[PASSED] MIP-26: [EC Proposal] Treasury Assets in Support of Applications

[Curated Archive] Mantle Ecosystem
1

This proposal is authored by the Mantle Economics Committee (MIP-25).

Background

We have taken into account feedback regarding the use of Mantle Treasury assets to support applications on Mantle Network. Many applications benefit from a foundational amount of liquidity to function and provide a better experience for Mantle users.

While retaining assets in Mantle Treasury is the most secure option, deploying a portion of these assets to support applications may lead to higher levels of success for the overall Mantle Ecosystem. The following proposal outlines an initial strategy for executing this deployment with a focus on risk management.

Proposal

By voting “Yes”, you endorse the following terms:

  1. In accordance with the MIP-25 framework, authorize the following new strategies and allowances:

  • Liquidity Support for Applications - up to a combined allowance of 60M USDx, 30k ETH, and 120M MNT

    • Ecofund invested applications shall have an individual allowance up to - 10M USDx, 5000 ETH, and 20M MNT

    • Other applications shall have an individual allowance up to - 1M USDx, 1000 ETH, and 2M MNT

  • Seed Liquidity for RWA-yield Backed Stablecoins - up to a combined allowance of 60M USDx

  • Liquidity Support for Thirdparty Bridges - up to a combined allowance of 10M USDx, and 5k ETH

Note:

  • “USDx”, “ETH”, and “MNT” above refer to various standard, wrapped, and reward-bearing versions of their respective types.

  • The above allocations could overlap. For example, the same 60M USDx used to create RWA-backed versions could then be provided as liquidity support for applications.

  • The above allocations are the max allowances only. It will likely take some time to ramp up to those limits.

  1. Authorize the Economics Committee to engage Service Providers, top on-chain systematic trading firms, to support the deployment of the above strategies. This includes discussions with various parties and, if necessary, negotiation of partnership terms or other commercial agreement regarding liquidity deployment. The Economics Committee is a decision-making body only and shall not directly handle treasury assets.

Details

Rationale

Applications:

  • Liquidity is crucial for the proper functioning of many applications, enhancing the user experience in terms of trade execution.

  • Some applications have requested greater liquidity support before deployment on Mantle.

RWA:

  • Our aim is to source sustainable reward generators from ETH-staking and RWA-backed constituents that Mantle users can participate in, and that applications on Mantle can utilize in their products. ETH-staking is managed by the Mantle LSD project, along with the recent partnership with Lido (see MIP-25).

  • Regarding RWA-backed assets, the Mantle core contributor team is in discussions with various issuers. The above serves as a pre-authorization to execute on the partnership and seed liquidity. This seed liquidity will result in a receipt token which will be first held in Mantle Treasury, and subsequently used to support liquidity for applications on Mantle Network. The receipt token may also be redeemed by Mantle Treasury.

Third Party Bridges:

  • https://bridge.mantle.xyz/ provides the canonical bridging solution to Mantle Network, and should be used for larger transactions. However, it has certain UX limitations:

    • It only bridges between Ethereum and Mantle Network.

    • L1 to L2 bridging takes at least 64 Ethereum Blocks (~10 minutes) and a moderate amount of ETH L1 gas fees.

    • L2 to L1 requires the challenge period (~7 days) and a moderate amount of ETH L1 gas fees for claiming.

  • To enable faster, cheaper and omnichain bridging options for users, Mantle has onboarded several centralized exchanges and permissionless bridges.

  • Some permissionless bridges work via a pool-based model and require a baseline level of TVL on each chain. They have also requested support for Mantle-pool TVL before integration. We are requesting authorization to deploy liquidity support solely on Mantle Network.

Criteria for Service Providers

Risk Management and Execution Systems:

  • The service provider must rank within the global top 20 players in on-chain systematic trading.

  • The service provider shall utilize enterprise-grade systematic trading, risk management, and key management systems.

  • The service provider shall possess internal due diligence and risk assessment capabilities for applications and smart contracts.

Reporting Requirements:

  • The service provider shall provide a real-time dashboard of their positions, either a custom dashboard or through existing analytics platforms such as https://debank.com/.

  • On-chain wallet addresses shall be revealed to the community for independent tracking and transparency purposes.

  • All assets shall be held onchain for verifiability.

Principal Protection and Guarantees:

  • Assets shall be lent to the Service Provider. Each asset type (USDx, ETH, MNT) will be accounted for individually for profit-and-loss calculation.

  • The Service Provider shall provide principal protection guarantees.

    • Special exemptions may apply for impermanent losses arising from major pools, such as USDx-ETH.

    • Special exemptions may apply for the first X% of losses of each principal asset.

    • Special exemptions may apply for gas fees.

  • The Service Provider (and/or guarantor) shall be a registered corporation with sufficient net assets to cover the guarantee.

Deployment Strategy

General Priorities:

  • The objective is to support liquidity for the proper functioning of applications while maintaining principal protection. As such, the general priorities shall be:

    • Applications types: primitive applications such as DEXs and money markets.

    • Pool types: pure staking pools, single sided pools, USDx-ETH type pools, and lending pools backed by ETH and WBTC collateral.

Risk Control

Risk Management:

  • In addition to the high-level strategies and allowances permitted by Mantle Governance above, the Economics Committee shall provide the Service Provider with a list of approved strategies and allowances for individual applications and pools.

  • The Economics Committee may request derisking of any application or pool at any time, and the Service Provider shall comply within 12 hours.

  • The Service Provider shall perform their own risk assessment and make decisions on deploying to specific applications and pools. As the Service Provider may be liable for principal losses, they will have final decision-making for any deployment. The Economics Committee cannot compel them to enter any position.

Recall:

  • The Economics Committee may recall principal assets from the Service Provider at any time. The Service Provider shall return the assets to the relevant Mantle Treasury within 3 days.

Fees and Incentives

Returns:

  • Any net returns from asset deployment (such as farming rewards) shall belong to Mantle Treasury.

  • Any side-negotiated deals with applications shall belong to Mantle Treasury.

Fees and Incentives:

  • The Service Provider shall be compensated in a manner to be negotiated with the Mantle core team under the BIP-19 budget authorization (or subsequent budget proposal updates). This may entail specific performance requirements and vesting rules.

  • Profit-sharing arrangements with the Service Provider may apply.

27 Likes
2

How will this apply to other LST projects and ETH staking strategies proposed to Mantle?

As based on MIP-25, I think this proposal is a bit conflicting with the overall objective:

Deploying a portion of Mantle assets to support applications and lead to higher levels of success for the overall Mantle Ecosystem with a focus on risk management, as well as supporting liquidity for the proper functioning of applications while maintaining principal protection.

MIP-25 not only authorized the establishment of Mantle Economics Committee as a sub-governance body of Mantle Governance, it also allowed Mantle LSD and Lido ETH staking strategies, with a combined allowance of up to 200k ETH, and Lido ETH staking strategies up to an individual allowance of 40k ETH.

Lido itself is an external individual application and therefore in this proposal’s current form, it can be seen as the MIP-25 ETH allocation directly conflicts with the newly proposed maximum application allowances.

If the true intention of deploying Mantle assets is to support decentralization and achieve greater levels of success for the overall Mantle Ecosystem, and this proposal is in fact applicable to other LST projects, community members should not endorse or support this proposed maximum allowance of funding for all future individual applications and consider the potential implications of preferential treasury allocation for the greater benefit of decentralized applications and the Mantle Ecosystem.

It is also worth considering risk management implications if this proposal does apply to other LST projects as it means reduced diversification in staking strategies for Mantle.

10 Likes
3

Should not add liquidity to $MNT because the current circulating supply is too much, if so the value of $MNT is no different from trash

1 Like
4

How to risk management from application’s rug pull? Shall you request for KYC all the application before providing of liquidity?

2 Likes
5

I see the following: “The service provider shall possess internal due diligence and risk assessment capabilities for applications and smart contracts.” Will the service provider be required to sufficiently complete a 3rd party security audit from an established auditor, as well? Or will their risk assessment(s) only be required to be performed internally?

1 Like
7

I agree that provising liquidity is necessary, please refrain from incentivizing and inflating.

1 Like
8

I like the idea of providing liquidity and support to other parties that might need support if it helps the mantle ecosystem grow. As long as there are no risks that a bridge can be exploited as that would create negativity towards the mantle ecosystem from the wider community

1 Like
9

We hope for proposed outcome

1 Like
10

I liked the proposal, I think it’s really important to encourage new dapps for the ecosystem, it’s necessary to grow in an economically sustainable way. When we talk about providing liquidity, I think that all care is needed, after all, the most recent hacks were in liquidity pools exploited through small gaps in the code, so it is extremely necessary to reinforce security measures for approval of financing, audits by serious companies is a criterion that must be considered.

1 Like
11

I’m with you, looks good :slight_smile:

1 Like
12

This is a great idea. Using treasury assets for the benefit of the ecosystem is a +EV decision.

However, I would suggest expanding the types of pools to include pools with multiple assets, versus the standard XY= K Uniswap limitation to only allow two assets.

1 Like
13

To me this proposal marks a hallmark in the further development of the Mantle Ecosystem.

Deploying the Treasury Assets to foster on-chain liquidity and thereby setting the stage of an efficient DeFi infrastructure is absolutely the way to go!

Choosing to opt for AAA trading firms is a wise decision, but, it is important to keep decision-making close to the Economics Committee and keep the trading firms as service providers only.

As the Service Provider may be liable for principal losses, they will have final decision-making for any deployment.

The above quote potentially signals a way for the service providers to indirectly exert decision-making.

Since the deployment must be capital protected I do agree that Service Providers should do deep DD on projects + tech, but if they decide not to deploy even though the Economics Committee requested them to do so they should formally and publicly make available the information as to why they made that choice. I suggest this procedure to keep transparency in the system and avoid power-abuse.

1 Like
14

i dont think you should add liquidity because mnt has a huge supply and it will impact the mnt price.

15

Why returns belong to treasury ?

1 Like
17

I’m with you, voted yes, I hope for the proposed result

1 Like
18

Hi Mantle Community,

I am writing my first contribution for Mantle. I have been an adamant observer of BitDAO and BIT/MNT for quite some time, and I am excited to be making this my first post for the community.

In full disclosure, I work with Hashnote, an asset manager building institutional DeFi. We are backed by Cumberland Labs. We issue tokenized assets including a tokenized private cash fund, SDYC.

I applaud @cateatpeanut (Mantle Forum - Mass adoption of decentralized and token governed technologies)] and the Mantle Economics Committee for creating a clear permissioned program to incentivize the Mantle Ecosystem broadly.

I would like to propose the follow edit to the proposal:

We propose the definition of USDx to specify: “Tokenized assets receipts held to the underlying of debt to the United States’ Government Treasury and/or the New York Federal Reserve.”

Challenges to a “stablecoin asset” or “USDx”

Creating a yield-bearing RWA stablecoin asset that is freely tradeable, but also backed by Real-World-Assets like T-bills can be challenging due to the ever-evolving nature of government debt and bank deposits. Additionally, when a proposal like this is fielded, it is almost certain that the yield-bearing stablecoin will be a rebasing token which has numerous inefficiencies for driving value to the broader RWA ecosystem. Mantle works directly with Lido which has introduced wstETH into its ecosystem for the specific reason that the native rebase token stETH provides many challenges in DeFi markets.

Risk Mitigation of RWAs

Furthermore, one of the biggest challenges of RWAs is that while they are far more regulated than stablecoins, they provide a direct source of risk to the broader community and may not necessarily follow the guidelines outlined for service providers in the broader proposal template. When one thinks of a stablecoin, they think the asset is specifically backed by US dollar tokens 1-1 or their equivalent. If the stablecoin issuer decides to purchase commercial paper and international credit default obligations with depositor funds, they are able to do so, and often do so in traditional finance, the holder of the RWA asset would have no idea that this is happening. This exposure may lead to instability, illiquidity and duration risk for Mantle if these risks are not mitigated properly.

Conclusion

The goal of this program is to deliver sustainable yield for Mantle, and could work wonders in driving the $5 trillion mark for US treasuries as a viable source for DeFi liquidity on Mantle. It should be done right, and without the mistakes that traditional finance has made in the past.

I welcome any feedback or suggestions to this proposal.

1 Like
19

After discussion with the Mantle team, clarification has been provided on the application of this proposal to other LST projects.

“Other liquid staking strategies (other than Mantle LSD and Lido ETH) are to follow the allowances as described in MIP-25 (200K ETH) and would require a governance proposal to be sent to the DAO.”

Meaning there is a remaining 160k ETH unallocated of which Mantle will consider other LST projects and ETH staking strategies besides Mantle LSD and Lido ETH. LST projects will be assessed and proposed to Mantle Governance for approval based on the allowances as per MIP-25.

As outlined in the Deployment Strategy described in this proposal, the general priorities for treasury asset support would be targeted at primitive applications like DEXes and money markets, along with RWA-yield backed stablecoins and third party bridges. This proposal acts as an add-on to MIP-25, but to reiterate, individual LST project allocations will remain subject to consideration for treasury allocation under the initial 200K ETH allowance.

It’s great that Mantle has taken this stance and will stand by it’s ethos to support decentralization in order to achieve greater levels of success for the overall Mantle Ecosystem.

1 Like
21

I support the proposal with the idea of providing liquidity and assistance to other parties that might need help if it will as well help the mantle ecosystem grow.

22

Mantle Governance and Community Members,

I am writing on behalf of Adapt3r Digital, a fund manger specializing in compliant on-chain RWA funds. We currently offer investors access to Short-Term US Treasury Bill yields on TrueFi’s on-chain infrastructure through our flagship product, tfBILL. First, I’d like to commend the Economics Committee for the comprehensive proposal on deploying Treasury assets to support various applications and strategies within the Mantle ecosystem. The focus on risk management and liquidity provision is particularly commendable.

The Case for Expanding the RWA Mandate

In line with gc_hashnote’s perspectives above, I would like to suggest considering an expansion of the RWA mandate to include other forms of tokenized RWA assets, such as Tokenized Treasury Bills. The is not to divert focus, but to enrich the ecosystem’s financial instruments, thereby enhancing its resilience and appeal.

On-Chain Yields Through Direct T-Bills

Offering reliable on-chain yields through direct T-Bill investment to DAOs could serve as a compelling strategy for the overall growth and sustainability of the Mantle ecosystem. T-Bills are generally considered risk-free and provide a stable uncorrelated yield, making them an attractive option for DAO treasuries looking for safe yet productive asset allocation. Given recent T-Bill offerings and investments from other DAO treasuries across the industry, this would likely attract more participants to the Mantle ecosystem and foster growth.

Aligning with Ecosystem Objectives

I understand that the current focus may not be on investing in T-Bills per se, but rather on initiatives that contribute to ecosystem growth. In that context, diversifying the RWA mandate to include T-Bills can serve as a foundational layer that supports various applications and strategies, thereby contributing to the ecosystem’s overall growth and stability.

In the current macroeconomic climate, tokenized Treasury Securities are the most compelling RWA product on the market. With a range of recently-launched tokenized T-Bill products to choose from, prudent DAOs have, for the first time, the ability to improve their operational efficiency and extend their runway by investing risk-free in on-chain products. These products offer distinct advantages over stablecoins and other riskier on-chain credit products. They provide a yield – currently over 5% – unlike most stablecoins that lack yield options without added risks. Stablecoins can entail higher complexity and risk factors, blending T-Bills with significant bank deposits, as evidenced by the USDC depegging incident following the collapse of SVB. In contrast, tokenized T-Bills are securities by construction, leaving little regulatory doubt or gray areas. They benefit from enhanced disclosure practices and are typically issued by regulated funds, like our tfBILL product, which are designed to mitigate risks through bankruptcy remoteness and security agreements, reducing potential default risks of the operating entity.

Allocating a portion of Mantle’s DAO treasury assets to tokenized treasuries would lay the groundwork for a healthy RWA ecosystem on Mantle, allowing for a more diversified and robust expansion in the future.

Conclusion

Expanding the RWA mandate in this manner aligns well with the risk management focus of the proposal and offers an additional layer of diversification.

The Adapt3r team looks forward to the continued evolution of the Mantle ecosystem and we’re excited any potential way we can be involved. If DAO members are interested in further discussions with our team, our DMs are always open.

Best regards,
The Adapt3r Team

3 Likes
23

MIP-26: [EC Proposal] Treasury Assets in Support of Applications has been officially proposed.

Voting ends on September 12, 2023 at 5:35AM UTC

:arrow_right: Cast your vote now

1 Like