[1IP-08] Simple diversification mechanism for 1inch DAO Treasury

Simple Summary

This proposal seeks to diversify the 1inch Network DAO’s Treasury composition be enacting the following strategy:

• Do not exchange a whitelisted set of tokens for USDC before sending to the 1inch DAO Treasury.
• These whitelisted tokens shall be: ETH, WETH, WBTC, DAI, and USDT.

Abstract

Currently, all of the Swap Surplus revenue stream is collected in varying tokens and swapped to USDC before being sent to the 1inch DAO Treasury. To start the diversification process of the treasury funds, the protocol can keep some incoming Swap Surplus tokens as collected (not swapping them for USDC).

This proposal aims to whitelist the following tokens for this treasury collection strategy:

• ETH
• WETH
• WBTC
• DAI
• USDT

Motivation

The 1inch DAO Treasury is 100% composed of USDC. USDC is a fiat-backed stablecoin pegged to USD managed by Circle.

USD experienced record inflation over the last 12 months, and will experience some degree of inflation for perpetuity. As such, the marginal spending power of the 1inch DAO Treasury is weakened unless the DAO deploys the funds in a manner that can outpace inflation.

These assets are viewed as risk-on diversification assets for the treasury:

• ETH – the native asset of the Ethereum blockchain
• WETH – ETH wrapped in an ERC20 wrapper
• WBTC – Bitcoin (BTC) is the oldest and largest digital asset. WBTC is Bitcoin wrapped in an ERC20 wrapper

Stablecoins also have inherent risks such as smart contract risks and centralization risks. Diversifying the stable coin holdings of the 1inch DAO Treasury aims to hedge against these risks. These assets are viewed as risk-off assets for the treasury:

• DAI – the decentralized collateral-backed stablecoin issued by the Maker Protocol. DAI is soft-pegged to USD
• USDT – the fiat-backed stablecoin pegged to USD and managed by Tether

Specification

To implement this proposal, GovernanceLeftoverExchanger should transfer ETH, WETH, WBTC, DAI and USDT directly to the treasury the same way it transfers USDC. All other tokens should still be converted to USDC as they are now.

Rationale

The crypto market cap took a decline in recent months. With token valuations depressed, it may be a good time to start accumulating non-stable tokens to grow the treasury.

Since exchange transactions cost some Ether to pay for the gas fees, eliminating the swapping step for these whitelisted tokens will increase the capital efficiency of this operation. It is also for this reason that large stable coins such as DAI and USDT, should be sent directly to the treasury.

Considerations

The current stablecoin composition of the 1inch DAO Treasury ensures that the Treasury is insulated from bearish market cycles. However, this also means the treasury’s funds have no way to keep pace with the rise in inflation. Adding ETH, WETH and WBTC increase both the risk and the potential rewards.

This proposal does not call for any actions to be taken with the funds currently held by the 1inch DAO Treasury.