⭕ [RFC] Gro Protocol Treasury Diversification

Summary

It is suggested to diversify the mStable Treasury with a governance token swap with Gro Protocol, as they exist in the same vertical as mStable. This would be done in order to diversify risk, grow affiliation with a protocol that will likely utilize mStable in some way in the future, and put idle capital of the treasury to use due to the suggested long-term commitment of the other party involved.

Abstract

Gro offers their users protection on deposited stablecoins (PWRD), and also leveraged yield (Vault) in exchange for protecting PWRD and getting higher risk exposure.

In an effort to diversify both treasuries, it is suggested to swap a set amount of MTA for GRO in order to stake these tokens in the respective 80/20 pool on Balancer v2. It is further suggested to stake the resulting LP tokens in each others’ staking contract for additional rewards.

This action allows for the swapped amount to be diversified into 20% ETH, while also allowing for long-term token accumulation of the native governance tokens MTA & GRO respectively.

With this collaboration, both protocols would perpetually compound rewards back into the position for at least 24 months.

It is suggested to consider between 125,000 and 250,000 mUSD worth of native governance tokens for this endeavour.

Motivation

Both the mStable and Gro Protocol Treasury consist largely of their own native governance tokens, which make them hard to utilize in a capital efficient way. With this proposed swap, both protocols would be able to put a portion of these assets to use, while at the same time hedging a part of the received tokens into ETH, which is arguably a save long-term bet to make.

Furthermore, this would allow for rapport to be built between mStable and Gro, and create further collaboration opportunities down the line. Swapped tokens would be ensured to remain in responsible custody for the agreed term, with the upside that any rewards would also be kept by the protocol and not immediately sold on the open market.

This could be strengthened by agreeing to perpetually keep these tokens in custody, and therefore effectively remove them from the open market, while also gaining a trustworthy member in the respective DAO that could participate in each others’ decision making & governance processes, and leverage the expertise.

Pros

  • Diversify the mStable Treasury with a pool token that consists of both GRO and ETH that also generates further GRO rewards
  • Hedge risk by allocating native tokens into another protocol that might very well utilize mStable’s technology in the near future & vice versa and thus benefit from this exchange on a fundamental level
  • Build rapport with the Gro core contributor team and its community in order to enable further collaborations down the line
  • Gain the ability to hold the native governance token of Gro (and vice verse for Gro with holding MTA), which might be utilized in beneficial ways in the future (i.e. directing Gauge rewards, Boosts etc…)

Cons

  • Gro is still relatively new, and thus not as established as other protocols, and thus carries additional risks with it
  • High Fully Diluted Value relative to the current Market Cap / Tokens in circulation

Next Steps

It is suggested that both communities comment on this RFC in the coming days, and bearing no significant opposition or change in ideation, we would move ahead with this RFC in the coming weeks and create a formal draft proposal on Github to be used for review.

Meta Governors are encouraged to provide as much feedback as possible until then, so we can create the best possible outcome for mStable and its users.

2 Likes

Generally, I think we should be very conservative with our Treasury. The Emissions Controller will determine the topline MTA emissions of 30M over the next 6 years, which leave a bit over 5 M MTA in the Treasury. This has to fund future operations, any potential capital raises and future opportunities that might arise. I would therefore suggest we consider either a smaller amount or not pursue this opportunity at all.

Treasury diversification makes a lot of sense if you consider spreading out the risks over more assets. With the Treasury, however, we should be ok holding MTA and I might be biased but that is the asset I am most bullish on and the Treasury should benefit from the upside of the work we are putting in the most.

If it’s just for diversification then I am not so sure we should pursue this. If there are better underlying reasons that gives us even more upside, then that deal would sound much better.

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I agree that a conservative approach is best, although I disagree we should simply deny every opportunity to be overtly secure and protective of our MTA, especially with rewards being able to be directed back to the Treasury via emission controller.

Since there will be a BD initiative with the Emission Controller launch, I’d agree with you though that the number proposed is maybe too high, so a more comfortable number between 50-100k would make more sense for the TDP, judging by the allocation and size of Gro in the ecosystem compared to the other candidates.

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Thanks for this post @mZeroNine

I think the treasury has to be both conservative (having a restricted supply) and opportunistic (diversification has in theory unlimited upside)

  • Gro Protocol has been recently having strong traction, is rolling a new product line on Avalanche, and is backed by smart investors. Furthermore, the exploit happening on Cream kinda slashed the token high valuation, making it a way cheaper buy now (went from 35$ in October to 8$ atm).

  • However, I agree that we shouldn’t give way easily MTA and we could leverage this swap in the discussion with them about using Save in their Yield strategy

I’m therefore supporting this diversification keeping in mind we might want to ask something in return.

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It does seem well timed as a trade, down to $7 from $35.

However, despite being only $7 the fully diluted valuation is at $700 million USD. Given that this is a two year fixed hold, I’d want to better understand the emissions schedule for GRO over the next two years because this can greatly impact price which is ultimately the deciding factor on the quality of this as an investment more so than fully diluted valuation.

Ultimately, the below quoted point is my favorite concept. As true integration is the goal rather than simply a mutual investment.

Conservative treasury management on a spectrum rather than 0/1 seems logical. As seen in the below quote.

It would seem logical to place all BD initiatives side by side and look at them as a pie chart rather than a USD value. If my understanding is correct, there are 5 million free MTA to play with plus any emissions allocation (cough add a BD emission cough lol), then a 50k USD investment in GRO would be 0.67% of the 5 million MTA. Which is a relatively small amount to build a relationship given that the asset will be worth money and could build protocol interconnectedness. Lastly, although we want to hoard the MTA in the treasury making moves to build relationships is better done sooner than later.

3 Likes