ShapeShift

This proposal outlines a strategy for earning revenue from the ShapeShift Tokemak reactor. Specifically, the DAO would fund the reactor with up to $30 million worth of FOX from the DAO’s treasury, and in return could generate a substantial revenue stream in the form of TOKE rewards.

The Big Picture

The ShapeShift DAO is sitting on a large amount of untapped potential in the form of its extensive FOX treasury (roughly $200 million at the time of this writing). Thanks to DeFi, there are myriad ways in which we can generate yield on those assets. That revenue, in turn, could potentially be used for treasury diversification and redistribution to FOX holders, and employed in other beneficial ways.

(The ShapeShift treasury can be viewed here: https://etherscan.io/address/0x90a48d5cf7343b08da12e067680b4c6dbfe551be)

What’s the potential upside?

Assuming current prices of FOX and TOKE, as well as an average Fox Reactor APR of 50% (currently it’s at 43%), a deposit of $30 million worth of FOX (roughly 15% of the current treasury) would generate about $1.25 million in TOKE rewards per month. ($30 million at 50% = $15 mil/yr or $1.25 mil/mo)

TOKE also potentially bears significant value to ShapeShift DAO as the governance token of the Tokemak protocol, which is used to allocate both TOKE rewards and vault liquidity, helping secure deep FOX liquidity and offsetting the need for ongoing liquidity mining programs.

Further, TOKE rewards can also be staked for additional TOKE yield of 50%+ for maximum yield.

What are the potential downsides and risks?

Due to the “balancing game” mechanics behind Tokemak, a sizable deposit of FOX would lead to a substantial decline in the reactor’s APR for FOX rewards–not great for those staking FOX in the pool. However, the very same balancing mechanics would likely lead to a recovery in that APR within a few days: when the APR on the FOX side of our reactor goes down from a large deposit, the APR on the TOKE side goes up, incentivizing the “rebalancing” of the rewards. This, in turn, should encourage TOKE voters to balance out the reactor and bring rewards back up to match the deposit.

With respect to risks: in the worst-case scenario, a smart contract bug or exploit could completely drain our Tokemak reactor, leading to the loss of all of the DAO’s reactor-held funds. While the DAO would live to fight another day, losing up to $30 million would certainly be an unwelcome development–a setback in terms of both optics and almost certainly the short-term price of FOX.

What exactly does this Proposal do?

YES: Up to $30 million worth of FOX will be deposited into the FOX Tokemak reactor.

NO: No action is taken.