Establish a Smart Treasury

The idle protocol is collecting fee’s already in 7 different crypto currencies FeeAddress. It might be better to exchange the fee’s in their respected currencies to ETH, and use that as the ‘stable coin’ pair for $IDLE. In addition to this, ETH is the most liquid coin on DEX’s to trade against, and it is the native currency for ethereum. Finally, ETH should have lower IL than a stablecoin, (on the assumption that there is a stronger price correlation between $IDLE and ETH, than $IDLE and USD).

We also need to think about how much $IDLE we actually want to put into this pool, because the community needs to match 10% of that in the pair currency. Currently, the FeeAddress has ~$500 USD worth of coins, which means with a 90/10 pool, we can only add $IDLE worth up to $4500, however, this will change over time.

Some details I want substantiated are regarding the implementation

  1. The original article by Joel Monegro from PlaceHolder VC mentions that the protocol is the only whitelisted user to the pool? Is this something we want to do?
  2. When governance wants to add or remove liquidity, what are the risks, technical, and economic?
  3. What trading fees should we set. (I am of the opinion that since this is a protocol majority held pool, that the fees be set quite high)
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i go with ETH too because of lower IL.

question: to get BAL gov tokens do we need to add BAL in the pool? if yes what is minimum size? 5-10% ?

implementation details, my 2 cents:
1- tentative yes (just the protocol). @8bitporkchop why not?

2- economic risk is that the rest of the world might agree/not agree with the IDLE comunity. So prices will move when you add liquidity, change token % in the pool or change fees.

3- i go with either standard fees or cheaper. Give reasons for users to use this pool not competitor’s . Also, keep in mind that you are also (mostly, I hope) providing a service to users of the Idle protocol, not only speculators. So lets be nice! :kissing_heart:

this is essentially an algorithmic central bank. Im 100pct supportive as the bank will always buy low and sell high if its built properly.

I personally favor the establishment of a smart treasury.

I would propose at the start we have a smart treasury that is $IDLE and [USDC and/or ETH] (all fees are converted into one/both before they are “forwarded” to the smart pool). One downside is this does expose the treasury to trading costs. If we do go this route, one or both of these assets makes the most sense as:

  • USDC is the stablecoin that generates the most fees for the protocol (and we want to minimize trading costs)
  • ETH is the most liquid and should have the lowest IL

After launch of this pool, we can consider adding the following:

  • other stablecoins, if they end up generating a significant portion of fees; and/or
  • other non-stablecoin assets like COMP, which is currently generating a material percentage of total fees

The decision to add additional assets to the smart treasury would be based on factors including:

  • Relative cost to treasury for each asset (trading vs IL)
  • Market/community demand
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There doesn’t seem to a minimum size requirement for the pool, though it does require at least 2 whitelisted tokens Link. Also reducing the fee increases the feeFactor, which downweights reward. ( Lower fees higher BAL rewards). Maybe a starting fee around 2%? This will give a reward factor of around 0.8.

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Great post @8bitporkchop, happy to give my input, and love to see it going through the entire governance process. Agree that Uni incentive program might be too early at this stage, and definitely interested in exploring the smart treasury.

About pool composition, I’d concur with @ETM612 and prefer stablecoin with most fees (and evaluate at the end of the gov process for this proposal), and then move to multi-asset composition. On weights, it really depends on the goal you want to give to the pool.

Adding other assets (eg wBTC) generally think we would improve pool’s efficiency. Afaik, it should be factored into IL depending on weights, but would contribute to liquidity.

About swapping/converting fees in the treasury to a single asset/stablecoins, seems more effective but I think there are some costs to consider if you have to swap every time you need to swap-n-forward fees to treasury? @william what do you think?

Still not fully convinced on pool’s weights proportion – @8bitporkchop can you expand a bit more on the rationale behind the 90/10 IDLE/ETH (or IDLE/stablecoin)? You generally have a lower IL magnitude if you set a lower % to non-stable assets. This article might help support here.

Re fees @8bitporkchop @unicorn we’ll be doing more research/thinking on that, but we should be able to relatively quickly iterate on it along time, as it shouldn’t require a code change (only using Balancer interface).

Next steps would be better to define the scope of this implementation, working team, and grant parameters. Further steps are better defined here and here.

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I think as @8bitporkchop and others pointed out, an ETH pool would be better imo because of less potential IL at least initially.

Regarding this:

  1. I do not have an opinion yet, not sure why or why not the liquidity provisioning should be restricted if anyone can point out pros/cons would be awesome :slight_smile:
  2. For sure someone can frontrun / profit / ‘exploit’ (in an economical sense) when there are deposits, but I think that if those are made frequently and with modest amounts shouldn’t be a big problem. A contract for selling fees (stablecoins/gov tokens) + some off-chain keeper bot will probably be needed for this but should not be a big problem. The missing piece would be then redirecting fees for all current pools to this new contract (and potentially all the already accrued fees)
  3. I guess that fees should be in line with other similar pools, but depends on what role the community thinks the balancer pool have (ie the target users of the pool)

Regarding the potential BAL rewards, after reading the Link you posted @8bitporkchop, seems that basically IDLE needs to get listed here and then the pool would be elegible

This for sure needs to be considered in a contract and or in the keeper

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About 1 (still)

I think liquidity providing should be open to all.
Control of the smart balancer pool should be exclusive to the treasury.

@Teo points out a valid argument. Regarding volatility and IL adding WBTC or renBTC will help for sure.
Crypto cycles/moves seen to happen in 3 waves and if the goal of the pool is stability instead of speculation then wbtc or renbtc make sense.

I like this. I think it’s fine for people to provide liquidity as long as the algorithm is able to buy low and sell high on a continuous basis.

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These have been a very interesting discussion on this topic, @Teo you raised some question on the rationale behind a 90/10 IDLE/ETH pool, the basic idea for this is to increase the amount of IDLE liquidity while minimising the initial ETH investment. Currently on $IDLE’s ‘balance sheet’, we are heavy on $IDLE, and low in stable coins (from fees). The pool weighting reflects that, in my opinion we could even use a higher pooling weight at the start 95/5, maybe even 99/1. then reduce this weighting over time.

That leads me onto two remaining questions in my mind about the smart treasury that need to be discussed as a community.

  1. How much ETH (in $ terms) to contribute to the smart treasury?
  2. What valuation of $IDLE should we use to match this?

The second question is actually quite an interesting because the market price is quite unstable, however, there are two main considerations to this, should we value $IDLE above market price, or below market price?

  • If we value $IDLE below market price, this should theoretically introduce a buying pressure, meaning we will end up with less $IDLE in the pool, and more ETH.

  • If we value $IDLE above market price, this should theoretically introduce a selling pressure, meaning we will end up with more $IDLE in the pool, and less ETH.

Answering the second question will allow us to answer the question of how much $IDLE from the community fund will be required to be invested in the creation of the smart treasury.

Perhaps we start with a small treasury at the start, and add more $IDLE liquidity as time goes on? (Though I can see this as a potential problem, as adding $IDLE liquidity from one side of a balancer pool essentially acts as a market sell, which would cause the price to fall slightly, and $IDLE holders might be against that)

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Get average price since the beginning of trading on uniswap for the starting valuation.
Allow liquidity providing by everyone.
This would allow improving the split of each coin like @Teo pointed out.

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I’ve created a poll to gauge the community sentiment on this, this is a short poll that’s only live for 1 day. There will be subsequent opportunities to have a say on this if this is not enough time.

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image

i would like to see same options but with opposite split . :thinking:
90/10 ETH or stablecoin/IDLE
80/20 ETH or stablecoin/IDLE

how do @ETM612 @Teo @william @8bitporkchop @noahniuwa @FedeCrypto @mikojava @johndoe @PNum @Davide and rest of community feel about that.

I understand the implications of switching the splits… just making sure i hear everyone BEFORE i cast my vote later today

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I asked the same question in Telegram this morning. According to the previous analysis, the stream of fees ($1000) is too low at the moment in comparison to the $IDLE funds (almost 2 million tokens) held by the governance. So a cryptos 90% / IDLE 10% pair would have much lower liquidity than a pair IDLE 90% / cryptos 10%.
And have liquidity is the scope of this proposal.

I think that the tradeoff in Balancer pool can be changed even in a second moment

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The smart treasury needs to be weighted towards the protocol token, that way we increase the liquidity of $IDLE on the open market, and can use the smart treasury as an actual treasury. The long term vision that I see for this is that we can fund further improvement campaigns from funds within the treasury by removing liquidity.

Also for the reasons mentioned by Davide.

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Agree with what has been said, should probably be skewed towards protocols tokens given the relatively low fees accrued by the protocol for now

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I think pools dealing with an ETH share superior to the IDLE share would not pick up enough interest, particularly in those times favoring ETH.
I am looking more likely to a 80/20 IDLE/ETH (or WETH) pool but we could propose several pools and not one only:
For example both ETH (WETH) ones (80/20 and 90/10).

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Reading a bit more on this subject there also appears to be a discussion for a smart treasury for pickle finance here. A suggestion which I read there was to select an $IDLE balance to deposit to the treasury and perform a market SELL of 10% of that if we are to go with a 90/10 IDLE/ETH pool. This would be a one-off market sell to bootstrap the pool creation. From then onwards, future governance decisions can add or withdraw liquidity from the treasury as needed.

This approach makes the most sense to me, since it doesn’t rely on the community to provide a valuation, which is a hard decision to make fairly since the token is so young.

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I’m in favor of the proposal! However I wouldn’t perform a one-off market sell (which could cause a sudden price shock) and rather gradually go from 99/1 to 90/10 (which should be akin to a gradual market buy?).

Another idea: I think it would be amazing to see IdleUSDC etc. as important components of e.g. balancer portfolios/pools, when someone wants to add a yield bearing stablecoin. Would it be feasible to use IdleUSDC for the treasury pool? Probably it’s quite gas intensive… But then you’d also have some initial liquidity in those and show a signal to the market that we are dogfooding our own products.

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