#3 Partially Withdraw $USDC and $WBTC from Rari Fuse Pool 22

TLDR: Withdraw 75% of our Rari Fuse Pool 22 seed funds (originally 1m $USDC, 30 $WBTC). This will not affect the rates significantly for current users, but will allow the treasury to put those funds to better use.

Background

BIP-62 (forum link) decided on deploying and seeding a rari fuse pool (rari link) managed by the DAO. To provide liquidity from day 1, agreement was reached on seeding it with 1m $USDC and 30 $WBTC. This happened on 2021-09-17 (etherscan link), a good 8 months ago.

Since then the Rari Fuse product has seen multiple vulnerabilities come to light. Luckily these did not cause us or our users loss of funds, but were good reasons to pause the pool (if not already done globally across all pools by the Rari team).

Despite that, the pool did see good usage when active and provides extra utility for some of our tokens. However discussions continue around whether we should continue supporting this pool at all, given its weak security.

In either case, the utilisation rate of our initial seed is currently very low. Of the 1m $USDC deposited, now worth 1.03m, only ~147k is outstanding as a loan (~15%). Of the 30 $WBTC deposited, now worth 30.24, only 0.3 is outstanding as a loan (~1%).

Proposal

There are better destinations to think of for this unused liquidity. An obvious one is increasing the size of our stable farms; yielding anywhere between 5-10%. This is significantly higher than the 0.25% APY the fuse pool is able to offer. We should also consider our long-term runway and dogfooding our $WBTC.

On top of that, the funds might be at risk if/when the pools are turned back on.

Hereby the proposal to withdraw 75% of the seed funds. This should secure the vast majority of our funds for other purposes, without affecting the rates too much. For both $USDC and $WBTC, such a withdrawal would still mean the pools remain under 80% utilisation rate, the point at which the rates increase significantly. See graph. Rates will increase however, but still within a range that is considered normal and arbitrable by any market agent.

Metrics of Success

How long will the divestment thesis take to play out?

There is no need to break this into tranches or execute this over a longer period of time.

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

6: Currently not at much risk since the pool is both globally paused and paused by us. However, the security of the protocol in general is being reconsidered by the community at large.

  • Liquidity risk (0 - 10): Liquidity risk refers to how easily an asset can be bought or sold in the market.

1: Both $USDC and $WBTC are in the top 3 of most liquid assets on Uniswap.

  • 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.

N/A; no fx will take place.

  • Credit risk (0 - 10): The risk of loss from the failure of a counterparty to make a promised payment, this should cover airdrops expected.

N/A

  • 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.

3: As long as the pool remains paused we have all the time we need to withdraw. This should be able to be done considerably fast; i.e. within a week.

Vote

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in progress here: pull 75% of rari fuse pool 22 seed funds · Issue #500 · Badger-Finance/badger-multisig · GitHub