principal FNFT will be sent. You are able to withdraw the interest accrued at any time.

• Synthetic Swap - When you use Resonate to trade your own token, or another token, for a completely different token to diversify your treasury.

• Stablecoin Boost - When you deploy stablecoins from your treasury to receive higher than normal yields if you were to just deploy to a stablecoin farm.

• Mercenary Liquidity - Liquidity that is deposited into a liquidity pool solely to reap the benefits, leaving the minute that things turn difficult. If mercenary liquidity is not locked-down, its owners will pull LPs at the first sign of market instability and sell the native token into the now more-shallow liquidity pool, pushing token prices into a downward spiral.

*Curve MIM is equivalent to MIM-3CRV

[Shibaattacknow]

Going to think through this- basically this proposal……

A) encourages people to deposit MIMCrv into a pool and lock the equity for 12 months
B) in return - they get anticipated return back immediately (5%) + a fNFT that represents the principle which in itself is liquid
C) theoretically they could even use this nft on abranft in the future?
D) Benefits to abra- MIM supply becomes tighter by reducing individual unit supply of MIM, but not the actually supply because it’s still liquid via the form of the fnFT
E) MIM becomes more of a 1 year treasury bill with an upfront payout , giving it further utility.
f) future yield is never guaranteed - where do losses occur if yield paid isn’t distributed ?
G) scaling - estimated at 5m , is this capped at 5 mil?
H) from abra- is doing something like this more beneficial than just buying more CRV

Rough thoughts as I’ve just reviewed

[RobAnon]

A, B – Exactly
C – Yes, the FNFT is an 1155, the link above should give you a good idea of its appearance as well.
D – MIM supply becomes tighter and sticky liquidity depth is increased as well. This has a number of benefits, the greatest of which is that mercenary liquidity is incentivized to give up its mercenary nature and the protocol benefits from that buffer of locked-in liquidity.
E – You’re seeing some of the cash-and-carry opportunities? It definitely allows for some really cool stuff.
F – If the expected yield isn’t realized, the treasury would lose in this instance, as it’s taking the bet that realized yield will be greater than or equal to 5% of the principal. The treasury is in an ideal position here, because they have more control over the yield having control over the CRV emissions that power the pool. That all said, the allowance that things don’t go perfectly is part of the reason that the optimal and expected scenario of 7.5% is 50% higher than the baseline payout. If the actual yield ends up only being 6.5%, then the treasury has still made a 30% ROI.
G – The amount of 5M is emergent from the amount Abra will pay out up front. Because Abra is paying out 250K at 0.05, that results in 5M being the cap (250/0.05 == 5M)

[Shibaattacknow]

I really like the idea. Can it scale year over year is my concern. 250k in the bottom of a bear is substantial liquidity. Id love to say let’s ramp this up and hand over 5.6milllon MIM , you hand us back 2.8m- that’s used to pay down a portion of the bad debt and we still have the 5.6m fNFT to serve as treasury collateral. Form a partner year over year and make mim a fat treasury bill system that soaks up unit liquidity. Id like to hear Romy’s opinion , Dani as well.

[RobAnon]

It can scale. The depth of the MIM-3CRV pool is already significant and with continuous direction of CRV emissions onto the pool via using some of the profits to buy additional CRV and increase returns from MIM-3CRV, it’s possible to have this thing keep working as long as the APY on the CRV pool can be sustained and willing parties found. By tweaking variables along the way, it’s even possible to get a better idea of demand vs. profit and optimize the upfront payout to bring in the highest amount of people with the best profit margins.

The things to monitor with the first deployment will be switching rates (how many new LPer’s show up vs. how many existing LPer’s elect to receive upfront payouts) and how that impacts the APY on the Yearn farm. With the current liquidity on MIM-3CRV, this initial test is unlikely to lead to aggressive changes in the APY, however, the observed switching rate will play an important role in designing a scaled-up offering.

Also, cool little knock-on effect is that since the interest is in MIM-3CRV and you get more out than you put in, you can actually use this to push balance on the Curve pool around as the treasury claims the LPs and converts them to MIM.

[Cookiemonster12]

Hello! Interesting proposal. I see you’ve made similar nearly identical ones to a number of other protocols, one of which was made to Alchemix last week and was rejected by their lead devs who voted no. While I definitely see merit in the idea a $5m commitment is significant and want to make sure all concerns are addressed fully. I have linked that post with relevant discussion here for reference [AIP-60] ALCX Resonate Treasury Deployment - Alchemix Governance.

A few thoughts I have off the cuff similar to what was asked their, but $5M seems like a rather large commitment to serve as the initial allocation for a new and untested protocol, has this Resonate itself received a full audit? When I was initially skimming it appears the audits are for Revest on top of which Resonate is built but is a separate protocol (which also suffered a large exploit recently which to be fair appears to have been since fixed).

There was also some discussion in the Alchemix governance telegram about concerns some ex-developers had with the Resonate team. Without digging into it too much those concerns can be ignored if Resonate is fully trustless, with admin privileges being revoked from the founding team completely and immediately upon launch of the Resonate protocol. In other words, just to clarify, the Resonate team will fully and in its entirety burn their admin keys or similarity reliquish any admin privileges over the full Resonate protocol upon launch. Could you confirm that is indeed the plan?

Thank you for your time and proposal, we look forward into exploring it further (:

[BrabDdy]

Intrigued by the proposal as I like the idea of the treasury taking advantage of people’s time preferences but I have a few questions.

1. Do you think the demand for an instant 5% return will be strong?

2. Since we’re depositing into a yearn vault, we’d be paying the traditional 2/20 fees correct? At current convex rates, ~8% APY, I fear it’s likely that Abra suffers a loss here. After paying 2% on the total deposited to the yearn vault, losing 20% of the 8% convex yield, and paying out an upfront 5% to depositors, that napkin maths to a cost of 8.6%. Or a net loss of -0.6% on investment.

3. What happens to the 250k MIM from the treasury if the offering isn’t utilized? Is there some timeline involved? If there is a longer timeline for when people can use the offering, is the 5% upfront set in stone or dynamic?

[Shibaattacknow]

Investment proposed is 250k , 5 million deposited by users , each recovering 5% initial return on equity locked

[Shibaattacknow]

My thoughts are pretty well consolidated now, I like the strategy , but the yes or no comes down to; is this the most efficient use of current treasury capital? I leave that up to romy , Dani , and some of the more well minded leaders amongst abracadabra

[Shibaattacknow]

Id say this proposal could be improved to reward nft holders with X (90%) of the rewards over the projected interest rate considering the amount of CRV that will be locked from treasury and mcrv inflow

[RobAnon]

Protocol is fully trustless and has been audited twice, by both BlockSec and Zellic. Zellic you’ll know as the guys who audited 1inch, Sushi, and Stargate, and BlockSec as the guys who audited Crypto.com and NEAR. We’ve also befriended PnwedNoMore, a security research startup out of Georgia Tech and are being onbaorded as alpha-testers into their next-gen fuzzing framework. Finally, we’ve been running a private bug bounty the past few weeks to get even more eyes on the code and are also currently working with Code4rena to set up a contest pre-launch.

There are no ‘admin keys’ and there is no way for the multisig to access funds – Resonate is fully sandboxed.

[RobAnon]

1. Yes, I think among more conservative investors, 5% is an acceptable rate. Particularly when you’re talking about more institutional players and their friends, a guaranteed RoR of 5% in exchange for a capital lockup isn’t all that different from a Certificate of Deposit (CD). If you told me I could get a guaranteed yield of 5% on my stablecoins by locking them for a year, particularly into something that was still fully liquid as an NFT, I’d be interested. Think of all the times you’ve seen a yield that said “18%”, dropped in your stables, then come back months later to find it at 0.4%. Definitely plenty of people who have a low-risk appetite and would find something like this to be wonderful.

2. I’m not entirely clear if Yearn includes those fees in their APY calculations or not. Setting up a homebrew autocompounder based on ERC-4626 wouldn’t be all that difficult. I’ll look into the fees and let you know what I find out.

3. Once the capital has been deployed, which we recommend doing in stages, it will sit in the Resonate pool and hang out as people slowly consume it. Based on market conditions, if the APY changes dramatically (eg goes up to a stable projected 15%), those who had control of the deposit delegated could pull it out of the 5% upfront payout pool and put it into a higher payout pool to attract even more interest (e.g. 10%). Capital that hasn’t been “activated” yet can just be withdrawn at any time

[RobAnon]

I looked into it further. The APY displayed by Yearn (currently bottomed-out at 3.83%) does account for fees on that strategy. According to the data from DeFi Llama the historic average APY on that pool is 6.66% over a period of about 7 months of data collection. The median value is 6.26%, and the standard deviation is 3.25%, which means that it’s more likely we’re looking at lower-end numbers at the moment. Assuming we see an increase to 7.5% with increased CRV emissions from the Curve that Abracadabra is in the process of locking over the course of this coming year, the fees accrued to Resonate would be 0.375% of the yield that has already been charged by Yearn. Abracadabra treasury would get 7.125%, assuming goals are met.

If we use the historic Yearn average value of 6.66% and apply our fees, that’s 6.327% to treasury

To break-even on this strategy, Abracadabra would need the pool to earn at least 5.26% APY to account for Resonate’s fees.

If we were to work with Abracadabra to construct a custom ERC-4626 auto-compounder to hook into convex’s 8.7% APY, that does avoid the Yearn cut and offers higher upside. It would be more work, but the audit wouldn’t be expensive and we’ve already written a fair number of adapters (Yearn, MasterChef, MasterChefV2, etc.)

Also worth noting that I can’t fathom why Yearn is showing 3.8%, as their gross APR from Convex currently reads 7.75%. Even after 2% fee (7.75% - 2% = 5.75%) and 20% fee (80% * 5.75% = 4.6%), the APY is still 0.8% lower than the math says it should be. Quite odd.

Edit: I spoke with Yearn, they are checking into it.

[BobDinkytown]

To further add onto Rob’s analysis, the 30-ema of the yield rate is around 5.4% and the 60-day ema is around 6.5%. Historically, the yield rates tend not to stay at these low levels and typically revert course pretty quickly. To illustrate further, the average yield rate in June was still 6.87%, and the 30-day simple average starting at the time when the rate hit an all-time low of 1.9% was 9.65%. The historical APY tends to range (~80% of the time) between ~3% and ~10%. It’s reasonable to believe that the rate will move back up and maintain (within reason) the 7-month mean we’ve seen so far.

[Shibaattacknow]

Tight margins regardless. We don’t won’t to turn mim peg from a price of 0.9999 to a peg on a rate. Food for thought .

[BobDinkytown]

The margins aren’t all that tight. In order for the treasury to incur a net loss, the average yield would have to drop by 25% (not the current rate). Averages are much slower to change.

Using Resonate to offer upfront yield on the MIM-3CRV pool doesn’t change the underlying peg mechanism. Behind the scenes, to be slightly reductionist and simplistic, the deposits are ending up in the MIM-3CRV pool. Resonate doesn’t change that. All that Resonate does is offer a mechanism to lock-in deposits (for the upfront yields) and to reroute the yield on those deposits to other parties. All that is to say, using Resonate will not turn MIM into a peg on a rate.

[RobAnon]

Looks like a strong synergy between the Yearn proposal and what we’ve been discussing here. Cross-linking for convenience

[0xWicked]

Resonate has created a unique concept here. However, when it comes to these collaborations, one must not ignore the additional smart contract risk involved.

As of right now, I do not see the need of attracting additional $5M liquidity to the MIM 3pool. I’d like to watch the Resonate team launch these products and observe their performance from other protocols first, see the results, and reassess if we need to attract this additional liquidity through a novel mechanism.

[RobAnon]

If the concern is smart-contract risk, perhaps I can put you at ease.

The ERC-4626 adapter that would be used for Yearn, we are building in collaboration and with feedback with the Yearn team themselves.

We’ve had two formal audits and a third, informal one from a lead contributor to BadgerDAO.

We’ve been running a private bug bounty for some time now and have successfully paid out for a few corner-cases on vectors that were only available to those with admin-tier permissions. Those vectors have been closed.

We also have an ongoing collab with security research firm PwnedNoMore who are performing fuzzing with their next-gen business logic level system on our contracts.

Finally, we’re going to be launching with an Immunefi bounty on Resonate. The Revest Protocol has had one live for months now.

It is precisely to limit risk and exposure that we have started at something as low as 250K and 5M in liquidity. If you think that is too high, I’d love to hear a suggestion of a number you think might be more reasonable.

[0xWicked]

It is not about the $250k but rather the need of attracting additional 5M liquidity with a novel mechanism like yours. Growing liquidity is definitely an important subject, but in current markets it is not the priority. I would like to observe your launch and see your product function in production. As of right now I do not see the advantage or the need to become a launch partner. I’d gladly follow up with you after your launch when you have more data on your product and need of new liquidity arises.