An Analysis of the GnosisDAO Treasury: Context for the submission of new GIPs
Amidst the bear market, Karpatkey’s team is looking for ways to respond to new GIP’s solicitation of funds while looking after the treasury’s health.
Who we are
Karpatkey is an independent DAO incubated through Gnosis that aims to create Treasury Core Units for DAOs ( GIP-20 and GIP-58). After the creation of the GnosisDAO and the transfer of assets from Gnosis Ltd., Karpatkey DAO has been providing services to manage its treasury by applying an on-chain system that includes recurrent liquidity mining optimization strategies in a risk-controlled environment.
However, with the continuous growth of the Gnosis Chain, the number and complexity of the challenges faced by the GnosisDAO have increased substantially. Our goals, detailed below, are aligned with the successful overcoming of those challenges.
GnosisDAO treasury’s core unit goals for 2022/2023
- Steward a healthy DeFi ecosystem to act as the backbone of the Gnosis Chain for mass adoption applications
- Improve the value proposition of GNO and the GnosisDAO treasury
- Actively support the portfolio projects of the GnosisDAO
During the last 6 months, we’ve been increasing our headcount and went beyond the scope of GIP-20, providing numerous services detailed in GIP-58, submitted on June 30th.
Many farming-driven positions on mainnet were removed to better serve the Gnosis Chain DeFi ecosystem development, by providing liquidity to it and to GNO in Ethereum network (mainnet), and transferring funds to execute new projects’ proposals.
Currently, around 15% of the assets under management (AUM) are allocated in positions that generate yield on mainnet. The treasury management strategy switched from generating yield, to developing the Gnosis Chain ecosystem.
Context
The current bear market environment and the increased activity in the Gnosis Forum motivated us to share with the Gnosis community an analysis of the current composition of the GnosisDAO treasury.
Since GIP-20, Karpatkey has been selling all of the non-strategic farming rewards for stablecoins. Due to the large amount of funds required to execute the approved GIPs, the GnosisDAO started to get additional stablecoins through collateralized loans. A large debt in stablecoins has already been incurred. Karpatkey’s team has managed to keep collateral ratios healthy, and the treasury counts on sufficient funds to prevent liquidations, provide GNO liquidity and promptly respond to GNO price manipulation events and other emergencies.
Uncollateralized loans are not available for DAOs in the current scenario. This is why increasing the treasury’s stablecoin debt might force us to make far from optimal decisions, like selling ETH or increasing leverage.
We’ll share the analysis of the available options for providing additional funds considering ETH at a $1000 — $1500 price range.
GnosisDAO treasury’s composition
The values and tokens’ prices in this and the following sections correspond to those published in the GnosisDAO weekly report on July 11th, 2022. (ETH price: $ 1,149, and GNO price: $115). Note that the treasury’s composition changes weekly.
The following table shows the different strategies implemented, their corresponding allocated funds, and other funds in the wallets.
Takeaways from table 3
1. Assets locked as collateral to get loans in stablecoins: 85,103 ETH value, 49.25% of the AUM.
As mentioned before, a large debt from collateralized loans in stablecoins (-11.77% of the AUM) has already been incurred to mainly provide liquidity to the Gnosis Chain and execute GIPs. As a result, half of the AUM is locked as collateral.
The following table details deposited and borrowed amounts for all loans in the portfolio:
2. GNO reserve in wallets: 45,753 ETH value, 26.48% of the AUM
This amount of GNO is being kept as a reserve for the following reasons:
- Prevent liquidations of our loans with GNO as collateral
- Future fundraising
- GIP funding
3. Farming — funds to prevent liquidations: 18,329 ETH value, 10.61% of the AUM
This amount is allocated to farming positions to use as a reserve to increase the collateral ratio (CR) when necessary. We keep a minimum CR of 350% for the stablecoin loans with stETH as collateral.
Note: Funds in Element are locked until September 2022.
4. Provide GNO liquidity in mainnet: 9,193 ETH value, 5.32% of the AUM
This amount was deposited in the ETH/GNO pools in Aura and Uniswap V3, representing the main GNO liquidity on mainnet.
Total GNO liquidity provided
Funds deposited to provide GNO liquidity in both networks (16,622 in ETH value) represent 9.62% of the AUM (items 4 and 6 in table 3).
Total liquidity provided to the Gnosis Chain
Another 4.10% of the AUM (7,077 in ETH value, item 7) was allocated to provide other tokens’ liquidity to the Gnosis Chain, and 1.93% (3,333 in ETH value, item 9) was deposited to support DeFi use cases development on the Gnosis Chain.
In total, 10.33% of the AUM was deposited in the Gnosis Chain to contribute to its DeFi ecosystem development.
Other items from table 3:
Less than 5% of funds are kept in positions different from those mentioned before and we consider them as farming positions with strategic non-salable tokens, like BAL, FLX, Aura, LDO, etc.
Available ETH in wallets (3,733 ETH, 1.95% of the AUM) serves the treasury as the first available funds to make small corrections to the MakerDAO loans collateral ratio. It also enables providing additional liquidity in GNO pools or in pools with portfolio projects’ tokens such as LDO or BAL.
Finally, a small amount of “other funds” (1.80% of the AUM) represent other available tokens (apart from ETH, stablecoins, and GNO) in the wallets and other small positions, and 1.38% of the AUM was allocated to support portfolio projects on mainnet.
GIPs expenditures and investments
The following funds were transferred during 2022 to execute approved GIPs:
The total amount represents 37% of the AUM as of July 11th, 2022.
Conclusions
- The GnosisDAO holds a debt of $23,366,497 and a stablecoins’ negative balance of -$10,596,576. Loans were taken to provide stablecoins liquidity to the Gnosis Chain and execute GIPs. Out of that debt in stablecoins, $8,703,448 were used to execute GIPs. Most of these funds are unspent reserves for organizations to contribute to the Gnosis Chain growth.
- The treasury holds 18,329 in ETH value farming funds available to prevent liquidations. This represents 25% of the assets locked as collateral in MakerDAO (our main alternative for additional debt). Considering a minimum collateral ratio of 350% currently locked assets and farming funds could cover current loans up to a 30% price drop of the stETH as collateral. Note: This situation will change once our anti-liquidation bots are deployed on mainnet.
- Around 10% of the AUM was deposited to contribute to the Gnosis Chain DeFi ecosystem development, providing liquidity in GNO, stablecoins, and others, and to support DeFi use cases development. We wouldn’t recommend removing funds from the Gnosis Chain.
- If additional stablecoins were to be transferred, additional debt would need to be incurred. This means locking additional assets as collateral. The pros and cons of this option are analyzed in options 2 and 3 in the next section.
- The treasury has a reasonable amount of available GNO to prevent liquidations of our loans with GNO as collateral, future fundraising, and GIP funding. But even if proposals asked for a small part of this reserve, it would be necessary to explain how it would be used. Selling GNO to support initiatives’ expenses could harm GNO’s value (and the GnosisDAO’s strategies as the GNO buybacks, among others deployed in the past). We see selling GNO as the least recommended alternative to support new GIPs.
Options to provide additional funds for GIPs execution
Option 1
Provide stablecoins by removing liquidity from the Gnosis Chain.
The following funds in stablecoins were deposited or borrowed in the Gnosis Chain.
Pros: We could fund GIPs using around half of these funds ($4,846,339) since we need some stablecoins reserves to cover our loans.
Cons: Reduced TVL on the Gnosis Chain, reduced liquidity.
Option 2
Provide stablecoins by adding stETH as collateral on Makerdao after September 2022.
The farming funds to prevent liquidations in the stETH/WETH pool in Element (6,117 ETH) will be unlocked and available in September 2022.
Pros: Considering a minimum collateral ratio of 350%, $2,008,080 could be borrowed from MakerDAO locking all 6,117 ETH as collateral.
Cons: Reduced liquidity to prevent liquidations, reduced liquidity to provide to GNO’s pools in case of price manipulation and other emergencies. Reduced revenues from mainnet.
Option 3
Leverage GNO as collateral on Aave / Makerdao.
There is a value of 45,753 ETH in GNO reserves in wallets (456,848 GNO).
If the GnosisDAO is to list GNO as collateral in Mainnet and the Gnosis Chain, it must invest at least 13,055 in ETH value. The total available amount will then be 32,700 in ETH value.
Pros: Considering a minimum collateral ratio of 500% for loans with GNO as collateral, 6,500 inETH value could be borrowed.
Cons: Reduced liquidity to prevent liquidations. GNO’s increased vulnerability to being shorted can expose it to price and governance attacks. Additional SC risk.
Option 4
Provide ETH instead of stablecoins.
If providing all available ETH in wallets (3,373 ETH) and the farming funds to prevent liquidations (18,329 ETH) there will be 21,702 ETH available.
Pros: We can cover all of the required expenses. We have 2–4 times more capacity than our stablecoin loans.
Cons: ETH price is too low. Reduced liquidity for GNO price manipulation events.
Also, the composition of the GnosisDAO portfolio is to be kept while identifying the best economic opportunities for the treasury tokens ( GIP-20). Trading with the GnosisDAO assets is not part of the treasury management strategy.
Funding guidelines for new GIPs
We suggest that new proposals:
- Include a detailed expenditure plan showing a GANTT chart with milestones.
- Only request tokens that the treasury holds and detail amounts and addresses.
- If GNO is requested, include an explanation of how GNO will be used.
- Follow the GIP templates.
We suggest that projects that are planning on submitting new GIPs would first connect with Karpatkey’s team at feedback@karpatkey.com to check the availability of the tokens required and minimize rework.
If you are interested in staying up to date with the GnosisDAO’s portfolio, from the GnosisDAO treasury’s core unit we deliver weekly reports and we post them in the Gnosis Forum, on the GnosisDAO Discord channel, and in our Twitter.
More information about us:
Karpatkey’s website
Karpatkey’s Linkedin
