Valuing An Investment - Managing Size of AURA Holdings
The performance of each treasury asset and the treasury as a whole must have clear accountability to allow future governance by BADGER token holders. The following is research by $1500Badger on Treasury AURA holdings.
TLDR; BadgerDAO has purchased and is currently farming AURA tokens. Due to recent price rise this position has become over 10% of the non-native assets of BadgerDAO Treasury. As per BIP 89 this position must be reduced to 5% of holdings. This treasury decision outlines the strategy to divest AURA until it meets the holding requirement of 5%.
Background
The price of AURA has risen 48% in the last 30 days causing the vlAURA held by the Treasury to become over 10% of non-native assets. BIP 89 requires these holdings be reduced to 5% of total non-native assets. However, the AURA is locked as vlAURA and can only be sold after the unlock period expires. Here is the current unlock schedule for Treasury vlAURA:
Recommendations
The Treasury team should adopt the following policy:
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If the total treasury holdings of AURA is above 6.5% of total non-native assets any vlAURA that unlocks should be market sold for stablecoins until the ratio of holdings is <=6.5%. Note - the extra 1.5% is allowed by BIP 89 and is intended as a buffer against volatility.
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Sell 100% of incoming AURA into the treasury for stablecoins until the percentage of total non-native is under or equal to 6.5%.
Metrics of Success
How long will the investment thesis take to play out?
Indefinitely. This treasury decision is intended to manage the percentage of AURA in the portfolio and therefore has no current time constraints.
Will the treasury recoup funds or does the investment represent an outlay?
This decision would take profits from an existing investment into stablecoins.
What are the risks associated with each investment?
- Protocol risk (0 - 10)
Likelihood of a smart contract or a system of smart contracts (protocol) is exploited or funds are lost
0 - This divestment of AURA would effectively reduce the Treasuries exposure to AURA contracts by holding less assets in their native token.
- Liquidity risk (0 - 10)
Liquidity risk refers to how easily an asset can be bought or sold in the market.
5 - AURA is a small market cap token and there may be large slippage in market sales of the token.
- Market risk (0 - 10)
Market risk is the risk that arises from movements in stock prices, interest rates, exchange rates, and commodity prices. Metrics to consider : VaR, skew, sharpe.
5 - The AURA price is volatile and there may be the risk of selling AURA and the price declines to reduce total Treasury holdings below 5%.
- Credit risk (0 - 10)
The risk of loss from the failure of a counterparty to make a promised payment, this should cover airdrops expected
0 - There is little to no counterparty risk in this decision.
- Execution risk (0-10)
How long will it take to execute, how many signers on a Multisig or queue of things that must be signed first.
5 - This decision requires active management and multi-sig execution to implement properly.
Parameters For Program End
- This program will end when BadgerDAO Treasury no longer wants to maintain an AURA position.
