Consensus Check - Create Uniswap Volume KPI Options to help divest Uniswap’s Community Treasury into Stablecoins

Consensus Check
1

Consensus Check Snapshot Poll: Snapshot will be put up next week. I’ve had a chance to discuss this with some members of the community but would like more feedback if possible.

  • Initiate the process to create 30 Day Average Volume KPI Options
  • Make no change

Link to temperature check governance forum post: https://gov.uniswap.org/t/temperature-check-should-we-be-managing-systemic-risk-in-uniswaps-community-treasury-using-kpi-options/12624
Link to temperature check snapshot poll (passed w/201k $UNI): https://snapshot.org/#/uniswap/proposal/QmXDNKm4feLGUXCdtHjHZYrNTMsysEhP34nRYFSM3HhKVT

Summary

Problem

During the temperature check we explored the issue of systemic risk in a treasury of 100% $UNI tokens, where there can be and have been significant drawdowns that directly effect the spending power and run way of the community treasury.

There are additional issues with paying grants with a volatile asset like $UNI:

  1. Grant value is determined in USD, but paid in $UNI Tokens. Value of $UNI token is determined at the time tx is submitted to be approved by the multi-sig. There is minor price risk to the grantee as they get the approximate USD value in $UNI tokens after approval. The majority of the price risk is allocated to the treasury, as the grants budget will grow or shrink depending on what happens to the price of $UNI.

  2. Almost all $UNI that has been awarded to the grantee is market sold. Most of the grants are used to fund actual people/projects/business and most of these people require stable coin cash flow to operate.

    1. An example: A recent grant of 10 million $UNI tokens was awarded for a DEFI Education Fund. Allocation was supposed to be over 4-5 years, but the grant was awarded entirely at one time. The awardee publicly declared that it would be a problem to sell the entire award at once to allay fears of dilutive effect of 10 million $UNI tokens. Shortly after they received the award, they sold the entire award. This could have been avoided by the treasury divesting themselves in a controlled manner and awarding in stablecoins when necessary.

  3. We do not know what and when spending will be required. Crypto is volatile, prepare for the worse, expect the best. If there is a significant outlay of funds at the low of the market, it will be devastating for the treasury’s long term prospects. We’ve seen this happen with ICOs from 2017, where they were forced to sell assets at a significant loss to cover expenses.

Solution

The purpose of this proposal is to initiate the process of building a KPI option using UMA’s battle tested EMP contracts (more details at the bottom) in order for the Uniswap Community Treasury (or anyone that wants to) to mint KPI options using $UNI as collateral to purchase stablecoins from the community.

KPI options can be created from any number of defined metrics/indicators, from feedback from the UNI community, the best metric to align stake holders with long term goals of Uniswap’s platform is to track the Volume across Uniswap.

The beauty of KPI options is that it creates a win-win situation between Uniswap Stakeholders and the platform itself. Stakeholders that hold KPI options has the direct incentive to continue to support Uniswap platform because the value of the options increase as the overall value of the Uniswap platform grows.

KPI - 30 Day Average Trade Volume across Uniswap

Specifications

General details on how KPI options work have been detailed in the temperature check: https://gov.uniswap.org/t/temperature-check-should-we-be-managing-systemic-risk-in-uniswaps-community-treasury-using-kpi-options/12624

  1. KPI Metric = 30 day average volume across Uniswap.
  2. Target = 2x of the starting KPI - The closer to target the higher the value of the option with a cap of 2x from starting KPI.
  3. Optional: Target goal high water mark = If 30DMA Volume reaches the 2x goal, the option can be settled for 1 $UNI at expiry no matter what the 30DMA Volume expires at.
  4. Expiry = Can be quarterly, monthly, 6 months ect.
    1. At expiry the final value of the KPI option will be determined by the final 30 DMA volume or optional target goal high water mark.
  5. Collateral = 1 $UNI Token - Collateral requirement to mint 1 KPI option.
  6. Initial Pricing = .5 $UNI Token - Starting value of minted KPI option.

Treasury Divestment Options - TBD

After creating the 30 DMA Volume KPI option, there are several options on how to divest, which we will can be discussed more in detail after this consensus check.

  1. Gnosis auction
  2. Creating an LP on Uniswap (requires stablecoins to pair)
  3. Suggestions welcome

Additional Details

Yam.finance has extensive knowledge on building synthetics on UMA’s platform via our development of degenerative.finance, V2 of site to be launched soon. Combined with our experience in DAO treasury management, it allows us to have a unique perspective to create this proposal.

Links:

https://claim.umaproject.org/

https://medium.com/uma-project/the-uma-kpi-options-airdrop-is-now-claimable-and-the-super-uman-campaign-is-live-7e9baa5c1669

https://medium.com/uma-project/badgerdaos-rebase-mining-kicks-off-now-using-uma-s-kpi-options-cd75f71dc1fa

https://forum.sushi.com/t/build-kpi-options-with-uma-to-speed-kashi-adoption/3940

https://etherscan.io/token/0x1f9840a85d5aF5bf1D1762F925BDADdC4201F984?a=0x1a9c8182c09f50c8318d769245bea52c32be35bc

1 Like
2

What is the simplified summary of KPI options?

I deposit UNI collateral on UMA for a UNI KPI option
I then get 50% of that value in stable coins
If UNI goes up over 30 days, I then get 50% more stable coins? That is probably not correct, but could you give a simple example?

In general, I do not like the idea of diversifying the UNI treasury into stable coins unless I am bearish on UNI which I am not at the moment. What if we instead deposited UNI as collateral into an Aave pool, then took out DAI/USDC loans against it? The DAI/USDC loans could then be used to pay grants. Then we sell UNI every so often to pay off the loans. I don’t mean to change the subject, but I’m trying to compare the strategies here. Is this the same idea? Also, if I were a grant, I would much prefer to receive UNI right now. Buy (receive) low, sell high. That does force the grants to be smart on when they sell though. Let us say over a 1 year time span where UNI triples in price, are KPI options a way to hedge UNI … or are they more similar to buying stable coins?

3

From Uniswaps point of view:

  1. Deposit 1 $UNI as collateral → Mints 1 Volume KPI Option
  2. Who ever holds the KPI option can redeem at minimum .5 $UNI up to 1 $UNI at expiry.
  3. Uniswap sells KPI option for stables starting at a value of .5 $UNI (exact numbers TBD)

From KPI Holder point of view:

  1. Buy KPI option for ~.5 $UNI in stables, price will likely sell at a premium. Exact pricing and method of selling is TBD.
  2. Hold or trade KPI option before expiry.
  3. At expiry if the previous 30 day moving average volume is higher than when KPI option started, then redeem for proportionally more $UNI. ie. if 30 DMA volume increased by 50% the KPI option is worth .5 $UNI * (1+50%) = .75 $UNI.

The key is to create a situation where KPI holder wins, UNI wins and incentives are aligned. All the exact numbers can be adjusted but the idea is this.

While I am not bearish on $UNI, It is important to understand that holding 100% of the treasury in $UNI tokens is a huge risk. The treasury is actively being used to fund grants. It’s similar to having a company have 0 cash and paying all employees and other financial obligations in stock. It is not prudent financial management. Also the DeFi Education Fund market dump could have been avoided if the treasury paid in stables.

Having stables allows the treasury more control and flexibility with reduced risk.

Grantees have different financial needs and burdens. Many of them likely would love to hold long term $UNI but are unable to do so. Look at many of the ICOs from 2017 which were forced to sell their assets at the lowest possible prices.

Thank you for your suggestions @burtrico

1 Like
4

I’ll be putting up the snapshot vote to move this thru the consensus check.
I hope to be discussion more in depth the exact details for the option for the final vote.
I’ll be reaching out to well known governance participants but feel free to reach out to me.

Thanks

5

Snapshot is live, any comments welcome!

https://snapshot.org/#/uniswap/proposal/QmRKpArENVfj7bUaXuEj2QUqZCB5ZJGc9VDmNvyfTKnAKf