Lido to prepare for the bear market

Proposals
21

adding to the amateur hour nature of this post, which we all went thru in 2018, which means that a bunch of people at ldo are not crypto OGs as originally thought.

and where is lomashuk? did he get so rich like cobie that he doesnt care any more lol

image
image407×529 109 KB

1 Like
22

Agreed. If anything, we should consider stop gap funding depending on our 3 - 6 month needs. Now is not the time to create a 24 month runway.

1 Like
23

So I think I would categorize much of your critiques as “true but useless” in the sense that you are complaining about things that already happened.

The solutions you have given so far are:
1.) Fire people who are responsible
2.) don’t let Arthur get his LDO back

Do you have some suggestions for moving forward?

2 Likes
24

Hi, this is Marcelo from Karpatkey and Gnosisdao.

I agree with others that selling half of the ETH holdings looks too drastic at this point. The goal of this post is to explore different alternatives. As believers in Ethereum, we think holding ETH is the right bet long term.

Still, surfing the bear market is priority #1.

Lido’s treasury is healthy so there’re plenty of actions available. ie: Financing through loans + treasury revenue generation.

This is a high level action plan we could execute:

1- Explore financing Lido’s operations through loans using ETH, stETH and LDO as collateral:

  • Take undercollateralized loans using Maple and Truefi protocols
  • Take fixed interest loans using Porter Finance, Element and Yield protocols
  • Quickly move to add LDO as collateral on money markets like Aave or Maker. A liquid and reputable token like LDO should be in the fast track
  • Use smaller lending protocols like Mai Finance and Unit protocol

2- Manage loan’s risk:

  • Keep collateral ratios >700% for LDO, >350% for ETH and add a layer of security with anti liquidation bots
  • Diversify creditor risk through multiple small loans
  • Internally audit smart contracts where LDO is deposited as collateral

3- Look for low-risk treasury revenue and maximise capital utilisation:

  • Arbitrage stETH in eventual depeg using ETH
  • Do carry trade when profitable
  • Market make treasury tokens when profitable
  • Do cross DAO tokenswaps for additional resilience

We’re already exploring a proposal to manage a small part of Lido’s treasury. If there’s community support, we could increase the scope to finance Lido’s operations.

3 Likes
25

Lido is the one DAO that can afford to liquidate a large amount of ETH because Lido prints stETH in its massive 5% cut of staking rewards.

I advocate for a simple sale of the 10K ETH and to not overcomplicate with excessive treasury management strategy. Lido’s ETH treasury will replenish itself over time.

What the DAO needs more than anything is for the team to execute on partnerships, integrations, legal/advocacy work, expanding the node operator set, and most importantly, implementing a permissionless validator set.

1 Like
26

Might add that there is going to be slippage incurred on this ‘simple sale’ if conducted on-chain, so the sale isn’t so simple. Without careful planning, it can actually be quite expensive. Swapping ETH for USDC on Uniswap right now would cost $218,148.28 (this includes the $293.15 gas fee).

27

This is what Porter Finance was built for. Lido could put up stETH as collateral to mint zero coupon bonds and sell them to fixed income investors on the Porter Finance platform. This would be a non-liquidatable loan, ensuring that Lido DAO can recover its stETH no matter what happens between the time the loan is taken out and the maturity date. In addition, Lido DAO would be generating yield via the stETH while it’s being used as collateral.

Fixed income investors would be able to hedge their collateral exposure by purchasing ETH put options via Deribit or an alternative so we would anticipate a large amount of demand for this type of offering.

We just helped Ribbon DAO successfully raise $3M and can help Lido DAO do the same.

Feel free to reach out to me at [email protected].

3 Likes
28

Myles from Reverie here.

Some general reactions on the idea to sell a portion of the treasury for stables:

  • I understand the argument that a diversification could make sense given Lido’s significant revenue stream (~9.5K stETH run rate) combined with previous treasury diversification into ETH (~21K ETH).
  • I agree that Lido would benefit from establishing a treasury management function. For a protocol of Lido’s size, we think it makes sense to protect the project against the downside by selling a portion of the treasury into stablecoins.
  • As a general matter, we think that projects should manage treasuries conservatively. Typically, that means selling tokens for stablecoins to fund 2-4 years of runway and avoiding active management strategies like investing in other tokens or using the treasury for yield-farming purposes.
  • At the very least, a thorough analysis of the DAO’s treasury and finances should be published before moving forward with any significant treasury operations.

As far as tactical steps go, we’d suggest running a process that looks something like this:

  1. Model historical and projected revenues to calculate how much money the DAO is generating per month.
  2. Calculate the current monthly burn rate across all of the DAO’s expense categories, project go-forward burn rates, and decide on the optimal token to fund each category (e.g., contributor salaries, USDC).
  3. Identify expenses that are currently paid outside of the DAO that will be pulled into the DAO’s budget in the near future and include them in the go-forward projections.
  4. Based on above findings, calculate the minimum monthly budgets across each expense category.
  5. Sell a portion of ETH from the treasury to cover USD expenses over the next 2-4 years.
  6. Establish a financial reporting and treasury management working group. This group will develop processes to manage the treasury (read: we don’t recommend doing anything fancy with it like yield farming or risky lending) and provide transparency to the community through ongoing reporting.

Reverie has helped with treasury sales for projects like Uniswap and dYdX in the past. If this is something Lido needs help with, we’d be glad to assist. Work like this benefits from expertise, so we’d collaborate with Sam and Jordan, who are former bankers with deep FP&A experience.

5 Likes
29

As you have noted in another post, it seems that the protocol income could cover the op cost.

If so, we are not in a hurry to sell assets in the treasury for such purpose.

Another point is the strategy of op cost budget. Basically, we should make the budget based on growing demand, or cash flow income ability.

Since we are preparing for the bear market, that means the growth will be slower, or even decline, based on income ability seems to be more reasonable.

30

there is no full time economics person on this project, autists only, and yes i am pointing out things the autists did bad and the list is increasing all of which are valued in the millions and billions of usd

seems that im the only one on these message boards that actually points this out

31

further note that i have pointed this out on more than one occasion

additionally, to show that i care, i am the only person on this message board that pointed out that the transfer of 650k LDO to certus one with 1 year vesting “to align w long term nature of the dao” is ridiculous and recommended 4 year. ultimately it was voted on that 2 years was ok (which imo does not align w long term nature of the ldo dao).

so yeah sometimes shining a light where literally no one else wants to shine it creates change. it feels a lot like the uniswap treasury and how its been raided by mercenaries and people that really do not have the best interests of crypto but instead are just passers by looking to dump tokens every chance they get

so yeah, my recommendation is a FULL TIME economics professional that has been in crypto since at least 2013 … also we should have a regularly updated list of the people that work for LDO and what they are doing there … 50 people sounds like a ridiculous number again without really concern for economics of the project

notably, the team and mercenaries ,even w this shit price of ldo, are still up 100x lol

so id say most of the economics problems comes from that, in their mind, they all have 8 figures usd of LDO so they dont care about the economics of hte project as much so we have stupid posts like “Lido to prepare for the bear market”

32

fuck up #5

getting in bed w coinbase ventures lol

here we have @Hasu advisor to LDO accusing coinbase, who is an investor of LDO (via coinbase ventures) of fraud lol

so a ldo investor is committing fraud against ldo, cool.

33

The quote concerns the scenario of “Lido gets veBAL spending 20% of staking fees” — the “op costs” there is that spend, not what Lido spends on team, marketing and other ops.

34

Noted, that’s my misunderstanding.

35

Let’s do a short back-of-the-envelope analysis.

Holdings, income & costs:

  1. Treasury holds notch less than 21,000 ETH & 3900 stETH.
  2. Protocol revenue depends on Ethereum staking APR, protocol TVL & the protocol fee percent. Lido generates about 500 ETH/day in staking rewards, making it for 25 ETH / day in protocol fees (10% of the staking rewards, 50% of the fees), or 750 ETH/month, 2250 ETH/quarter, 9000 ETH/year. The TVL can’t get lower until Withdrawals (~half a year+ after the Merge), and the APR is expected to grow after the Merge.
  3. We’re working on properly detailed budget rn, but let’s consider 50-strong team with $200,000/year gross comp. RCC budget for this year calls for ~$2,500,000/year on marketing & ops costs on top of team comp, making it for $12,500,000 / year, $3,125,000 / quarter budget, nominated in stables.

Model:

  1. Have we reached the bottom at ~$1800/ETH, the costs of $3,125,000/quarter is ~1750 ETH and is fully covered by the protocol fees.
  2. Have the price drop to $1500/ETH, the quarterly cost is ~2100 ETH, taking almost entire new protocol income.
  3. $1000/ETH makes costs at 3,125 ETH/quarter, calling for ~1000 ETH / quarter extra from the Treasury.
  4. $800/ETH makes up for 3,900 ETH/quarter costs and requires 1,650 ETH/quarter from the Treasury. That’s 6,600 ETH from the Treasury a year, or 3.8 years of runway with Lido DAO’s 25,000 ETH+stETH Treasury & current rewards rate.
  5. $400/ETH makes costs at 7,800 ETH/quarter. Those would require 5550 ETH/quarter from Treasury, and the total runway would be a year and 1.5 months.

The market has seen the 4-year bear already, and the drop wasn’t 2x or 5x — it was ~15x. Selling 10,000 ETH would allow to secure ~1.5 years of runway while having the chance to accumulate rewards in a meantime. Would took less ETH have we done it earlier for sure, but we’re making next moves from the situation we’re currently in.

6 Likes
37

There are 3 basic strategies for making a budget, so call “could”, “should”, “must”.

“Could”: In the booming phase, we need to do what we can to rapidly seize the market, make ourselves stand at the advantage position and lead the trends.

“Should”: In the stable phase, we need to make sure the entity can be run stably. Take as much as, or a bit less than we can earn to pay the costs on a fairness standard.

“Must”: In the decline phase, we need to make sure to survive. That is, we drop all unnecessary costs and focus on the most important things.

IMO, we are now in the position between the “should” and “must”. The liquid staking market still has space for expansion. But, based on the current crypto market, or financial market more broadly, it is in a decline phase.

If so, we need to have a more clear and specific list on the budget, before we make a decision on whether or not we need to sell 10K $ETH.

2 Likes
38

BTW, as @kethfinex has noted in this post, we are “on a potential tokenomic and governance changes in the coming days”. it’s better to keep the topic in discussion till the changes are done, if it’s not so in a hurry.

1 Like
39

Please change your tone and bit and stick to what’s actually being discussed and proposed in this thread. As said above you’re calling out things that no one on this forum is responsible for and complaining about Wormhole, Arthur and Coinbase doesn’t really contribute to what’s being discussed.

4 Likes
40

A question about team salaries. Are all the employees in the team paid in stables?
As we can see the token economics, there are 15% tokens to “Founders and future employees”. How many tokens are distributed to the so-called future employees now? (bonus or salary)

1 Like
41

We’re working on more precise estimate (read: “no number at hand rn”), but should say that 1) the team is sizable as-is and we expect it to grow; 2) significant portion of comp is in stables — you can look through the last proposals hiring for DAO, for instance.