Background

This proposal is for the Threshold Network DAO to fund the smart contract development of a decentralized stable coin with decentralized collateral.

Agoristen proposed a Liquity fork with the following high level changes:

• No governance token.
• Fees accruing as Protocol Controlled Value for the Threshold Network DAO.
• Accepts TBTC as collateral.
• Interest rate.
• An initial loan against the protocols future fees will be minted for use by the Protocol Controlled Value in the stability pool, see the docs below for more details.
• Some upgradable components.

The goal is that like the initial version of Uniswap the usage will be driven by utility not tokenomics.

A task force was established to work on how Threshold USD should work, you can read more details in the links below:

• Threshold USD draft
• thUSD Interest Rate Specs
• The soft-ceiling dilemma
• B. Protocol Proposal
• B. Protocol QA

So What?

Allowing TBTC holders to borrow stables against their bitcoin should increase the TVL in TBTC as bitcoin holders can participate in defi without having to swap to WBTC first.

Who Cares?

T holders will benefit from:

• Increasing TBTC TVL, this is an important metric for integrating with larger defi protocols.
• Fee’s from the loans would go to the Threshold Network treasury.

Why Us?

You can read about my experience as a developer on LinkedIn (I have a nice collection of recommendations), my friend Shawn worked on Wallet & Apple Pay, Apple Card and Apple Cash and currently works for a bank.

Project Risks

Risk: Overcoming Impermanent Loss (IL)

To function correctly requires being able to acquire thUSD to close under collateralized TBTC positions. A TBTC to thUSD pool would be subject to IL, since there will be no token to subsidize the IL.

Mitigation:

The Threshold Network DAO would establish

• POL in a pegged BTC pool with TBTC.
• POL in a stable pool with thUSD.

Risk: Insufficient Depth

Without a yield, pools are unlikely to achieve sufficient depth to be useful. Accumulating sufficient POL to provide the depth is a longer term strategy. This requires a short term incentive.

Mitigation:

The Threshold Network Treasury has a strategy to diversify into assets that include gauge weight so the DAO can create a yield for LPs in pools related to Threshold Network without needing an ongoing T subsidy. The DAO is building a CVX and CRV position through its T - ETH POL, A similar strategy that was used to bootstrap this liquidity could be applied.

Risk: Getting value for the DAO

Software development is notorious for scope creep, running over time and over budget.

Mitigation:

Representatives of the Threshold DAO would

• Review logged hours against high level tasks in clockify.me
• Guild members would have to approve the hours on a fortnightly basis.
• As the original champion for the project Agoristen would be the product owner and prioritize and approve work.
• The mechanics in this agreement would be reviewed and need to be reapproved as part of the Q2 budget.

Risk: Scope creep

There are a number of non-trivial changes to the Liquity protocol, which opens the door to deep research and modeling.

Mitigation:

The scope of this work would be limited to smart contract development, testing and deployment.

• Economic modeling and risk assessment would be outsourced by the DAO separately with a strong preference to the teams that Liquity worked with.

Risk: MVP Development Risks

There needs to be a balance between shipping code in a timely manner and shipping safe code. The more complicated additions are in how the Protocol Controlled Value works.

Mitigation:

• Having portions of the code be upgradeable with a time delay.
• External DAO funded code audits.

Risk: Rugging funds

Having upgradeable components puts the funds at risk of being stolen through a malicious upgrade.

Mitigation:

• Upgrades approved by the DAO.
• Upgrades having a time delay before being able to be applied.
• The Threshold Council can veto malicious upgrades if sufficient votes were able to be obtained.

Cost

This proposal is for two smart contract developers.

• Rate $1,100 USD per day (8 hours) per developer paid in T tokens.
• T token price taken as the global average price as recorded on coingecko for the day that the work was completed.
• Hours reviewed and approved fortnightly.
• Tokens transferred monthly.
• Contributor Mining Pilot with the option to lock the T tokens for a multiplier; 6 months for 1.2x, 12 months for 1.5x, 24 months for 2x

FAQ

Q: How long will it take to build? A: Difficult to estimate, this is why an Agile software development approach will be used.

Q: Would you consider doing it cheaper? A: No.

Q: What are these multipliers about? A: The goal is to align contributors’ long term success with the project’s long term success.

Q: When can you start? A: When a vote passes and a review team is selected and approved.

Q: How many days a week can you commit? A: 4

Q: If the scope grows larger than anticipated, what is the worst case max spend the DAO is committing to before the DAO would vote to approve again? A: 4 days x 6 weeks x $1100 USD x 2 (2 year lock up multiplier) x 2 people = $105,600 USD

Q: What about the front end? A: A* is going to put together a design doc with an overview, technical details and scope for a funding proposal.

Q: Does this proposal include the cost of auditing? A: No. Cost TBD.

Q: Have you built a simulation for the economic model changes? A: No. External risk assessment to be done by Gauntlet or similar, cost TBD.

Q: How much experience with smart contracts do you have? A: We haven’t deployed anything to Ethereum mainnet, I have written some Hyperledger Fabric smart contracts. Anything considered learning wouldn’t be included in the logged time.