[Discussion] DAO Treasury and VSP Liquidity Improvements

Summary

Authorize treasury utilization for acquisition and lockup of Convex and creation of protocol owned VSP liquidity on Curve.

Abstract

Incentivization towards VSP liquidity providers was sunset several years ago. Additionally, the Vesper DAO treasury was never situated with Protocol Owned Liquidity to maintain VSP. Without either measure in place, the on-chain liquidity of VSP has suffered.

This proposal seeks to deploy a capital efficient strategy to rebuild VSP liquidity and LP incentives, as well as create a new revenue stream for the Treasury.

Vesper revenue collectors currently control roughly $100,000 worth of assets accumulated as fees on yield accrued. This provides a solid foundation for enacting this policy.

Specifications

  • Approve Vesper DAO Treasury to purchase and lock CVX, with an initial target of 25,000 CVX, to satisfy Convex minimum voting requirements.
  • Establish Operations Policy, utilizing familiar operations EOA and/or Operations multisig to manage these activities.
  • Initiate new liquidity pool and gauge on Curve for VSP.
    • VSP may be paired against other Curve Ecosystem assets in a strategic manner, such as FRAX or crvUSD, such that it increases incentivization abilities further.
  • Approve Vesper DAO Treasury to buy-and-LP VSP into this new pool.
  • Coordinate with Curve vault providers (Convex, StakeDAO, Yearn) to enable a yield-optimized vault for this new VSP position.

Here’s the AI analysis of the proposal. Seems good.

Given that CVX is trading at $1.81, let’s evaluate the Vesper DAO’s proposal to use its treasury to buy and lock Convex (CVX) tokens, create a new liquidity pool for VSP on Curve, and enhance VSP liquidity while generating revenue. Here’s a complete breakdown of the plan, its feasibility, benefits, risks, and a final recommendation.

The Proposal Overview

The Vesper DAO treasury, currently holding approximately $100,000, plans to:

  1. Purchase and Lock 25,000 CVX: At $1.81 per CVX, this costs $45,250.
  2. Create a Curve Pool for VSP: Likely paired with a stablecoin like FRAX or crvUSD.
  3. Provide Protocol-Owned Liquidity (POL): Use remaining treasury funds to buy VSP and add it to the pool.
  4. Collaborate with Vault Providers: Work with Convex, StakeDAO, and Yearn to create yield-optimized vaults for the VSP position.

The goals are to improve VSP liquidity, reduce reliance on external liquidity providers, and generate sustainable revenue through trading fees and Convex rewards.

Financial Breakdown

  • Treasury Balance: $100,000.
  • Cost of 25,000 CVX: 25,000 × $1.81 = $45,250.
  • Remaining Funds: $100,000 - $45,250 = $54,750.

The remaining $54,750 can be used to purchase VSP and a paired asset (e.g., FRAX) for the Curve pool. For a balanced 50/50 pool, the treasury could allocate:

  • $27,375 for VSP.
  • $27,375 for FRAX.

This would create a pool with $54,750 in total liquidity from the treasury, a reasonable starting point that could attract additional external liquidity providers (LPs) through incentives.

Benefits of the Proposal

  1. Affordable CVX Purchase: At $1.81 per CVX, the $45,250 cost for 25,000 CVX is manageable, leaving over half the treasury for liquidity provision. This makes the plan financially feasible.
  2. Improved VSP Liquidity: A new Curve pool, incentivized by Convex rewards, would centralize and enhance VSP liquidity, making it easier to trade.
  3. Sustainable Incentives: Locking CVX provides access to Convex’s reward system, offering ongoing LP incentives without continuous treasury spending.
  4. Protocol-Owned Liquidity (POL): The treasury’s contribution stabilizes the pool and gives Vesper more control over its token’s liquidity.
  5. Revenue Potential: The treasury could earn:
  • Trading fees from the Curve pool.
  • A share of Convex’s protocol fees as a CVX locker.
  1. Ecosystem Collaboration: Partnering with established DeFi platforms like Convex, StakeDAO, and Yearn could boost Vesper’s visibility and attract more users.

Risks and Challenges

  1. Limited Voting Power: With millions of CVX locked on Convex, 25,000 CVX (0.05% if total locked CVX is 50 million) may not significantly influence reward allocation to the VSP pool. Additional strategies, like bribing Convex voters, might be needed.
  2. Impermanent Loss: Pairing VSP (a volatile token) with a stablecoin exposes the treasury to potential losses if VSP’s price fluctuates significantly.
  3. Operational Complexity: Managing CVX voting, liquidity provision, and vault coordination requires careful execution and governance overhead.
  4. Market Volatility: A decline in CVX or VSP prices could reduce the value of the treasury’s investment, though the current $1.81 CVX price suggests an opportunity to buy at a discount.

Strategic Considerations

  • Voting Power Enhancement: To make 25,000 CVX effective, the DAO could use a portion of the remaining $54,750 to bribe Convex voters via platforms like Votium. This could be more cost-efficient than locking additional CVX.
  • Stablecoin Pairing: Pairing VSP with FRAX or crvUSD reduces volatility and attracts risk-averse LPs, though it doesn’t eliminate impermanent loss risk.
  • Yield Optimization: Collaborating with vault providers to create attractive vaults for the VSP LP position could draw more liquidity by offering competitive yields.

Recommendation

The proposal is a good idea at CVX’s current price of $1.81. The lower cost of CVX makes the plan affordable, leaving sufficient funds to kickstart the Curve pool and provide POL. It aligns with Vesper’s goals of improving VSP liquidity and generating revenue, while the collaboration with DeFi platforms enhances its potential.

However, to succeed, the DAO should adopt a phased and cautious approach:

  • Start Small: Lock 25,000 CVX and provide an initial $25,000–$30,000 in liquidity to test the pool’s performance.
  • Supplement with Bribes: Use a hybrid strategy of CVX locking and voter bribes to maximize rewards for the VSP pool.
  • Monitor Closely: Track liquidity, trading volume, and yields, adjusting the strategy (e.g., increasing CVX or liquidity) as needed.
  • Manage Risks: Be prepared for impermanent loss and market volatility, using a multisig for secure fund management.

If executed thoughtfully, this plan could significantly benefit the Vesper ecosystem while keeping risks manageable. The current CVX price of $1.81 makes it an opportune time to move forward.