KIP-25: Maple Finance Funds Withdrawal

KIPs Final
1

KIP-25: Maple Finance Funds Withdrawal

kip: 25
title: Maple Finance Funds Withdrawal
authors: DaddyMatty <matt@rook.fi>, JasonW <jason@rook.fi>
status: voting
created: 2022-6-16
replaced-by: none
replaces: KIP-6
dependency: none

Proposal

Proceed with the withdrawal of all Rook treasury USDC, and related earnings, from the Maple Finance position initiated with KIP-6 [1]. The USDC portion of our deposits will be maintained as USDC, with the MPL portion being swapped into USDC through the Rook Protocol.

References

[1] KIP-6 forum post
[2] Rook’s Current Maple Position
[3] FT article: Three Arrows Capital Margin Call
[4] Coindesk article: Celsius Functional Insolvency

Background

Summary

Given volatility in markets and emergent risks in the position, after careful evaluation, the multisig signers have taken the decision to initiate a withdrawal of all USDC and related earnings deposited with Maple Finance per KIP-6 [1]. This is a risk-management decision motivated by risks of potential market contagion rather than a view on Maple Finance in isolation. There is a 10-day processing period between initiation of a withdrawal and its enactment, and in this period the DAO will have the ability to make a collective decision, without unnecessarily delaying the withdrawal process.

All subsequent information relates to data as of June 16, 2022 (“Proposal Date”).

Investment amount and type

As outlined in KIP-6, the Maple Finance position was initiated for the purpose of yield generation. Rook’s position with Maple was $3.563 million USDC and $108.9k MPL as of Proposal Date [2].

Expected benefits for Rook

The expected benefits of this proposal are as follows:

  • Protection from locking or loss of Treasury funds due to market contagion
  • Recognition and realization of earnings totaling $187.6 as of Proposal Date
    • MPL Rewards: $108.9k [2]
    • USDC Rewards: $78.7k [2]
  • Ability to monitor Maple Finance and the broader market for developments and opportunities while reducing risk to our stablecoins

Analysis and Rationale

Market conditions have shifted powerfully since this position was established in 2021, most recently and dramatically with the rumored collapse of several centrally connected market actors such as Three Arrows Capital and Celsius [3,4]. While Maple Finance is not one of those actors, and our analysis of that protocol in itself has not changed, Maple’s status as a leading undercollateralized lending platform has led us, out of an abundance of caution, to recall our deposits.

We feel this is prudent risk management given the need to protect our Treasury’s viability and ability to support ongoing operations. The speed of market developments makes this move unusually urgent.

Implementation

Execution

Execution will be a withdrawal by the Treasury multisig of all Treasury assets on Maple Finance, executed as described in Specification below.

Monitoring and Reporting

The Treasury multisig will report to the DAO upon completion of the trade, which will end with the return of the USDC and MPL to the Treasury portfolio.

Specification

Specific steps to be taken, in bullet point form

  • Proceed with withdrawal of total USDC deposits and related earnings ($3.563m) to 0x9a67f1940164d0318612b497e8e6038f902a00a4 (“Rook DAO Treasury”)
  • Proceed with the withdrawal total MPL earnings ($108.9k) to the Rook DAO treasury
  • Swap total withdrawn MPL earnings into USDC using the Rook Protocol ($108.9k) and maintain in the Rook DAO treasury
  • Report back to DAO on completion of these transactions

Note

Three Arrows Capital was an early investor in KeeperDAO, and has had minimal contact with our organization since that time.

3 Likes
2

I support this KIP. The risk of losing the funds feels substantial and it is a good idea to pull back a bit and prepare for a potentially extended bear market.

1 Like
3

I support this KIP. It makes sense to let things unfold and reduce the risk for the Rook treasury.

1 Like
4

Full support from me

1 Like
5

Hey Rook community. Speaking on this on the community call tomorrow and happy to answer any questions. I would encourage the community to carefully consider whether it wishes to proceed here given the effort that went into the original proposal and governance process.

  • Acknowledge that there is credit risk in institutional lending. Happy to talk through the steps that Delegates such as Maven take to due diligence borrowers, as well as the proactive action taken by Maven as Delegate over the last week.
  • Also happy to address the impact of 3AC and Celsius on the lending market more broadly. Maple provided an update here that neither were borrowers on the platform. Update
  • Lastly, will talk through the withdrawal mechanisms and how redemptions in the pools work.

Feel free to submit any questions beforehand here.

Best,
Sid

1 Like
6

Thanks for the input Sid. Unfortunately, the time and effort of the original proposal have to be viewed as a sunk cost in the context of this discussion. While much of this is a mitigation action on our end to reduce the amount of creditor risk we have across the landscape, there are other reasons why I personally feel strongly about moving forward with putting this proposal up for vote:

  • A big part of this is in relation to potential contagion risk. With now confirmed rumors of 3AC managing treasuries for different parties makes it hard to know who is financially sound. Coupled with a lack on-chain data on the health of borrowers and it makes things particularly tough.
  • Despite you guys doing your diligence to assess the health of borrowers, in the end, that relies on human involvement and is prone to error.
  • Risk/Reward – The opportunity cost of missing earned interest is quite immaterial in relation to the principal at risk.
  • There is added risk in this type of product in relation to others due to the fact that is undercollateralized vs overcollateralized.
7

Additionally, there is a relatively high concentration of borrowers in the pool. For example, the top 3 and 5 borrowers represented 38% and 60% of the total, respectively. While these parties may be extremely healthy, there is still an added risk with those %'s being (in my opinion) high.

8

UPDATE as of 6/28:

This proposal is now in active voting on Snapshot until 11AM EST on Friday, July 1. The vote is here: Snapshot

UPDATE as of 7/1:

The proposal has passed through Snapshot voting, with 19,000 tokens voted “No objection” and 120 tokens voted to Object. The measure is adopted.

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Update: On 7/13/22 the Treasury multisig liquidated all MPL rewards earned to date. Below is the related transaction details:

2 Likes