Authors : nanojohn
Summary : Goldfinch should use a portion of its USDC reserves to purchase FIDU tokens on Curve while they are trading at a discount to NAV. This will have the dual purpose of signaling strength in the protocol to other participants while also capturing a unique opportunity to grow reserves for future projects & needs.
Motivation: We are in an unprecedented situation where high utilization of the Senior Pool funds has led to FIDU tokens trading at ~15% discount to NAV on Curve. Meanwhile, the Goldfinch USDC reserves are sitting idle and not being utilized to generate additional yield at this time.
Specification & Requirements:
- A fixed amount of protocol USDC reserves (for example, 500,000 tokens) will be allocated for buying FIDU tokens on Curve if purchase conditions are met.
- A minimum percentage discount to NAV will be predetermined as a purchase condition, so that buybacks only occur when the Curve price < (1 - discount) * SharePrice, where SharePrice = NAV and discount = % threshold such as 5%.
- Break up the purchases into small, regular transactions to occur. For example, we may agree to exchange 500,000 USDC for FIDU in 1 transaction or 50,000 USDC for FIDU on a weekly basis.
This proposal requires the creation of the following protocol parameters:
- USDC amount to allocate to purchases of FIDU: The $ or % amount of protocol reserves to earmark for FIDU purchases. We are initially proposing $500,000 USDC.
- Discount to NAV threshold: The % discount to NAV that FIDU must be trading for an open market purchase to occur. We are suggesting 5%, so a regular transaction would occur if USDC/FIDU rate on Curve < (1 - 0.05) * SharePrice.
- Frequency of and sub-divided amount per transaction: How often and how many tokens should we exchange in each transaction? We think a single 500,000 USDC to FIDU would minimize the operational burden if entry price < (1 - 0.05) * SharePrice. Otherwise, we can make 1 purchase up to this price and save the balance for a future purchase if price reverts lower.
This proposal would operate as a short-term measure to help the liquidity situation while GIP-25 is approved and implemented.
- This would allow the protocol to earn revenue on its USDC reserves in the form of Senior Pool interest payments and trading profit. A $500,000 USDC investment in FIDU would generate ~$90,000 of profit for the treasury if held for 1 year ($48,000 of trade profit from buying FIDU at discount and $42,000 of interest payment profit), which is an 18% APY and a very competitive return. This assumes reserves do NOT stake for GFI rewards, which could add even more.
- These purchases would signal goodwill and strength to the general public by showing that Goldfinch has skin-in-the-game.
- If the spread vs NAV begins to shrink in the secondary market, MEV bots will be less incentivized to extract value from senior pool, opening up opportunities for users to withdraw.
Drawbacks and Risks:
- These funds are at the same risk as any other LP in the fund, with the potential of borrowers to default and not return capital or for utilization to be high, making funds unavailable for withdrawal.
Yes: Allocate a specific amount of protocol USDC reserves for regular open market Curve buys of FIDU if purchase conditions are met.
No: No allocation of reserves