2024 Q3 TWG Allowance Refresh

Forum Post: https://forum.inverse.finance/t/2024-q3-twg-allowance-refresh/435

Summary

The Treasury Working Group (TWG) at Inverse Finance seeks to refresh its various allowances for Q3 2024 to continue effective liquidity incentivization management and facilitate strategic management of the DAO Treasury.

Background

The TWG has been instrumental in maintaining robust liquidity for DOLA, sDOLA, INV, and DBR, which is crucial for the stability and growth of Inverse Finance. Our strategies have successfully managed liquidity across multiple chains and protocols, contributing to the continued adoption and success of FiRM, our fixed-rate lending protocol. Challenges such as DOLA bad debt continue to necessitate careful and strategic liquidity management. Since proposal #166, the latest TWG allowance refreshes, the DAO has repaid 1.14m DOLA bad debt.

Liquidity Management

As of Q3 2024, DOLA continues to exhibit a close (soft) peg and deep liquidity, thanks to our active liquidity management strategies. Ongoing incentivization to liquidity providers is required to sustain and enhance this. The INV token plays a pivotal role in these operations, not only for DOLA but also for other strategic assets within our ecosystem, including DBR.

Success in Reducing INV Spend

Throughout 2024, the efficiency of incentivization spending per DOLA in circulation has dramatically improved. This is measured by comparing the net INV spend from the Treasury each epoch against the circulating supply of DOLA. Improvements have been driven by various factors managed via the TWG, including:

• Growth in treasury balance sheet assets that provide liquidity incentives (such as veNFTs)
• Reducing the APR that liquidity providers are willing to accept to provide liquidity
• Using revenues from AMM Feds to subsidize future incentives (rather than realizing them as profit to the Treasury)

The chart above shows data for the net treasury spend per DOLA in circulation and DOLA circulating supply over the past year. Towards the end of 2023, DOLA suffered increased downward volatility, leading to a far worsened cost to incentivize liquidity among the pools. With focused incentives targeting ecosystems that both achieved higher than market vote incentive efficiency and scale, from 2024, the cost per DOLA in circulation was continually reduced. At the start of March, DOLA started achieving upward pressure on the peg, allowing AMM Feds to start rapidly expanding the supply. This was largely triggered by the extremely large price appreciation of AERO, where the TWG had been building a large veAERO position, and so was able to take full advantage. In the present day, the DAO maintains significant AMM Fed liquidity over various ecosystems, given the large DOLA circulating supply; this, along with the DAO’s large portfolio of emission-controlling tokens and NFTs is allowing for significant subsidization of DOLA liquidity incentives.

This has led to a significant reduction in INV inflation, which allowed the 2024 Q1 INV mint to last far beyond the year's first quarter.

Utilizing sDOLA

With a growing stablecoin balance held in the Treasury, the TWG utilizes a portion by providing liquidity to DOLA pools (and farming the rewards). Currently, large amounts of DOLA (1.13 million) sit idle in the Treasury. The TWG seeks authorization to deploy idle DOLA into sDOLA, held in the DAO Treasury. This acts as a partial revenue share of the FiRM protocol to the DAO Treasury, allowing for the growth of stablecoin reserves, which can be utilized for operational expenses (opex), capital expenditures (capex), and bad debt repayments. The TWG will likely deploy Treasury DOLA into sDOLA when DBR policy is not contractionary (deflationary). The TWG will actively manage the Treasury's DOLA balance to ensure sufficient liquidity is available for short-term financial commitments.

Additionally, this should increase DOLA within sDOLA significantly, allowing for additional depth to be added to the sDOLA Auction in a subsequent proposal that will allow it to be profitably arbed with less of a spread to the market price of DBR.

Proposal Ask for TWG Allowance Refresh

Given the ongoing needs and strategies outlined above, the TWG Proposes the following allowances to be granted:

• Refresh the INV allowance to 22,000, ensuring uninterrupted liquidity management as well as facilitation of smaller OTC swaps
• Provide sDOLA allowance of 4,000,000, allowing for constant management of sDOLA held within the Treasury (meaning it can be frequently pulled in and out)
• Refresh DOLA allowance to 4,000,000
• Refresh CRV allowance to 10,000,000, allowing access to AMM Fed rewards, utilized primarily for liquidity incentivization
• Refresh CVX allowance to 500,000
• Refresh Aura allowance to 1,000,000
• Refresh BAL allowance to 500,000

Additionally, as part of the S2 initiation proposal, the on-chain action to provide the payroll contract with a DOLA allowance of 800,000 was missed. This action will be added to this proposal to ensure that DOLA payroll can continue uninterrupted throughout the season.

Use of Allowances

• INV is primarily used for liquidity incentives, however, on occasion will be used to add to AMM liquidity pools (forming POL), or facilitate smaller-sized OTC swaps (using all the proceeds to repay DOLA bad debt)
• sDOLA allowance will be used to pull and unwrap sDOLA into DOLA and return to the DAO Treasury when it is needed (WG OpEx and repaying DOLA bad debt), but may also be pulled to deposit into sDOLA liquidity strategies (such as sDOLA/DOLA). The 4m request is large and round, this is due to the unpredictable nature of the management, with large allowances quickly being depleted on every action
• DOLA’s allowance is to allow three actions: adding DOLA into a yield strategy (such as DOLA/FraxPyusd) to either earn a return for the DAO or seed an initial position, to wrap into sDOLA, and to repay DOLA bad debt. The 4m request is large and round to allow uninterrupted management of the Treasury’s DOLA balance over the coming months.
• CRV’s allowance allows the TWG to pull CRV from the Treasury, earned by the DOLA/FraxPyusd Fed and the Convex Fed (DOLA/FraxBP). This CRV is primarily used to recycle rounds into additional liquidity incentives but may also be sold to DOLA to realize profit to the Treasury or locked into sdCRV. The TWG is considering increasing the DAO’s sdCRV position (currently 542,860 sdCRV) to increase the DAO’s voting power in the curve ecosystem (permanently reducing the need for INV spend). The 10m allowance is large and round, and will likely last longer than Q3; this is to avoid full depletion of the allowance too soon, potentially disrupting the DAO’s liquidity incentivization strategy
• The CVX allowance is primarily used for vote incentives, but the TWG continues to monitor the utility of locking to vlCVX
• The BAL allowance is primarily used for vote incentives but may be locked to sdBAL. Whilst no near-term plans for using this BAL to lock to sdBAL, the TWG is monitoring the development of Balancer V3 in case it presents more opportunity with an increased vote weight
• The AURA allowance is used primarily for vote incentives. The DAO controls 106k vlAURA, and there are currently no intentions to increase this.