The Ripe Endaoment
A new approach to long-term sustainability in DeFi
Y’all know me, still the same O.G. But I been low-key, you forgot about Dre?
Hope not. I’m back for another post. Today we’re gonna chat about The Endaoment. It’s an essential component of Ripe.
Primer: Traditional Endowment
You may have heard of University endowment funds or non-profit endowments? For example, Harvard University has $53B in their endowment. The idea is that the principal value of the fund stays intact. However, those funds are still deployed and invested so that it can generate yield/returns. Only the gains (not the principal) are used to help fund new activities, initiatives, expenses. This creates a long-term, sustainable model for funding.
The Ripe Endaoment has many similarities to the traditional endowment. Let’s break down a little more what it does and how it works.
All Protocol Revenue goes to The Endaoment
All revenue that is generated in Ripe protocol goes to the Endaoment. Every. Single. Cent. This is how the Endaoment slowly builds, grows, and strengthens.
Here‘s how the protocol generates revenue:
- Loan revenue (interest payments, daowry, liquidations)
- Home-grown yield strategies for depositors (take % of gains)
- Bonding proceeds (we’ll chat more about this in a future post)
- Algorithmic jUSD market sales (when above peg)
- Stablecoin redemptions
In future posts, we will go into more detail on each of those. But the key point is that all protocol revenue ultimately ends up in The Endaoment. And it will stay there. We hope it reaches billions of dollars someday.
The Endaoment is Productive
One of my greatest DeFi pet peeves is when protocols let their assets just sit around in smart contracts unproductively. That won’t be happening with The Endaoment.
The Endaoment is productive. It puts funds to work in DeFi so that it is constantly generating yield and earning. It can only use strategies that are open and available on Ripe. The Endaoment is a depositor like any other depositor. The Endaoment eats its own dog food.
As part of its portfolio of yield-farming strategies, we expect The Endaoment to heavily participate on Curve/Convex. The Endaoment will be adding liquidity to many stablecoin pools, strengthening their peg, providing stability, and generally being positive-sum to the broader stablecoin ecosystem. While Ripe has its own stablecoin, we think of Ripe as highly complementary and value-additive to other stablecoin projects, particularly because of The Endaoment and its ability to direct thick liquidity to other stablecoin pools. We expect Ripe DAO to have collaborative, friendly relationships with many stablecoin DAOs.
Other than low-ish risk stablecoin pools on Curve/Convex, we expect The Endaoment’s yield strategies to be on the safer side. Examples include Yearn, Aave, Compound.
The Endaoment gives the profits/yield away
As with the traditional endowment, the Ripe Endaoment uses its principal value to invest and generate returns. Only the profits (not the principal) are then shared with Ripe participants. The Endaoment mints jUSD that corresponds 1:1 to the profit value. The actual gains (likely an LP token) stay within the control of The Endaoment, continuing to be productive, and serving as backing for that newly minted jUSD.
The jUSD is then given as rewards/incentives for participants in the network. Here are the various protocol constituents who receive jUSD rewards (based on Endaoment gains):
- Depositors (this is how they receive “boosted yield”)
- Stakers (jUSD, RIPE, LP, etc)
- DAO Ops (pay contributors, bounties, etc)
- Impact (more on this later!)
The exact breakdown of how jUSD rewards are split will be configurable at first. Eventually, this will be algorithmic based on protocol health factors (i.e. the peg/stability of jUSD). We will have another post going into more detail on how/where value accrues in the system.
Some of the gains from The Endaoment are not given as rewards (the exact % is configurable, and eventually programmatic). It stays within the productive control of the Endaoment. This ensures that the jUSD backing and collateralization ratio is always moving up.
The Endaoment funds are sacred
The Endaoment is not a typical DeFi “treasury.” The community cannot do a snapshot vote to siphon funds from the Endaoment to grant some rando research project or pay contributors. Funds controlled by The Endaoment are untouchable by the community (except for one thing, which we’ll get to next). The Endaoment uses its principal value to generate yield (i.e. Curve, Convex, Aave, Compound, etc). That yield creates a long-term, sustainable source of revenue and funding for the protocol and its participants. Don’t you dare put your hands on these sacred funds. It’s for yield generation!
jUSD redemptions happen in The Endaoment
After the UST/Luna collapse, Vitalik wrote an important post on stablecoins. One thought experiment that he considered: can the stablecoin, even in theory, safely “wind down” to zero users?
We agree with Vitalik. In the event of extreme market volatility, how can the protocol ensure that nobody loses out, no musical chairs, no last person holding the bag, that everyone can be made whole? Now of course, we can’t make promises. That’s just not responsible to do given what we know about DeFi and web3. But we’re doing everything we can to build a system that can “wind down” safely, carefully, and gracefully.
We believe that a redemption mechanism is essential in achieving that. These stablecoin redemptions (i.e. jUSD -> USDC) occur in The Endaoment. This redemption mechanism helps maintain stability and builds trust in the community (there is always an offramp).
We do not want to rely on RIPE token emissions as a way to incentivize certain actions in the protocol. The DAO collectively may decide to do that from time to time — perhaps as a liquidity bootstrapping or token distribution mechanism. However, we all know that’s not sustainable. The Endaoment is our best approach in creating a system that can be sustainable for the long-term. All revenue goes to The Endaoment. It stays productive, growing, and untouchable. And gains are then used to incentivize participation in the protocol. That’s how yield is boosted. That’s how stakers are rewarded.
How big will The Endaoment get? I can’t wait to find out.