KIP Draft: Keeper DAO Horcrux System

Background

As it stands, the KeeperDAO treasury holds the most ETH out of all Defi treasuries on the market. In addition to this, the treasury is also custodian to over 25m in stable coins. While this feat is impressive and enables KeeperDAO to leverage its treasury in interesting ways, it currently is not protected from a crypto bear market in conjunction with hyperinflation of the US dollar. This proposal aims to rectify this through the addition of PAXG (digital gold) to the treasury. The addition of gold into the treasury will protect KeeperDAO from both a crypto bear market and from the current US monetary policy.

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Fig 1. Current KeeperDAO treasury allocation

Proposal

The centerpiece of this proposal is the ability to continue to adequately fund the development of KD if the US dollar loses a significant portion of its buying power on the world stage and the crypto market enters a -80% bear market. The funding of the team members would be done with previously accumulated PAXG. There are 2 ways to accumulate PAXG, through a lump buy of ~2 million dollars. This figure is based on the breakdown outline in KIP-3 where 865 Rook has been allocated for project development from September to December, at the time of the proposal the price of Rook was ~$170 this equated to ~$200 000 of runway for 4 months of development at our current scale. This would allow KD to weather over 3 years of a combined crypto bear market and US dollar hyperinflation while still operating as if it was a bull market. The alternative method to accumulating gold would be diverting ~5% of our monthly revenue to the accumulating of gold in the treasury. This 5% could be considered doomsday insurance as opposed to the squandering of revenue on an idle asset.

Limitations

The limitation of this proposal would be with Paxos the custodian of the physical gold associated with the token and if they would behave as bad actors during a turbulent market. The second consideration for this proposal is the preparation for events that might never happen, and the use of these funds could be better allocated in the absence of a doomsday scenario.

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I owned Paxg by minting myself at Paxos. Paxos is regulated and their service works well. However, when selling my paxg on the market i found out that liquidity is very limited. You can always sell through Paxos though and also that worked fine.

I divested from Paxg, because the risk reward of other crypto investments is simply better. Many may have slightly higher risk, but much higher rewards.

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I understand what you are saying, but the value of PAXG in the treasury is not as an investment but instead as a failsafe in the event of a crypto bear market and/or hyperinflation of the US dollar. Gold being uncorrelated to both the US dollar and the crypto market would enable KD to continue to fund the development of the protocol.

I think this is a prudent idea

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I like this idea; gold exposure is sensical

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pragmatic, interesting idea

Good idea here my guy

I would like to consider more crypto native solutions to hedge against a eth bear market & stablecoin inflation. Float comes to mind: Float Protocol

Paxos is quite centralised (NY based for-profit company).

I agree and disagree, I am not at all well versed on Float Protocol, your suggestion is my first exposure to it. I would love it if you could come and speak about it during a town hall for everybody to learn the benefits of it as an alternative to PAXG. With that said, Float is a relatively new product that has yet to prove a product-market fit while gold has stood the test of time as a store of value. My main concern with Float over PAXG is that the product fails to gain traction and there is a lack of liquidity for float in the event of a doomsday scenario.

I asked someone on their team, let’s see if they are interested. And I agree with you, Float is relatively newer so def something to consider. https://reflexer.finance/ RAI is another (more established?) alternative.

I really like the idea of RAI, I honestly think a basket of assets like these is the most pragmatic approach. This would limit counterparty risk from any 1 individual protocol or company in the case of PAXG. I think allocating 4 years worth of development runway into a “Horcrux” where our buy is allocated x% of PAXG, x% of RAI, and x% of FLOAT(depending on community) is the best approach at making KD resilient in the event of a doomsday scenario.

Edit: another notable thing with RAI is instead of it being idle we can use it to farm some gov token
https://app.reflexer.finance/#/earn/incentives

We could also deposit PAXG on celsius to earn yield there if that community sees that as a good idea

I think this much conservatism is not necessary given the size and makeup of our treasury. Crypto stablecoin strategies are I think sufficient to cover inflation risk: [Weekly] Market Return on StableCoin-based Strategies(1 Nov 2021) | by The Serenity Fund | Nov, 2021 | Medium. Paxg has (almost) no yield.
But i won’t object because its a small amount.