Gearbox DAO

Authors: amplice & ivangbi

Summary

Proposing to float the reserve fund at around $1,000,000 until the treasury and audit commitments are covered, ensuring less risks for the treasury holdings and less exposure. The asset composition is to be at a semi-even ratio depending on what the asset composition is and what the pool size is. See more in https://docs.gearbox.finance/overview/liquidations/insurance-fund.

Motivation

Token holder treasury is earning about $1M a month right now in hard assets (stables and ETH) which all go into the Reserve Fund by default, instead of idle assets like in most other protocols. This is because the reserve fund is made up of Gearbox diesel assets - or in other words, the fees accumulated in the reserve fund are actually deposits in Gearbox’s lending pool. This is like re-supplying liquidity to keep growing the protocol - by default - while other protocols usually need to make a separate transaction to turn their idle assets into productive working LP positions.

Due to recent GIPs having proposed improving security via Chaos Labs and Spearbit, it would be wise to provision a certain amount of funds to pay for these expenses. Such funds should not be subject to any risk at all, as a DAO we want to be able to say with 100% certainty that we can cover the costs of the new security tooling being onboarded to the ecosystem.

The $1,000,000 Reserve Fund level not increasing is NOT a bad security practice because it actually saves the assets from wrong liquidations tapping into the reserved fund at a bad moment. In cases where a tiny depeg is momentary, a large reserve fund is more of a liability than a blessing. In those cases it’s better to have idle assets to potentially cover any holes, rather than a mathematically programmed exposure.

Specification

At the current TVL of $400M, Reserve Fund is at about $1.5M and the proposal suggests to convert back protocol fees into hard assets to cover payments down to $1M. That is a non-material change because the reserve fund is the last stop anyway. In case the treasury would reach about +$3M in hard assets again, this proposal could be stopped, and the Reserve Fund could continue accruing more assets. Current distribution of Reserve Fund can be found here. It is proposed to set Reserve Funds distribution as 300k dUSDCv3, 200 dWETHv3, 30k dDAIv3 (and for smaller pools keep as is).

The financial multisig, if this proposal passes, would then once a month execute the withdrawal from dTokens from assets in order to keep each pool Reserve Fund at an even ratio to a pool’s total TVL as much as possible. Those assets are not to be used for anything, they would just sit idle in the same multisig as a non–immediately-burnable buffer. That’s all.

Next steps

Financial guard will execute the transaction as explained in the budget section right after. You can find all the spending details in Notion, a transparent source for any treasury spending reports.