Title: Finance Nest - Autonomy to Act Amendment #1
Status: Propose
Author: @Finance, @ElliottWatts and @Matthew_Graham
Created: 06/04/2022

Simple Summary

The Finance Nest has a strong track record and is one of the most advanced Treasury teams in Defi. This proposal presents the community the opportunity to expand Finance Nest remit and transition Finance Nest into a back office function. Building on IIP-123 2 this proposal includes the ability to attain and manage a line of credit that will be used to support creating, growing and maintaining our products/business, and the ability for Finance Nest to manage any amendments to the signers on the Operations and Investment Account multisigs. This operational flexibility will help the community to realise our ambitious growth objectives.

The intent is to reduce operational burden and place more responsibility and trust in Finance Nest. Finance Nest will be transitioning more towards becoming a back office that can service the DAO autonomously with monthly forum status updates, replicating the success of the FLI pod.

Abstract

Finance Nest seeks the approval of the community to extend the current guidelines/boundaries enabling the ability to act with more autonomy. This proposal expands the Finance Nest remit to amend the signers on the Operations and Investment Accounts and the added ability to utilise debt for growing the business. Do note, some of the icETH liquidity is already funded using over collateralized debt via Rari Fuse Pool 8 to support the product launch which is different to a line of credit facility.

Debt is a widely used and powerful tool that can be utilised to accelerate growth and provide operational flexibility for how capital is deployed. Finance Nest seeks to expand upon the Autonomy to Act remit to include the ability to attain lines of credit to support the growing Index Coop’s business. Any debt will be used to support growing the business both directly and indirectly through things like Protocol Owned Liquidity (POL) and through deploying capital into delta neutral strategies in order to acquire strategic assets which help us attain our growth ambitions.

Motivation

In recent times, Index Coop has greatly increased the rate at which products are being launched. We expect this to continue and anticipate some of these products will require more capital to launch than today’s products in circulation. Protocol Owned Liquidity has absorbed all of our revenue as we continue to reinvest into growing the business.

Our growth ambitions are great and rather than try to juggle several different initiatives, Finance Nest recommends obtaining a line of credit to provide additional operational flexibility to the community. Key drivers for seeking the ability to attain a line of credit that provides extensive operational flexibility:

Rate at which products are being launched is increasing
Product pipeline features several capital intensive products
Various delta neutral strategies within defi enable Index Coop to accumulate strategic assets

As we increase the rate at which we create products, we need to scale our ability to launch and maintain those products. Currently, our revenue is not growing fast enough and we could use our stables but the opportunity cost of the stables exceeds the cost of debt. To support Index Coop’s growth ambitions we need to enable the business to pursue growth without unnecessary capital constraint.

With minimal financial engineering, Finance Nest will deploy several strategies that act to generate cash flow exceeding the cost of any debt. Essentially, Index Coop will have no price volatility risk, will be able to borrow debt at a lower interest rate than the yield we earn, thus making a profit. This is known as a delta neutral free-carry trade. We are essentially creating a self repaying loan which frees up capital to be deployed supporting various growth initiatives across the business. Ie: Some debt is used to generate an income to maintain and pay back the credit line, whilst other debt is directly invested into growth initiatives like POL.

In addition to the above, Finance Nest is proposing the responsibility of updating/maintaining who is an Operations and Investment Account multisig signer. Finance Nest has submitted many IIPs in effort to optimise the signers on the accounts to keep up with people coming and going from the DAO along with improving the responsiveness of the signers on the wallet. Rather than continue to present IIPs, Finance Nest intends to perform these tasks in the background and provide monthly updates on each account detailing any amendments to the signers or signer requirements. Please note the signer requirements are still to run through the IIP process, it is just the ability to change who is a signer will be passed to Finance Nest.

Specification

This proposal builds upon the permission granted by the Index Council for Finance Nest to engage with other DAOs offering lines on credit within DeFi. There are a number of DAO bringing various debt offerings to DeFi and Index Coop has the ability to be a launch partner whilst also attaining much needed operational financial flexibility.

This proposal grants Finance Nest the ability to enter into agreements with other DAO for attaining a line of credit. All reporting will be via the monthly reports which are shared on the governance forum. This will be how Finance Nest communicates what are the loan terms, what is the debt is being used for, what is the return on investment and how this is contributing to Index Coop realising its ambitious growth targets.

Various DAO that are coming to market offer widely varying services with very different requirements. Index Coop has been for some time now engaging with several DAOs and is now approaching the late stages of discussion. Finance Nest did hope to have the line of credit in place by now, but hope to have it in place soon. This line of credit will bring the operational flexibility we need to grow at the rate we desire.

In scope parameters

Type of collateral supporting the loan
Limit of exposure ie: Debt ceiling
Selecting counterparty / DAO(s)
Borrow and repay funds online
Agreeing to interest rate and fees
Terminating line of credit

Implementation

The Finance Nest gains the following autonomy:

Ability to engage with other entities to create and manage a line of credit
Ability to deploy (deposit, transfer etc…) capital as required to support initiating and maintaining the line of credit
Ability to update signers on multisig as required
Reporting will be monthly via existing reporting channels
Reporting will detail how the funds are being used

Voting

FOR:

DO delegate additional autonomy to Finance Nest.

AGAINST:

DO NOT change the existing arrangement.

IIP-XY - Finance Nest Autonomy Act Amendment #1