[RFC] Smart Treasury Discussion

Context

PIP-8 changes were made with more interesting and dynamic structures in mind. One of these changes is a “buy and make” model, also known as a “smart treasury”.

For reference, this was also previously discussed here: Replace burn with buyback-and-[something]

The idea originated from this article by Placeholder: https://www.placeholder.vc/blog/2020/9/17/stop-burning-tokens-buyback-and-make-instead

Before commenting, I implore you to read the two links above.

Purpose

The purpose of this thread is to talk about the actual tangible and specific steps we need to execute to move in this direction. There has been a lot of talk on the Discord regarding how this is a “good idea”, but not enough discussion about how to actually put this into motion.

We want this to be as community-driven as possible. So my hope is that, instead of waiting for the core devs to come up with a plan, maybe the community can come to a consensus on a list of concrete steps to move this forward.

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I’m in favour of keeping things similar to the current set up (continue to distribute the income generated to Pickle stakers as sCRV). Although I would be in favour of eventually working towards a more “dynamic” issuance of income (similar to yearn) where we operate a treasury reserve, with any excess overflowing to stakers immediately. However, I don’t think this is something that needs to be done urgently since manual treasury management and distribution in the early stages of pickle is proving useful to budget for things such as an audit.

In addition, I also think distributing income will be useful in aligning incentives for stakeholders if we decide to further decentralize and bind token governance to pickle stakers.

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i dont think there is a need for smart treasury atm. maybe we should create another jar that allows naked pickle stakers to have their scrv automatically compounded into pickles and staked backed in the naked pickle staking. this is based on what i have gathered from reading opinions on discord

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You can even have a single “naked pickle” staking jar.
You can stake your pickles and determine how they are distributed between sCRV returns and PICKLE re-buy and re-stake.

Since naked pickles already get the sCRV, you just need to decide what % of your holdings you want to go through the process.

Please what we should do is as easy as possible to let people make money,as a people who know nothing about cryptocurrency,they just want to put usdt eth or btc in somewhere to make profit,just as $farm did.Not like pickle,first put money in curve or uni,second staking some stupid scrv or stupid lptoken in another place called pickle.
So stupid,why not just like Farm or Yfi,people can just stake usdt eth or btc in pickle with only one step?we help them to do all other things.
AND,PLEASE of course,as a people who know nothing about cryptocurrency,dont give me a stupid coin called scrv,what the fuck about scrv?How to seel it?
Staking pickle please give me pickle

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Maybe we can keep some of the treasury assets in a DeFi ETF such as the DPI or DeFi + L?

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To answer some of the questions here, I’ll bring to light some conclusions drawn in the article by Placeholder VC that @BigBrainBriner shared on the OP:

  • Pickle staking is, at its core, a suboptimal solution. It forces a choice between farming and staking. For the protocol’s health, assets should be productive and liquidity high. Everyone who is willing to farm should be able to do it. The original choice was between farming and HODLing, but we had no value capture mechanism so the protocol fees could help with the price of $PICKLE. With Smart Treasury, all $PICKLE holders will benefit directly, rather than some directly and some indirectly, from the protocol’s profitability.
  • Currently, the assets in Treasury are all in non-$PICKLE tokens, mostly LP tokens. The $PICKLE reserve is the DevFund which is for the Devs. The Smart Treasury makes economic sense as an LP-of-last-resort. Only the DAO (currently the devs) will be able to change the parameters of the treasury or add/remove liquidity, but people can still trade against the Treasury and the fees are programmable. Meaning, we can make the fees to trade against the Smart Treasury high for the further benefit of the protocol.
  • Naked $PICKLEs only get a small percentage of the $sCRV. There is no guarantee that $PICKLE stakers use the $sCRV to buy more $PICKLE. They could be decapitalizing the system. The Smart Treasury would hold all protocol fees. This would create even more positive price-pressure. The funds in the Smart Treasury would then be used to pay for expenses, in the meantime all the currency in the protocol is creating positive price pressure (via buybacks).

Implementation steps

This is my rough suggestion for the process to follow. Note TLDR at the end.

Please read the relevant section in the Balancer docs to get the gist of how Balancer Smart Pools are set up via a special Balancer factory contract.

Pre-implementation

  • Build consensus on economic rationale. The Smart Pool principles are based on a basic understanding of the different nature of economic assets. We should all be on the same boat of viability. We shouldn’t ask people to give something for nothing, or reward people for nothing – else we stare at the abyss of ponzinomics. We cannot also give massive value for free.
    • Governance tokens are not currency, their value comes from the rights of participation in the protocol’s voting and economic success. We call this capital. Capital is inflationary to encourage capitalization.
      • We use capital (e.g. PICKLE) is to reward economic producers i.e. famers, developers, contributors.
    • Payment (fee) tokens are not capital. We have an incentive to spend them, rather than hold them. We use ETH for gas fees as as the native currency in Ethereum. We have ports from currencies we use in the fiat world ( USD) in the forms of USDT, USDC, TUSD, sUSD. We have yield-bearing versions like sCRV. We call this currency. Currency is inflationary to encourage consumption.
      • We receive fee-tokens (e.g. ETH / sCRV) from economic consumers i.e. users like those using the protocol as an utility (jars, traders, etc.). We can use fee-tokens to pay expenses (the pool will sell $PICKLE to recover withdrawals in fee-tokens from the pool).
  • Decide on the composition and weights of the Smart Treasury pool assets. The example implementation is 90% governance tokens and 10% fee-tokens. The rationale being the network wants the Smart Treasury to be the liquidity of last resort. In a bearish market, one may consider extra liquidity by increasing the weight of currency to reduce slippage.
    • I think there is no controversy the governance token is PICKLE.
    • We should chose the fee-token. Balancer allows for one or several. If we choose several then we need to decide on their relatives weights. I am personally in favour of ETH only.
  • Decide where the $PICKLE balance in the Smart Treasury is going to come from. In the example by Placeholder, all the issuance is pre-minted and put in the pool, since it can be withdrawn by the DAO to pay incentives. I don’t think we will follow this approach. Personally, I think we should convert 90% (or whatever percentage is agreed) of the current Treasury funds (minus planned expenses) into $PICKLE in a one-off market-buy.
  • Decide on the trading fee. I say we go heavy at the beginning, charge 10%. Arbitrageurs in Balancer will only trade against us when it makes a lot of sense.
  • Decide on the rights the controller will have. Smart Pools can have fixed or flexible parameters. These are decided at creation. The parameters are token composition, swap fees, and weights. Only the controller can add/remove liquidity (unless we call finalize() on the pool, but that will make it public, killing the Smart Treasury’s core purpose). I say we let the controller have all parameters flexible.

Implementation

  • call the newCRP() function in Balancer with the rights we want the controller to have, and the pool address (the Smart Pool with control the normal Balancer pool that’s visible to users on Balancer).
  • fund the pool.
  • set the agreed fees from Pickle to go to the pool. There’s your Smart Treasury.

TLDR: my suggestion

  • No issues with economic rationale.
  • Smart Treasury composition 90% PICKLE – 10% ETH.
  • PICKLE for Smart Treasury will come from market-buying with 90% of current Treasury funds (minus planned expenses). ETH from the remaining 10%.
  • Trading against Smart Treasury will incur a fee of 10%. As common with AMMs, fees will just sit in the pool (Smart Treasury).
  • Controller retains rights to change Smart Treasury params. The Controller being the DAO/multisig/devs. Params being token composition, trading fee, and token weights.
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Love your idea @leekuanjew, what would you think about a large portion of the treasury being used as a community-led hedge-fund?

Where we write proposals in favor of purchasing x asset, for y reasons, using z% of funds?
Then when we’re in profit, or loss - people write proposals to sell all, or a percentage of, x asset for y reasons?

With individuals able to burn their $PICKLE for a % of the hedge fund, so $PICKLE is always backed by value - it would be unlikely that people would ever actually burn their pickles as their market value would likely always be higher than the % of the hedge fund - but it adds assurance to $PICKLE holders and could be highly profitable because there are a lot of investors in pickle with good experience.

In this scenario we would still get sCRV as staking rewards, but the community would be in charge of the treasury funds and would work to increase its value over time by likely hedging wBTC/ETH/PICKLE etc…

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I think a smart treasury is a cool idea. But one thing I was curious about is how much would we actually have to re-buy in order for it to make sense? Will it even create a enough buy side pressure? I think it’s important to weigh the opportunity cost vs the benefit received for implementing a smart treasury. Also, if we start doing pickle buy backs instead of sCRV as a reward, what’s to stop a whale from staking pickle to earn weekly pickle buy backs and just dumping it for passive income? At least by dumping sCRV, it doesn’t effect the pickle price. If we start doing buybacks via a smart treasury, it could incentive large stakers to just dump pickle after collecting rewards. sCRV rewards at least protect pickle from being dumped on in this fashion.

Based on what I can see, you’d have to buy back a significant portion of the pickle supply to move the price up significantly. And again, will that even be worth it? Or should we leave it up to the free market? Pickle buy backs are great but it’s essentially just a way to artificially inflate the pickle price.

I think in the immediate term, treasury funds and developer’s time would be better spent continuing to make incremental improvements to the UX and develop solid strategies that generate cash flows to the treasury. Maybe we can devote some portion of the treasury to more marketing materials and education? or paying to outsource some of that as others have mentioned.

In doing my own research in what moves price in crypto, a few things stand out to me :

  1. Momentum : (once price gets going in one direction, it tends to continue unless there is a significant reversal on buy/sell side. Hence , why we often see parabolic runs followed by massive dumps until demand picks back up again.

  2. Sentiment : Look at what happened to YFI and Blue Kirby recently. Before the drama, YFI was on a meteoric tear in price. Everyone was talking about “the flippening”, how they’d be worth more than Berkshire Hathaway, etc. etc. It was all super bullish. YFI looked unstoppable when just considering the price. Then, sentiment shifted . . drastically. Andre deployed an untested contract, people lost money, and all of a sudden Andre and Blue Kirby became villains overnight. People got pissed, started to dump , which caused a huge reversal in momentum, a snowball effect if you will. Is YFI finished? Of course not. But it’s evidence that price mechanics in this business are still immature and fragmented.

  3. Manipulation from a fractured market and opportunistic liquidity : Today’s market is super fractured, which makes it easy to manipulate price if you have enough capital and market savvy to make the right trades. Additionally, there is a problem of opportunistic liquidity, i.e. hopping from one farm to the next to catch the highest APY. Unfortunately, this isn’t something many people can prevent in the short term until the market matures and valuations reflect truth.

So how do we promote upward pressure on Pickle price? The way I see it on the short term horizon, we do this by increasing TVL and brand awareness. I think the Pickle team has done a great job of this so far. If we can continue to make design improvements to the website and make it as easy as possible for total newbies to hop on board, it will help attract new capital. Also, I know there is the whole saying of “Don’t trust, verify”. This is true, but there is also an element of trust involved in these projects, especially for those who can’t code. If people know they can trust Pickle with their money and know that the project can continue to deliver on its promises, it will strengthen the brand’s image even further. Again, I think Pickle has done a great job with this so far.

As a last note, I think for the near term, a proper blend of marketing, education, and continual improvements to UX design will have a positive impact on Pickle. Of course we want to continue evolving new strategies, but I think the dev has shown they are capable of staying nimble. And we don’t want to have too many strategies at once. Just my two cents :slight_smile:

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I’m also not necessarily “against” a smart treasury. I think it’s a cool idea. Just wondering if the costs of implementation would outweigh the benefits if we were to do it at this point in time.

We agree on many ideas driving the long-term fundamentals. But I feel like I want to clarify some misconceptions here:

  • The Smart Treasury is just a way to manage the treasury, it doesn’t affect the drivers of long-term fundamental value. Trust & community, great UX, great functionality, a top brand, an innovative & responsive team – all will continue.
  • The buybacks will be automatic (check the Placeholder VC article for the dynamics), except in the one-off setting up of the Smart Treasury. They depend on the protocol collecting more fees, it’s not artificial. The more protocol fees we collect, the better the positive price pressure. Basically, it will move our north star metric to protocol fees, as it should be. TVL and liquidity are means to an end. The end is a profitable protocol.
  • Staking will become redundant, so in the Smart Treasury era if you want passive $PICKLE income, you farm (i.e. become an economic producer). Dumping the $PICKLE is totally decoupled from the Smart Treasury. Currently, stakers are like economic fence-sitters, they neither produce nor consume – they extract fees from the protocol. We’re bribing them to not sell – and it isn’t like they’re on a multi-year timelock. In the Smart Treasury era, the bulk of the protocol fees collected will remain in-Treasury.
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The point of this is not to “move the price” or exert “enough buy side pressure”. The primary benefit I see is two-fold:

  1. Putting Treasury capital to work
  2. Increasing PICKLE liquidity

The fact that there can be additional positive price-pressure is just cherry on top. It is not the main thing this is trying to solve.

@leekuanjew great work.

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Thanks for the clarification @leekuanjew @BigBrainBriner :slight_smile:

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I am pretty sure this can still happen, I would say it is a separate discussion as it is not mutually exclusive with the Smart Treasury. You could have a Smart Treasury and a Community Fund. The DAO would have to vote on grants to the Community Fund, or set up a mechanism to fund it. Maybe you can stake your share of the PICKLE–ETH farm or something (let’s call it pETH :laughing:) for access to returns on the Community Fund, with a set amount of returns going to the Treasury, and the pETH stake itself acting as insurance in case of losses to the Treasury’s capital.

I mean, Papa can lend you some pants, but don’t get too cocky :rofl:

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Hahaha, I’m definitely jumping the gun… Anyway great idea, I wish we could have naked pickle staking but to put it to work we would either need naked eth deposits or a way to use pickles as leverage to take out loans or w/e. Oh wait, we could give our pickles to the balancer pool, is that what you’re suggesting?

The treasury could be 100% ETH, and the people staking pickles could make up the 90% PICKLES in the 90/10 example?

I’m definitely all for:

Maybe it’s late in the day but I don’t yet see the benefit of the treasury being converted into Pickle. The buy impact would be tiny, we already see $200k+ buys and sells daily. The treasury market buy impact would be a blip. But as BBB says that should not be the objective anyway.

Am I right in thinking that all of that treasury LP is not currently earning, beyond the minimal Uniswap fees? Isn’t a starting point to invest our treasury LP in the existing P jars? Or are they already?

Or, stake on other platforms. Yes it would give Harvest a small tvl bump but we’d be making FARM to dump. (Doesn’t have to be harvest just a topical example).

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YFV, now Value Liquid, has chosen to migrate its pools for more pragmatic management than to use Balancer Pools.
I didn’t follow it closely but I understand they wanted to optimize transaction costs, and not be influenced by arbitrage bots.

(I am not a developer or technician to fully understand the ins and outs of their approach, I was probably wrong in my analysis)

Perhaps it would be interesting to adapt a similar strategy for smart treasury (a kind of fork in their protocol regarding their farms)?

Can you link us to that decision so we could evaluate it?

My thoughts on the Balancer Smart Treasury approach:

TLDR: Turning our Treasury into a Pickle serves no real purpose.

I do not think the model described in the article is in any way applicable to our protocol and the route we have gone down so far. In the Article the Balancer Pool serves as “automatic buyback machine, token issuance pool , and liquidity provider” and assumes pre minted tokens.
Notice how we only “need” the automatic buyback machine, not the other two parts, nor do we actually have pre minted tokens. The token issuance pool and liquidity part are arguably already covered by the PICKLE POWER farm and do not need a counterpart as the system has been working fine so far.
Additionally almost 80% of Pickles are already staked anyways, so taking our Treasury and turning it into a Pickle has no effect whatsoever.

If something like this were to be implemented I would like to see a restructuring of basically our whole economics and not just randomly implementing one idea from an article that is not applicable to every protocol model.

For the already collected fees in the treasury I would first of all invite all capable people in this community to START APPLYING FOR GRANTS to build marketing material, do promo, invent strategies and whatever you can imagine that actually adds value.
This certainly will not drain the treasury, but i just wanted to reemphasize the point that actually having cash reserves is a good thing to have and I would not feel comfortable with our treasury being 90% pickles. Also if there is ever a crunch in income in any given week this would be a good backup to still be able to pay out APY to naked Pickle stakers.

While monetary experiments and new approaches are always cool and interesting, I think in the end our current approach seems to be fine and the smart treasury approach serves no real purpose for our protocol model.

This is my understanding of the topic, although I am unsure as to whether I have understood the full implication of this for the future, as of right now and arguably the next few weeks(defi years) I do not see a need for this, but cannot really fathom the implications as well. Happy to hear any counter arguments for this and further discussions.

I can’t really come up with a way to center our whole protocol around this as well, if anyone wants to bounce ideas about that feel free to as well.

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These are some good criticisms. Will keep my eye on this discussion.

Also, we are revamping our grant system, so I wouldn’t necessarily encourage people to make proposals at this point. We should have more to say about that soon.

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