Lido to prepare for the bear market

Proposals
62

+1 to having the DAO agree to whatever approach to treasury diversification and management is best, and then allowing for that to be executed when market conditions are favourable

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63

vitalik sold the top

so i guess u guys thought u could out perform the V god?

lol

the raise was pretty much same time V sold

again, where is lomashuk?

64

Just heard that, even Coinbase decided to reduce the size of the team by 18%. It shows that there will be a critical period of the whole crypto industry. We should really determine the budget in the “MUST” strategy. A green sheet is needed if it will be paid by the DAO treasury.

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66

@Chuck ill share what we are working on in your DM. We are still hammering out some details on presentation, but it should answer a lot of your questions for now.

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67

Since this is such an important topic in Lido governance & since it had a lot of participation, I want to give a summary of what’s been discussed here and add a few comments/pointers. Hope it’s helpful.

Part 1:

1. Data, Reporting, Auditing

As many have brought up, having clear data on Lido’s expenses is a crucial first step towards making treasury decisions.

1.1. As per @McNut, @Aes, @gmo477 and others: we should get a burn rate and consequent runway (both before and after taking revenues into consideration).

These are some of the core metrics in any startup ou growth stage company outside of crypto, so I agree they should be priorities.

McNut and Aes mentioned they’d be working on some of this financial reporting:

Would love to know if there has been progress you could share here!

1.2. Another generally agreed upon point is that we should get a breakdown of expenses by group, type and denomination.
On a monthly or quarterly basis, how much does Lido spend on salaries by area, on LEGO, on incentives, and on other opex (and which expenses are in stables, ETH or LDO).
-(@timbeiko and @Aes brought up this point)

1.3. I think we can and should learn from a select group of other DAOs in this regard. A couple of interesting things Yearn, Maker and Aave have done when it comes to reporting:

Yearn’s Q4 2021 Financial Report

  • Includes a detailed income statement, precise operating expenses, margins, revenue growth, balance sheet (treasury), etc

Aave’s Treasury Report - By Llama

  • Includes P&L statements by chain, reserves breakdowns, a “token flow statement”.
  • Has a (very strong) associated treasury analytics dashboard for real time monitoring and analysis.

MakerDAO’s Core Unit Budget Framework, an example of a budget proposal, and a MakerDAO SES class on budgeting in a DAO

–
I think we should strive to get a dashboard and some (doesn’t have to be too extensive at the start) regular reporting.
As pointed out by @kadmil, this could be started by an in-house treasury management team or by engaging an external team.

2. External Teams and Services

Another topic that came up often in this thread was the possibility of engaging external teams for advisory or services. Quick recap of teams mentioned here:

  1. **Karpatkey: manages one of the largest treasuries in DeFi (Gnosis DAO).
    – @claberus has put forth strong, concrete options for treasury allocation in his post here. Also mentioned that Karpatkey was already putting together a proposal to manage a part of Lido’s treasury. It would be great to look at it here once finished!

  2. Reverie: provides services to DAOs “helping design and implement strategies that allow them to grow more quickly”.
    – @gmo477 Has also provided great overall comments in this thread and suggested Reverie could help with treasury sales.

  3. Solv Protocol & @dingyimang proposed a $10m bond issuance for Lido.
    – The proposal and some extensive comment on its terms can be found in its post: Propose $10M Bond Issuance for Lido.

  4. Porter Finance & @Jordan also suggested issuing a zero coupon bond collateralized by stETH with them. Link.

–
I think the community should continue to engage with these teams since they may have/have specialized expertise on these topics.

However, I’d love if we could get more concrete proposals & terms from them here on the forum.
Especially interested in looking at fleshed out treasury management or treasury diversification proposals.

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68

Should note that we’ve had calls with both Karpatkey & Gauntlet teams. Both have “Treasury management” products/services worth exploring more, but neither would solve immediate question at hand “how do we secure the runway”, as the timing for both engaging & initiatives to take effect doesn’t seem to fit our narrow timeframe. That being said, we’ll be in contact with the teams to figure out more broad “Treasury management” kind of collaboration we can have with Lido.

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69

the incentive here is misaligned

the people determining “how to secure the runway” raised all this $, watched Vitalik sell at $4,000, decided to not sell and also decided to get involved w 3ac, LUNA, coinbase ventures

they’re genius programmers

all the people on this team that are not programmers are actually not smart people and its unclear what value they provide - how could u not secure a runway, but instead gamble at the top hahahaha, wow!

if u are not a programmer, what is the value that you bring? please state it, b/c you have been engaged in gross negligence at the least

70

We have some dashboards ready. We should have a more formal set of financials ready any day.
The Dashboard should answer many of your questions regarding Lido P/L.

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71

@carvas @kadmil
Hi,Solv has developed a new Propose for Lido these days.( Propose $10M Bond Issuance for Lido)
Looking forward to your reply :stuck_out_tongue:

72

Strategically, a convertible bond does not make sense for Lido at this time. If all goes well, it may be the most expensive proposal yet.

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73

Hey man, just been reading through the thread and had a couple questions;

  1. What does it mean to ‘secure the runway’?
  2. What is the goal of diversifying the treasury here, to generate yield/income on treasury assets or something different?

Thanks in advance!

74

I’d say:

  1. Have stable funds that assure with certainty that Lido can pay OpEx (contributor compensations, other expenses) for a good amount of time (independently of revenues, markets, etc).

  2. Main thing would be to make sure the treasury isn’t 100% long exposed to price volatility in crypto markets (so that Lido can weather bear and bull markets).

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75

I see. So I work for PieDAO, and we’ve actually been offering treasury management as a service for a couple months now. Would this be something you guys are interested in? We’ve been in partnership with the Sandbox in this regard - I can share how those positions have performed if you’re interested.
Correct me if I’m wrong but as far as I can tell Sandbox has similar goals to you guys, ie provide a stable yield with no directional bet and no risk to capital.

We can talk further if you’re interested

76

Unfortunately, its not so simple. The discussion revolves around how to rotate into stables and in what amount.

Rotating into stables is the first priority. A longer term objective is diversifying, but we have to settle the first item before hand.

You are welcome to submit the details about your services and or a proposal so the community can take a look. This thread has been rather focused on rotating to stables so a proposal be more productive in another thread.

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77

Hi all, I’m from Avantgarde Finance. We’ve been following the conversation here and wanted to chime in here to advocate for the middle path.

TLDR:

  • More transparency on budget & breakdown of expenditures would be useful to have as a community. We’re happy to help prepare reporting for that if there is demand for this.
  • Selling a portion of the initially-suggested ETH now seems sensible to cover short term needs but this should be limited given low prices and the existence of better options.
  • Exploring convertible notes and credit facilities through protocols like Solv and Porter is a worthwhile endeavour. Whilst borrowing facilities come at a cost, they provide optionality.

Transparency & Reporting
We agree that a clear view on what the DAO has spent and what it projects to spend in the future is vitally important in deciding on a treasury management strategy and the tactics necessary for its success. We’re under the impression that this work is ongoing, but pending the outcome there we would be supportive of a Reverie engagement to hone in on the specific vertical budgets and projections. Given all the information, we would hope to settle on a strategy to diversify a predetermined portion of the protocol’s revenue from stETH to USDC at a regular cadence. Going forward, we think it’s helpful to have more transparency on accounts and reporting on how funds are spent. We would be happy to help gather this information if there was demand for such a task.

ETH Inventory
Absent the appetite to cut costs, we believe that selling a portion of the ETH sitting in the treasury to cover immediate expenses, is a suitable stopgap measure. That said, we subscribe to an endowment model for DAO treasuries where an organisation’s assets are used to generate a return which is in turn used to help fund operations. We believe that there are benefits to exploring ways to use the treasury’s ETH and LDO to generate yield or potentially collateralise debt offerings.

Karpatkey are well-positioned to advise on what is possible in the current DeFi landscape, and we are supportive of them expanding their WIP proposal to include this type of opportunity. We’d like to see it being done on Enzyme in order to ensure transparency, 24/7 real time on-chain reporting and trustless management of assets. We’re happy to help with this.

Tapping the Credit Market (whilst we still can)
We disagree with the categorisation of convertible notes (or similar credit facilities) as the most expensive option for funding. If structured well, we believe they provide valuable optionality that would be given up by just hitting the sell button. Depending on the structure, they prevent forced selling of tokens at depressed prices (because the DAO can just draw on the credit line to fund expenses). When token prices rebound the DAO can opt to sell and cover the debt, or pay it down with protocol revenues, or some combination of both. An ideal design would take into account the protocol’s cash flow dynamics and capacity for repayment and push the sale of protocol assets or native tokens well into the future.

79

Highly appreciate the inputs and views. Fully agree with the transparency & reporting comments as mentioned before in this thread.

Regarding credit/loans/bonds, I’d love to see views on concrete deal terms, be them 1. the ones already proposed to Lido or 2. just what reasonable deal terms would be in an hypothetical scenario (as a possible RFP later for example).

As a pointer, we had a relatively deep discussion around Solv’s proposed terms for a bond here in the forum.
There is some analysis of hidden costs (e.g. the calls) and opportunity costs (e.g. comparing to other lending markets’ rates) of that kind of proposal.

80

Solv has submitted a new proposal, this time the feasibility of the proposal feels very good, please pay attention to the

Looking forward to your response

81

Assuming there are not dramatic changes in the budget going forward, the dashboard identifies the operating expenses and LDO emissions.

In general, I am in favor of a credit solution, not selling. However, a convertible bond has far different financing terms than a vault from Maker, which is what we likely should go with. It has the lowest cost of capital and can be implemented swiftly.

1 Like
82

It was a good call at $1800, not now.

sell some eth now.

83

Bro, Lido just settled a deal with dragonfly to secure the 1-2 yr runway. I don’t think we need to sell ETH at this price from the long-term point.

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