TCD #57 - Divest ETH for Stablecoins
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 Divesting ETH for Stablecoins
TLDR; After an unordinary speculative rise in the ETH price the Treasury should divest a portion of its ETH into stablecoins to support runway and speculative buybacks of ETH at lower prices.
Background
Rumors of an ETH ETF approval have sent the ETH price upwards, rising ~20% over a 24 hour period. The BadgerDAO operational expenses paid to the Association are estimated to be $353k per month. In the current market state the Treasury can divest a portion of its ETH to cover 4 months of expenses. The first month will be kept in stablecoins and dedicated to the 2024 expenses. The remaining (~3months of stablecoin runway at current price) will be used to rebuy ETH if it falls -15% of the current price ($3700). Otherwise, these funds will be used for stablecoin runway.
Implementation
The Treasury will sell $353k of ETH to increase the stablecoin runway by 1 month.
The Treasury will sell $1.06m of ETH to increase stablecoin runway and/or greenlight the funds for buying back an equivalent number of ETH tokens at or below -15% of current USD price.
Metrics of Success
How long will the investment thesis take to play out?
Indefinite. It’s possible the ETH price never retraces -15% of the daily closing price on 05/22/2024 and the funds are used only for future stablecoin DAO expenses.
Will the treasury recoup funds or does the investment represent an outlay?
This decision is to take advantage of the recent rise in the ETH price.
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 is an ETH swap and has nearly no protocol risk other than the swap itself which will likely be facilitated by cowswap.
Liquidity risk (0 - 10)
Liquidity risk refers to how easily an asset can be bought or sold in the market.
0 - ETH is the highest liquidity asset in DeFi and so the liquidity risk is near 0.
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.
3 - It is possible that the price of ETH falls before this decision is executed.
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 no credit risk present 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.
1 - This decision will require an on-chain swap with standard multi-sig actions.
