Create a unique ‘Noun-vestment’ fund model by (in the first instance) depositing 5k Ξ into Alchemix v2 and withdrawing a 2.5k Ξ (initially as alETH) no-liquidation, self-repaying loan to selectively invest in strong Ethereum ecosystem DeFi growth + income opportunities towards an ultimate goal of per-Noun DAO treasury stability or even expansion, all while not risking (outside of Alchemix smart contract risk) the original 5k Ξ capital.
One potential self-critique of Nouns DAO is that treasury funds to date have been disbursed principally for i) brand recognition growth, ii) to support good causes, and iii) to fund operations, but not additionally – outside of a stETH position that earns approximately 5% APR – towards major capital growth.
An idealized investment goal might be to offset or even exceed ongoing expenditures. Doing so would be a step towards per-Noun stability or expansion, respectively, of the DAO treasury.
Without this, and with expected continued expenditures (which we all support), a risk is that as the per-Noun DAO treasury value decreases, perceived value for new daily Noun auctions could understandably lower, bringing in successively less new funding, leading to a negative feedback loop for the DAO.
Yet, concerns with a more aggressive investment arm of the DAO are also understandable. Namely, i) taking shots at higher returns involves putting major capital at risk of loss, and ii) we could achieve investment growth in $ terms but still underperform Ξ, which is otherwise the core treasury holding and part of our Ethereum ecosystem ethos.
The Alchemix DeFi protocol presents an opportunity to largely* eliminate these concerns while simultaneously investing aggressively for sustainable growth. Specifically, an initial Ξ balance is deposited to Alchemix and directed to an external yield-bearing smart contract, such as Yearn Finance’s yvWETH vault, an Aave aETH position, Lido’s stETH, or Rocket Pool’s rETH.
*There would remain some risk of Alchemix (or Yearn, Aave, Lido, or Rocket Pool) smart contract exploit; while the smart contracts have been audited and the protocol is battle tested, such risk should never be considered truly zero.
Up to 50% of the Ξ deposit balance can then be borrowed against the position in the form of the Alchemix synthetic asset alETH, which in turn can either be used to generate yield itself via Curve/Convex or be swapped to Ξ as a basis for making DeFi or other (e.g. NFTs) investments, or even for major off-chain purchases (which is not part of the current proposal).
Meanwhile, 90% of the yield from the full deposit amount (10% of the yield represents revenue to Alchemix) is automatically applied towards paying off the borrowed alETH. Since the original deposit and alETH are both denominated in Ξ, there is no liquidation in the Alchemix model. As the loan self-repays, a depositor could either borrow corresponding additional amounts of alETH or they could withdraw proportional amounts of the original deposit.
The depositor can also choose at any time to fully repay the remaining alETH loan balance to then be able to immediately withdraw the entire original deposit. If no alETH repayments are made outside of the Alchemix self-repaying process, the user will still eventually be able to withdraw their full original Ξ deposit, this will just require patience, with the amount of time required depending on the (variable) rate of yield on the underlying asset.
Thus, Alchemix offers the perfect setup for a ‘noun-vestment’ fund or funds. The original capital is fully preserved and denominated in Ξ (and could still be formally or at least informally considered part of the Nouns DAO treasury), while providing opportunity for high growth + income investment strategies in the interim.
One goal of this proposal is for the established fund to represent a proof-of-concept demonstration. If successful and if supported by the community, then additional Noun-vestment funds could subsequently be initiated, perhaps with different strategies and visions. For example, one fund could focus on the Curve ecosystem, another on small cap DeFi protocols, another on ‘real-yield’ DeFi protocols, another on the NFT gaming ecosystem, and more, all depending on community preferences and voting.
Alternatively (or additionally), the original Noun-vestment fund could be expanded. That said, the below draft operational vision for this fund already includes an approach for organic expansion of the fund even while accelerating repayment of the Alchemix alETH loan in order to return the original 5k Ξ capital to the DAO ahead of the self-repayment schedule. Following loan repayment completion, the fund would begin sending this income directly to the DAO.
Lessons learned from the first Noun-vestment fund would be used to enhance the operational manual for future funds. Potentially, some on-chain infrastructure for certain investment operations (e.g. decision making and execution) for certain types of Noun-vestment funds, could be built out, where possible.
Beyond the ultimate goals of financial sustainability and growth, another benefit of this proposal is education. The draft operational guidelines below include multiple expectations for fund leaders to communicate with the community both regarding strategies, opportunities, and results. Recognizing that NFT and DeFi communities are still over-separated, this proposal provides a great opportunity for knowledge sharing across the Nounsverse.
Proposed operation of the first ‘Noun-vestment’ fund
Each guideline below is a first draft with the intention to spur community discussion, prior to the further development of a final draft proposal.
1. Multi-signature wallet fund leadership: 3/5 or 4/7 setup.
Prior to finalizing the official proposal, a multisig wallet (using the well-established Safe protocol) would need to be initialized with either 5 or 7 total possible signers (requiring 3 or 4 total signers for any transaction to be processed, respectively).
It is critical that the multisig design be beyond reproach and have full community trust. Thus, for a 3/5 multisig setup, I would propose that Nounders fill 3 of the signer positions, if they are willing. For a 4/7 multisig, Nounders could represent 4 of the signers. The remaining signers should be others from the Nouns community with significant experience in crypto and DeFi, commitment to the Noun-vestment fund model experiment and to communicating with other signers to develop strategies and finalize decisions, and willingness to perform multisig responsibilities.
I (0x7d54) volunteer as one of the signers and I would take responsibility for establishing structures for receiving community input on investment opportunities, providing updates on fund actions to the community, and regularly reporting on results (see below).
The fund leadership structure for at least this initial Noun-vestment fund is organized around a multisig wallet rather than a more fully decentralized solution for several reasons. First, for investment effectiveness, the fund may sometimes need to act quickly on opportunities and otherwise should do so without pre-announcing intentions, to avoid being front-run. Second, there are significant design and development challenges, costs, and novel smart contract risks inherent in a truly decentralized framework for fund execution. Still, as discussed above this could be a long-term goal, which may be feasible for certain funds, depending on their specific approaches.
All signers, when discussing potential investment opportunities for the fund, must clearly disclose to each other (and disclose publicly after any investment is made) any specific personal or related business holdings in that asset.
The broader community should have a meaningful voice in the fund’s process, including but not limited to the presentation of investment ideas and strategies, supported by research. These discussions can and should happen in the open and could take place in various venues (including but not limited to Twitter, and with the approach evolving with the space over time).
In addition to the Noun-vestment fund’s wallet address being public knowledge for activity tracking, the fund’s leadership should deliver informal updates to the community after every major transaction. These updates should include not only data on the action taken but also the vision/thesis behind the decision to take the action.
Formal reports on asset holdings and values, investment returns, early loan repayments, income payments to the DAO, and comments on any evolution in the fund’s strategy should be prepared and delivered to the DAO and the broader community on a quarterly basis.
3. General investment and growth strategy.
Investments will be restricted to the L1 and L2 Ethereum ecosystem.
Risk/reward investment approach = medium-aggressive. With this initial fund, we would aim for achieving strong gains in order to help demonstrate the potential of the broader Noun-vestment model. Doing so requires some risk-taking. Yet, we also need to simultaneously recognize the responsibility of this fund as the first implementation of this concept, with negative consequences for potential future implementations if this effort is unsuccessful (though, again, regardless, the original capital is always fully preserved and denominated in Ξ).
Thus, this initial Noun-vestment fund iteration would take some aggressive, concentrated, high-risk/reward positions but including with investment in some more established projects that are considered significantly under-valued (in the context of the fund’s investment thesis).
Prior to taking any position, all potential investments will be carefully considered in the context of their potential ability to substantially outperform Ξ on a selected target timeframe. Assets that are viewed as having the potential to outperform Ξ alongside an opportunity for realizing significant yield (income) in the meantime will be especially prized.
At the point when a new investment is being considered, a maximum of 25% of fund value should be held in long-term locked (e.g. ve-token systems) and/or otherwise illiquid (e.g. small cap tokens with limited liquidity and longer-term investment horizons) assets. A new investment or strategy should not bring this value to >25%.
The fund should invest and apply its assets in multiple different protocols to spread smart contract exploit risk.
On an annualized basis, 20% of the fund’s profit/income should be used to repay the alETH loan (after each such early repayment, the max amount of the original Ξ deposit should be withdrawn and returned to the Nouns DAO treasury). Once the loan is fully repaid and the entire original capital has been returned to the Nouns DAO treasury, then 20% of the fund’s annualized profit/income should be sent directly to the Nouns DAO treasury. The remaining 80% of the fund’s profit/income should be re-invested for continuing Noun-vestment fund growth.
The DAO can request accelerated return of investment gains to the treasury or full dissolution of the fund at any time, based on formal vote.
The original author of this proposal (0x7d54) is a holder of $ALCX, $YFI, and other DeFi ecosystem tokens that could indirectly benefit from the discussion of and/or implementation of this strategy.