Treasury Council Decision #27: Deposit $500k BADGER/WBTC in Bunni combined with an incentive program
TLDR: Deposit $500k into Bunni (at current prices will be roughly 10 WBTC and 74846 BADGER) in [-50%, 125%] range coupled with an incentive program of $1-$5k/week while its returning positive ROI for treasury based on its capture of emissions
BadgerDAO had successful operations with its TCL and incentive programs in different Hidden Hands markets (Aura, Balancer & Frax) in the past months. Bunni represents a fresh opportunity to expand treasury yield farming ecosystems, while being nearly on its inception of the supply schedule emitting 1373100 LIT/week during 23’.
Our ranges in Uniswap V3 are already covering our liquidity needs and have generated during 22’ a total of $568k from swapping fees. Making the [-50%, 125%] range fitting our needs for this opportunity, since it will decrease overhead governance processes (gauge requests) and missing rewards during some weeks in the case of going with a tighter range, given that when it’s out of range it will not receive the yield.
Second order impact is further support of BADGER liquidity on-chain.
Deploy $500k of capital in [-50%, 125%] range in Bunni and stake in the gauge to being able to claim oLIT rewards, while exercising the option will be at a discount (currently 50%), receiving LIT, which will be sell in the market for stablecoins or ETH depending on treasury needs.
Incentivisation program allows depositing in Hidden Hands Bunni marketplace $1-$5k/week, exact amount will be determined on a weekly basis considering previous rounds efficiency and our capture of the gauge.
Metrics of Success
How long will the investment thesis take to play out?
Perpetuity, as long as the yield opportunity presents with positive ROI for the treasury given the incentive program details.
Will the treasury recoup funds or does the investment represent an outlay?
Funds will be recouped by the emissions received in oLIT and sold for stablecoins or ETH while exercising the option. Once funds are not recoup and presents an outlay, the program will be leaning towards finalization.
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
<3>: After internal DD the likelihood of funds being stolen seems low given that there are no privileges on ACL in the Bunni SC’s. Ultimately, Bunni represents a wrapper of Uniswap V3 liquidity management with a gauge system built on top.
Unique outstanding concern is on the possibility of the discount manipulation while exercising the option being configured in such a way that there is either no discount present or we could end-up overpaying. Plans around that is to track via tenderly the event in the appropriate contract if the values have been updated and minimum amount control in the scripts expected.
yAcademy report. Critical findings have been resolved. Commit references can be found in the report
Liquidity risk (0 - 10): Liquidity risk refers to how easily an asset can be bought or sold in the market.
<3>: Ratio of the liquidity provided can be skewed in either direction towards WBTC or BADGER depending on which tick price we will withdraw.
- Credit risk (0 - 10): The risk of loss from the failure of a counterparty to make a promised payment, this should cover airdrops expected.
<4>: Rewards are streamed on-chain based on schedules, but the discount of the options received can be modified by owners making the promise of the yield payment negative ROI for treasury. In that scenario, the program will cease.
- 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.
<2>: Scripting the appropriate infrastructure may take some time, but there is no risk of front-running presented in this operation. It will require at least 5 signers to successfully carry the operation on-chain.
Conditions to end of the program
Whenever our incentives vs yield presents negative in multiple consecutive weeks, we will proceed to exit Bunni with our liquidity and stop the incentivisation program