STP-9: Borrow against SNX

Simple Summary

This proposal authorizes the Treasury Council (TC) to borrow sUSD against up to 4m SNX of collateral. The primary objective is to enable funding for initiatives and token buybacks, while preserving the potential upside of SNX, and avoiding downward price pressure.

Abstract

Use up to 4m SNX as collateral to borrow a USD stablecoin, for funding protocol initiatives and conducting SNX token buybacks. Borrow with a mechanism that avoids mark-to-market liquidations and prevents the borrowing (short-selling) of the SNX collateral.

Motivation

The TC has sufficient stablecoin reserves to meet short and medium term needs, and currently earns more fee revenue than expenses. The TC could use further growth capital that does not compromise potential appreciation of SNX, or exert downward pressure on its price.

Specification

Overview

This proposal grants the TC the capacity to use up to 4M SNX as collateral to borrow up to 50% loan-to-value (LTV) ratio on Optimism. The borrowed amount will be subject to variable interest rates set by the market, capped at 30%. The debt mechanism must be open source, and no third-party entities should be able to borrow or short-sell the SNX held as collateral. The debt can be tradeable on the open market, and should not be liquidated based on mark-to-market SNX/USD price - instead on the total debt notional accrued instead, set to 110%. TC will pay back 4% of issued notional debt once per quarter, and all activities will be overseen via a 3/4 multisig address.

Rationale

Borrowing against SNX bridges the gap between short term initiatives and potential future appreciation of the SNX token. The TC is well positioned to repay debt, given existing stablecoin reserves and ongoing revenue. Alternatives to borrowing considered include:

• Leveraging liquidity from protocols like Aave isn't feasible due to the intertwined nature of collateral risks and restrictions on SNX deposits. There's excessive risk for the TC given mark-to-market liquidations and the potential to short SNX deposits.
• Seeking liquidity via OTC deals is not consistently viable due to the challenges of sourcing liquidity on an as-needed basis, the inefficiency in accessing credit promptly, and loss of potential upside.

Financial Specification

1. Transfer up to 4M SNX to a dedicated USD debt pool on optimism
2. Borrow up to 50% LTV at interest rates determined by market dynamics, capped at 30%
3. Pay back minimum 4% of issued notional debt per quarter
4. Manage debt, repayments and and additional borrowing as needed

Copyright

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