Status: Proposed
Author: @Finance, @Matthew_Graham , @ElliottWatts, @prairiefi, @Hammad1412 & @Ahuja
Created: 10 January 2022

Simple Summary

The Finance Nest consists of finance and risk experts with experience in TradFi asset management, Big4 financial service accounting and DAO treasury management. We are a group of people that have a strong track record which has demonstrated the required skill and qualities to be able to make key decisions on treasury management and finances at the Index Coop.

After topping the IIP count last year, we are asking the community for more autonomy to act in the community’s best interests, allowing for more streamlined execution which is essential to scaling and growing the DAO operations. We have identified challenges within the current construct we wish to overcome and we believe, as much as everyone loves a good IIP, the community would prefer a few less from Finance Nest.

Abstract

Finance Nest seeks the approval of the community to extend the current guidelines/boundaries enabling the ability to act with more autonomy. As the DAO moves closer towards creating nests with clearer roles and responsibilities, as outlined here, Finance Nest requests delegation of decision making power to those with the most context on the subject matter. Finance nest has built trust, has an on-chain and governance forum track record of demonstrating the ability to execute with the community’s interest front of mind. Finance Nest is leading the nest movement and provides several periodic reports providing insight into ongoing DAO financial operations.

However, recently we have had three distinct issues whereby the IIP process has caused hesitation or prevented swift intervention to rectify the situation. These emerging situations create a risk for our community and Finance Nest wants to help by being empowered to act swiftly.

This proposal delegates the ability to Finance Nest to perform a number of day to day type operations in a more autonomous manner as well as providing some much needed crisis management functional support. With more autonomy, streamlined decision making and ability to act in crisis situations, the Finance Nest can serve the community better. The Finance Nest will continue to provide periodic updates on the governance forum, host the Money Talks discussion each week in Discord which will be structured in such a way as to give an update to the community along with fielding any questions that may arise as a result.

Motivation

In recent times, there have been three clear incidents whereby the ability to act in the interest of the community was dampened by the existing construct.

Product launch seed liquidity (x2)
Product drifting from NAV (x1)

In each of the three instances mentioned above, hesitation and technicalities relating to the governance process caused significant delay and unwanted attention. Discussions focused around if the community’s funds should be used to bridge the funding gap or used to arbitrage a product back to NAV before causing significant issues for various DeFi integrations. Index Coop has provided liquidity for two products to ensure smooth launches and with respect to arbitraging a product back to NAV, this was executed by individuals with their own capital.

In time the Liquidity Pod will have an approved budget, which is great. However, the lesson learned here is that the Finance Nest needs the ability to act with more autonomy without the risk of undermining the governance process.

The Finance Nest has demonstrated ability through the following IIPs to act in the communities best interest:

As the community scales and grows, we need to implement an operating standard that ensures community funds are managed and deployed in a secure and efficient manner. This enables all members the ability to deploy or request that capital be deployed from the Operations Account into any protocol on the whitelist knowing sufficient due diligence has been performed. All deployments of community funds in size should be IIP approved and/or fall within guidelines published on the governance forum.

Examples of guidelines published to date:

Currently, there is no approval list or standard approach to how/where community funds can be deployed. Creating a whitelist with guidelines around how to be added to the whitelist solves for this. As we can see from the list of IIPs below, they are all in different formats and the information is scattered across the governance forum. The community will benefit from having a github directory displaying the whitelist of approved protocols.

This whitelist provides a much needed layer of security ensuring Finance Nest and others alike only acts within the bounds defined by the community. This reduces the possibility of the community losing funds or transactions directing funds beyond the approved list being processed. If the protocol is not on the whitelist, then this gives signers the ability to question a transaction in an easy and effective manner.

Specification

Operation & Investment Accounts

This proposal enables Finance Nest the ability to create Operations and Investment Accounts with the same list of signers across all networks. This is needed to support the deployment of FLI products on various networks and enable Finance Nest to act quickly. The risk becomes that if FLI products can launch without IIPs, then Finance Nest needs the ability to act at the same speed and with similar delegation of authority. Capital can be moved between various accounts at the discretion of the Finance Nest and will only be deployed into protocols on the community’s protocol approved whitelist.

Do note any changes to the signers will still run through the IIP process. We do not want a situation to occur where people can be added for the sole purpose of facilitating faster transactions. Rather we encourage the correct multisig structure and signer requirements to protect community funds.

Finance Nest will be creating guidelines outlining best practices for creating various multisig Gnosis Safes across the DAO. This guideline will be the standard that that community discusses and then implements. Some of the things to be included are shown below:

Number of signers required depending on level of capital within the account
Signers per Nest - specifies number of signers from a specific nest
Capital holding levels
Interaction with the whitelist
How to appropriately document transactions

The initial guidelines for discussion will be published on the forum in the coming weeks…

Crisis Management

This proposal enables Finance Nest the ability to use community funds within the Operations Account to support Index Coop products when crises emerge without the need to go through the IIP process. The Index Coop Council (ICC) will be kept informed in real time and events will be either reported via a standalone forum post or the next Operations Account publication. For significant events whereby we need to deviate from white lists or large amounts of capital will have to be deployed, an open discussion will be held with the ICC and Finance Nest advice given on the best course of action. In this type of scenario we will follow best practices like those displayed by Aave with respect to AIP-44 and on the governance forum as events unfolded.

A recent example of this was when a product drifted 10% from Net Asset Value (NAV), the Operations Account could have been used to arbitrage the product back to NAV. Instead individuals performed arbitrage trades with their own capital. Please note, there is now an IC controlled/affiliated bot now arbitraging the pool back to NAV. This is an example of an unanticipated need to act and by not having access to the Operations Account capital it caused delays, indecision and in the end alternative solutions had to be found. We seek to avoid being in this predicament if something like this ever happens again.

Approve & Request Funding from the Treasury Account

The Funding Council’s responsibility to request quarterly funding has been passed to Finance Nest through the INDEX 2.0 process. With the ICC being formed in recent months this group has been given the delegated authority on a number of matters, one being the ability to approve quarterly Nest budget funding requests, examples shown below. The Finance Nest, upon receiving an ICC approved budget, seeks the ability to request funds from the community Treasury without the need to go through the IIP process. Finance Nest seeks the autonomy to request quarterly funding without IIP.

We can see below the IIP’s proposed for quarterly funding since genesis, all which have passed with no resistance.

This will allow the Index Coop to remain well funded without significant delay due to the governance process. This also means we can discretionary request smallers transfers more frequently rather than all at once. The key is to have enough INDEX & USDC to support short term operational needs and to operate within the ICC defined budget published quarterly on the governance forum. Finance Nest will still need to request USDC from the Treasury to the Investment Account ( non Operational needs ) in line with the current IIP process.

Manage Revenue/Asset Mix

As the DAO grows we expect to see an increasing need to more actively manage our capital. This is especially the case for FLI product revenue streams, numerous other product revenue streams and our stablecoin reserves, as we are likely to reward more contributors with stables going forward.

As the Operations Account receives inflows of various assets and accommodates outflows in various assets, Finance Nest requests to formally recognise the ability to manage the composition of the Operations Account to suit operational needs. This includes the ability to swap assets to suit the cost base, reduce leverage exposure to match a desired risk profile, etc… A prior IIP detailing approval to sell FLI periodically to ETH is shown below.

IIP-87: Transfer FLI Products in Treasury to Operations Account

We do note that all INDEX sales need to go through the IIP process. Something as sensitive as selling INDEX large amounts of INDEX ( ≥50,000 USD ) needs to and will continue to be approved via the IIP process. Currently, only day to day operations whereby INDEX is sold on a decentralized exchange to then make payments occurs. As the Operations Account offers Nest all kinds of tokens, we do not see a need for any Nest/Pod to be swapping large amounts of INDEX for any other token.

Community capital will always be managed in line with the respective published guidelines.

Whitelist - Protocol Fund Deployments

The whitelist is only applicable when depositing sums of capital ≥50,000 USD into contracts belonging to the same protocol. Essentially, if anyone wants to deposit $50K or more into a singular protocol ( one or more smart contracts ) then the protocol must be on the whitelist. $50K was selected as a nominal number. For values less than $50K, there are no guide rails and discretion falls to the respective budget owner.

Creating an IIP to add a protocol to the whitelist is open to everyone and the forum can discuss the associated risks. Once added to the whitelist, everyone in the community knows the protocol has been deemed safe and can trust the process for how the protocol was added to the list.

Finance Nest will maintain the whitelist via the github directory and provide the templates supporting the IIPs amending the whitelist. Risk analysis can be performed via the governance forum, for all to discuss, with guidance found on github detailing how to think about smart contract risks. This will be in a similar fashion to how Aave assesses new asset listings.

To bring the whitelist in line with our current and near term operational needs the following additions are to be added Uniswap, Sushiswap, TokenSets, Visor, Gelato and Tesr Finance.

With IIP-109 passing the snapshot vote, do note this whitelist approval only covers Visor’s Private Pools and excludes Visor public pools which have a poor safety record. Gelato has been added to provide alternative functionality for future product launches.

Tesr Finance is a yield farming protocol on Polygon and expected to launch on other L2. Tesr vaults are designed to generate yield using the best yearn strategies adapted for Polygon. Vaults are capital pools that automatically generate yield based on opportunities present in the market. Vaults benefit users by socializing gas costs, automating the yield generation and rebalancing process. The vault management fee is 2% and it represents a flat rate taken from vault deposits over a year. The performance fee is 20% and is deducted from the yield earned every time a vault harvests a strategy.

Implementation

The Finance Nest gains the following autonomy and ability to act:

Create Operations and Investment Account Wallets with the current signer configurations
Enable the use of funds from the Operations Account during times of crisis
Autonomy to request funding from the Treasury Account
Manage revenue/asset mix to meet capital needs within the Operations Account
Create and maintain a Whitelist of protocols for capital deployments ≧ 50,000 USD per protocol
Ability to manage assets within the Operations and Investment Account in line with published guidelines

Voting

FOR:

DO delegate more autonomy to Finance Nest and create a Whitelist as detailed above.

AGAINST:

DO NOT change the existing arrangement.

PROPOSED: IIP-123 - Finance Nest Autonomy Act