Since the last discussion around treasury diversification, the market landscape has changed drastically with highlight to the decoupling of USD parity with DAI due to the centralised collaterisation of USDC. While this as always been a potential contigency, it was not something that seen as occuring in such a short timeframe nor within the duration of strategy duration. Nonetheless, with the recent events it is not feasible nor recommended to use such a risky and centralised form of collerateral. Perhaps at a later date a more suitable substitute collerateral will reveal itself and selected for optimisation through the previous quantitiative finance work.
The problem of finding a suitable auction mechanism was unsolved for since the initial discussion around this topic, given the context of the organisation and the asset being auctioned - a “vanilla” Dutch auction or fixed price auction - would be infeasible. With reasoning because of the clear lack of demand given the sanctions and the potential flaw of mispricing would deem the efforts wasteful, not only with the potential risks of capital deployment but also of governance’s participation.
When strategicially thinking of the best solution to these problems, it became apparent to me the standardised model of Dutch auctions was flawed and far from an equitable and adaptable mechanisim to raise proceeds. Which was how I came to conceptualise and develop the Rolling Dutch Auction, a perpeutal auction with composite decay.
This implementation caters with creating fairer pricing economics and extended durations based on participation, simply explained; the more bids that are submitted the slower the price will decline and the longer the auction will continue for. This ultimately is perfect for the unseen demand of auctioning assets from a sanctioned organisation and when purchases are subject to a period of vesting.
This implementation has been audited and you can read the report here.
Since the previous proposed strategy of two sided liquidity provisioning is no longer feasible with the outlined risks of DAI, the only reasonable course of action here is to proceed with only provisioning to UNIV2 TORN/ETH pool. The liquidity risks the organisation faces are still prevalent and need to be addressed, while potential delistings from centralised markets such as Binance - are not confirmed - it is still a very possible given their recent litigations from regulators.
For the first iteration and application of this auction implementation, I propose a capital deployment of approxiately $200,000 worth of assets to be sold. With all of the proceeds being deployed to liquidity provisioning of the UNVI2 TORN/ETH pool, acting as a first step to mitigating the potential liquidity crunch that could occur if centralised markets were to delist the protocol governance token.
Additional to this auction participants would be subject to a fixed duration of vesting not to saturate the market with immediate unlocks and prevent MEV bots from arbitaging the auction. The implementation to handle the vesting currently also supports locking assets into governance, redeeming staking rewards and delegating to a chosen address so that participants can be active stakeholders in governance while subject to a lockup. Recommendations for auction specific parameters are the declared below.
- Auction duration; amount of the time the auction is live for: 1 week
- Window duration; amount of time a bidding window is active for: 4 hours
- Vesting duration; amount of time lockup for participants: 1 month
- Reserves amount; amount of assets to be sold: $200,000 worth of TORN
- Starting origin price; initial auction asset price: 14 day moving average TORN/ETH price
This proposal is still in it’s early draft and there is still many tasks to be completed before suitable for deployment. One of which is creating an user interface or integration to the frontend for easy participation along with an entire security analysis of the proposal logic.
This is an incredibly important proposal and I encourage all community members to come out and share their opinions on this matter, thank you.