BeethovenX

closedEnded a year ago · Snapshot (Offchain)

BIP-88: Approve DAO to Deposit ws/stS Treasury Funds into Interest Rate Derivative Markets on Sonic

Summary

A portion of the DAO Treasury funds will be used to form positions in interest rate derivative markets on Sonic, including Pendle, Spectra, and StableJack.

Proposal

As part of a DAO yield tokenization diversification strategy, this proposal would grant Music Directors the ability to move treasury assets to Pendle, Spectra, and Stablejack on Sonic. For such a scope extension, a governance approval is required prior to Treasury funds being deposited with a new protocol.

The proposal also includes a first action of moving up to $200k wS/stS across all markets. This is done within the existing Treasury and Risk Framework as approved by BIP-57, where such positions fall under Risk Level 3, Tenet 5.

Motivation

Upon the deployment and successful bootstrapping of stS, Beets DAO not only acquired a powerful technology stack and revenue-generating protocol but also unlocked new opportunities for Treasury revenue generation that seamlessly integrate with the DAO’s products.

With the addition of a Liquid Staked Token protocol, internal contributors have been evaluating the liquidity landscape surrounding this asset type, identifying markets that offer unique opportunities for liquidity growth and yield generation. Beyond lending protocols and DEXs, one sector that has demonstrated significant potential is Yield Trading Protocols.

The rise of on-chain interest rate derivative markets has introduced an efficient way for DeFi capital managers to generate returns and speculate on the yield of Interest-Bearing Tokens (IBTs). These markets are particularly well-suited for Liquid Staked Tokens, allowing users to either acquire Principal Tokens (PT) at a discount to lock in ‘fixed interest rates’ or take a position on the Yield Token (YT) to speculate on future yield trends and gain leverage exposure to point distribution. This dynamic is similar across all yield tokenisation protocols, although there is some variation to this with StableJacks Points Token as an example.

With the ongoing points meta on Sonic, Beets DAO contributors have observed a growing trend of liquidity flowing into YT positions, as users speculate on point generation. Since YT and PT fixed interest rates are inversely correlated (increased YT purchases drive PT fixed yields higher), the DAO has identified an opportunity to secure a highly competitive fixed yield rate on stS through Pendle, Spectra, and Stablejacks interest rate derivative market.

Impacts / Risk Assessment

Moving Treasury assets as proposed introduces an additional layer of smart contract risk, specifically tied to the permissionless interest rate derivative model.

Protocol Risk: Pendle smart contracts have been audited by Ackee, Dedaub, Dingbats, and some of the top wardens from Code4rena. Spectra has undergone an audit by Pashov and a security review by 42 auditors through Code4rena. StableJack has been audited by Dedaub, and is working with Hexagate, a threat mitigation tool that tracks contracts and pauses if a malicious contract is deployed.

Asset Counterparty Risk: stS is Beets’ native asset, audited by Trail Of Bits and Spearbit, and backed by ~160 million $S staked within its contracts. However, any Interest-bearing tokens (IBTs) may experience fluctuations in their underlying share value/peg. If the value decreases, the backing of Principal Tokens (PTs) will adjust proportionally to maintain the Yield Protocols solvency, potentially reducing the amount PT holders can redeem at maturity.

Specification / Execution Plan

If this proposal is approved, MDs will have the authority to allocate up to 200k DAO Treasury funds into Pendle, Spectra, and Stable Jacks interest rate derivative products.

All asset movements would occur exclusively within or between DAO Treasury addresses.