BIP 23: Badger Revenue Management Overview
Scope: Define starting parameters for DAO assets specifically focusing on a) Diversified Exposure and b) Assets put to Work
Status: Accepted - https://snapshot.page/#/badgerdao.eth/proposal/QmXjoDyuPLXtRiNWobwqDiaHWC5FNBeyBogrnFF3PutBJU
TLDR: Sell a portion of earned Bitcoin for Stablecoins and ETH to limit downside exposure and provide a broader range of assets to use productively.
NOTICE: The result of the votes in this BIP will be weighted to arrive at a final number in the case that a “0%” vote doesn’t take a majority. For example if three people voted for 10 and one for 5 the result would be 8.75. ((310) + (15))/4=8.75
- BTC allocation
- ETH allocation
- Stablecoin Allocation
In collaboration with @DeFiFrog, we are submitting this proposal to kick off the discussion regarding Revenue Management and eventually regarding Treasury Management. The frameworks and descriptions laid out below should serve as the foundation for future discussions regarding the lens that BadgerDAO community members should consider.
With Bitcoin reaching all time highs it’s important that the DAO take actions to a) diversify asset exposure and b) optimize returns by putting BadgerDAO Revenue Pool Assets to work.
Currently sitting around the $1.2 Million mark after slightly more than a month of operating, the DAO Revenue Pool contains assets in roughly the following amounts/ratios:
- BTC synths ----------------------> $790,000 —> 72% of Treasury
- wBTC<>ETH LP assets ----> $265,000 —> 24% of Treasury
- Staked SUSHI (xSushi) -------> $20,000 ------> 2% of Treasury
- FARM --------------------------------> $14,000 ------> 1% of Treasury
This means Bitcoin is roughly 85% of our portfolio non inclusive of native treasury assets such as BADGER (and eventually DIGG, both of which are not held by the above linked address).
Towards an Integrative Model of DAO Capital Management:
We believe that this general framework below will be informative for both our community members and communities creating DAOs in the future. We’d like to make sure that we are aligned in structure and in taxonomy moving forward when considering the Capital Management of BadgerDAO. Please see the below equations:
- DAO Assets = Revenue + Treasury
- Revenue = % to Treasury + % Diversified Exposure + % Yield Generating + % Revenue for Stakers + % Buyback of $BADGER (Future BIP)
- Treasury = % Emissions for stakers + % OPEX (Grant BIPs such as previous Month 1 Grants) + % Partnerships (Partnership BIPs such as previous Cover and Nexus Mutual)
The treasury is made up of assets issued by the DAO such as BADGER and DIGG and can be thought of like assets on a balance sheet. Revenue is the income of the DAOs code since launch and can be thought of like the revenue on an Income Statement.
Before we dive, as a reminder, our operational goals roughly follow:
- Increase stickiness of Setts by extending use cases for wrapped assets
- Foster defensibility by providing the best incentives for strategists and large holders to build on the Badger ecosystem
- Further the Bitcoin and Ethereum ecosystems through development and contribution to the public goods upon which our success depends
Diversified Exposure: The current assets from revenue generating products are xSUSHI, FARM, btcCRV, and a Sushi wBTC<>ETH LP position. All of these assets have been earned through the combination of performance and withdrawal fees. All of these assets except FARM (which is unstaked) are income bearing assets and earn more assets for the treasury.
Given the partnerships and synergies with Sushiswap and Harvest, it is not in the interest of the DAO to sell these assets and harm these partnerships, the DAO should instead acquire in the interest of meta-governance, a topic for a future BIP.
We are proposing that BadgerDAO consider divesting a portion of its Bitcoin holdings and allocating it to the “Badger Utility Fund” splitting the proceeds between
- a stablecoin position, which may eventually be used in part or in whole for farming and
- an ETH position, which should be thought of like a utility asset.
There could be a number of future uses for these assets at the discretion of the DAO including: providing a fall back runway, security, insurance, and more.
Our recommended model is to pull a 20-30% one-time portion of the treasury. Diversify it 50:50 in to ETH and DAI. And pull a recurring 5% of the treasury to this diversification in a to-be-determined manner.
For consideration on the topic of asset diversification:
- 0% - 10%
- 10% - 20%
- 20% - 30%
Assets at Work: Currently DAO positions in xSUSHI, wBTC<>ETH LP, and various crvBTCs can be considered productive capital assets. These are actively deployed and provide a return to the overall asset base. crvBTC positions earn more of themselves in addition to CRV (if not in our strategies), wBTC<>ETH LP position earns more of itself in addition to SUSHI, and xSUSHI earns SUSHI.
The DAO should try to maintain a majority of assets in productive work using tried and trusted methods, gradually exploring a future with other risks. In the future it will become more important to define risk scales upon which to operate but that is for a further BIP.
The most important thing to keep in mind relative to risk is that you can’t win if you aren’t playing. DeFi moves quickly, it’s important to consider “slowness” in the places that the DAO is given the luxury of doing so.
Increasing DAO exposure to wBTC<>ETH LP position would present low risk of Impermanent Loss due to their highly correlated nature, and as both are crucial to what the DAO is doing this action would line up with DAO interests.
Sushiswap is building for compatibility that the DAO can utilize and as a portion of our treasury is a wBTC<>ETH Sushiswap LP position there are a number of considerations.
For consideration on the topic of asset deployment, recommending 25%:
- Technical requirements are none for diversifying current assets. There will be minimal requirements for recurring revenue to the Utility Fund.
- Business requirements as informed above.