Summary: Discuss topics related to treasury management strategies & Warlord infrastructure.
Context: The PIP-11 is introducing the Warlord components and discussing potential infrastructure design improvements. This PGM will discuss Warlord launch strategies, treasury management, WAR distribution and DAO profitability & treasury distribution.
Rationale: The topics discussed on PGM-17 were almost all tackled over the past weeks/months such as:
- Improve the Paladin ecosystem growth (Quest amount growing + monthly updates + communication on Lens),
- Accumulate stables (Discussed in PGM-30: Treasury Management #4)
- Allocate strategic assets (Discussed on PGM-25 & 27 and executed)
- Build Warlord (Discussed on PIP-11 & In work by the Mithras Labs)
- Create a legal entity used by the DAO (Voted PIP-10 & In work by the Paladin team)
- Retroactive grant & compensation for contributors (Discussion started on PGM-26)
As mentioned on the PIP-11, this proposal will focus on the following topics:
- Strategic treasury deposit discussion to bootstrap Warlord and mint WAR
- WAR allocation if treasury mint (held on Warlord Msigs or distributed)
- Profitability threshold to enable enable WAR & treasury distribution
- Strategic assets yield management on Warlord Msigs
These discussions will help finalize the Warlord strategies before the release.
I) Strategic treasury deposit discussion to bootstrap Warlord and mint WAR
PIP-11 considers deploying the Warlord infra and adding WAR mint cap on both assets to begin with and a redeem module. The Paladin DAO could decide to deposit part/all of its strategic assets on Warlord lock contracts or to keep growing its strategic treasury managed by the Warlord committee.
My thoughts on this point will change depending on the redeem implementation discussed in PIP-11, but i’ll describe all situations and why I think it’s very dangerous for the DAO to keep the proposed design:
a) Implementation of redeem with small exit penalty
Mithras Labs suggested implementing a redeem feature allowing to burn WAR to get AURA and CVX redeemable with a small fee, which is good for external users but there would be huge risks of treasury attacks so the DAO should not deposit on Warlord to avoid it.
In this case, the strategic holdings should continue to be managed on the Warlord multisigs by the committee.
b) Removal of the redeem feature
Accumulating a strong voting influence takes time and the DAO started very recently.
Growth would be much more complex if we risk any locker redeeming the strategic assets.
In my opinion, the DAO goals should always be to avoid governance attacks & increase the backing value (which means relock until voted otherwise and no redeem possibility). In this case, the Paladin DAO could safely deposit but this would reduce some interest for external users.
C) Implementation of the redeem feature with a serious exit penalty
Implementing a serious exit penalty considerably reduces the risks by dissuading anyone to redeem. In which case, the DAO could deposit part of its strategic assets on Warlord contracts & manage the remaining on the multisigs.
II) WAR allocation if treasury mint (held on Warlord Msigs or distributed)
If the Paladin DAO decides to deposit on Warlord (which could be dangerous if the redeem with small exit fee is implemented), the warlord multisig would mint WAR tokens.
In this scenario, Mithras Labs suggested distributing it to hPAL lockers but an alternative solution could be to accumulate the WAR on the Warlord multisigs, which can do retroactive airdrop with a portion of the WAR accumulated once it’s not critically impacting the strategic voting power anymore.
Several options should be considered here:
Either consider using the infrastructure for the DAO treasury and remove the redeem module
Or, short term: Keep managing the DAO strategic voting power by the committee, to deploy the Warlord infrastructure proposed (with a potential exit fee increase)
Mid term: Fork the Warlord infra by removing WAR mint & redeem modules, and dedicated to the Paladin treasury which protects from governance attacks and automatize part of the management.
III) Profitability threshold to enable WAR & treasury distribution
Mithras Labs suggested a potential WAR airdrop for hPAL lockers, as well as depositing some strategic assets in Warlord infrastructure, which makes it redeemable and similar to a treasury distribution. I would be the first to support this if the treasury was in a healthy state, but not in these conditions:
While the non PAL treasury is worth 730,000$, 75% of this value is materialized by debts:
- 100 ETH (180,000$) loan from Mithras Labs (Used to fund the POL strategies)
- 320,000 USDC loan from Mimo Labs (Used to avoid liquidation on Ondo)
- 48,000 USDC interests to pay for Mimo loan
Additionally, PGM-17 voted for a 2M stables accumulation target, which would set the minimal threshold after which treasury distribution could be considered would be 2,5M$.
However, I believe the DAO should vote for a more conservative threshold enabling it to secure a good treasury and incentivization of the Paladin ecosystem pillars.
Additionally, another threshold for governance influence should also be defined before considering to deposit part of the strategic assets & make it redeemable.
IV) Strategic assets yield management on Warlord Msigs
Assuming that all strategic assets managed by the committee are generating revenues, we can estimate a yield generated in cvxCRV, cvxFXS, auraBAL, bb-a-USD as native yield and USDC from Quest votes incentives for the vlCVX & vlAURA positions.
vlCVX base APR is 2,32% paid in cvxCRV & cvxFXS + 25% APR in USDC
9,1K vlCVX would generate 1,182$ + 12,740$ = 13,922$
vlAURA base APR is 3,35% paid in auraBAL + 37% APR in USDC
11,8K vlAURA would generate 1,320$ + 13,970$ = 15,291$
While the Paladin revenues will grow over time, 29K$/year is very limited to consider distributing part of the treasury (might result in a poor APR) + it’s not an appropriate time (too early) considering the DAO treasury and debts, especially if part of it will be sold for ETH to cover gas costs of the Warlord infra.
In my opinion, the remaining yield generated in non-strategic assets on the Warlord multisigs should either be used to pay back the loan and accumulate the stable treasury needed.
An alternative option could be to fully compound this yield in the vlAURA & vlCVX strategies.
Strategies updates proposed:
- Depending on redeem & exit fee, discuss if strategic assets should be allocated to Warlord or not for now
- Postone initial distribution by holding WAR on Warlord MS if treasury allocation (retroactive airdrop later)
- Minimal profitability threshold for WAR & treasury distribution set to 2,5M$ stables (higher threshold recommended).
- Minimal governance influence threshold to start minting WAR (if redeem implemented)
- Use the yield in non-strategic assets to pay back & accumulate stables (or compound)
This PGM might be split into several proposals for clarity purposes.
Potential audit cost
Yes, implement the updates
No, rework proposal
- Yes, implement updates
- No, rework the proposal