EGP-12: Asset Onboarding Framework

Title: Asset Onboarding Framework Authors: @John | Ethereal Ventures @rmrf.eth @Gregory | ChainSafe Type: Social Proposal Status: Draft Date proposed: August 26th, 2022 Date ratified: N/A

References

• https://commonwealth.im/element-finance/discussion/4294-dao-social-proposal-template
• https://forum.element.fi/discussion/6673-asset-onboarding-checklist
• https://forum.element.fi/discussion/6604-fixed-rate-term-deployment-development-guide
• https://docs.element.fi/element/element-smart-contracts/integration-contracts/yearn-vault-asset-proxy

Sentence Summary

This proposal provides a framework for community members to present new assets to be onboarded to the Element Finance protocol.

Paragraph Summary

EGP-12: Onboarding Assets Framework provides a framework for onboarding assets to Element Finance, by detailing a required template when the community wants to onboard a new asset. This proposal will also detail the necessary technical implementation requirements and proposal lifecycle to onboard new assets.

Motivation

Onboarding new assets is critical to the growth and composability of the protocol. Providing a framework for doing so ensures that potential assets can be appropriately evaluated in terms of structure, risk profile, and implementation effort in a standardized manner that reduces the potential for bias. This detailed evaluation is necessary to retain the integrity and reliability of Element.

Specification

Proposal Lifecycle

1. Discussion
2. Draft Proposal
3. Check against the template
   1. Modifications if necessary
4. Off-chain vote
5. If passed, perform due diligence report & audit/review
6. Formal Proposal
7. On-chain vote

Application Template

EGP#: <# to be assigned>

Title:

Author(s): <list of authors’ names and/or Twitter/GitHub handles>

Type: DAO Proposal Status:

Date Proposed:

Date Ratified:

References

• A list of supporting materials referenced by this EGP.

Sentence Summary

• A description of what the Element Governance Proposal (EGP) is focused on in 30 words maximum.

Paragraph Summary

• A description of what the Element Governance Proposal (EGP) is focused on.

Motivation

• A short description of the motivation behind onboarding the new asset.

Specification

Classify the proposed new asset and all related underlying assets. The specification should be detailed enough to allow for a risk analysis (DAO due diligence report) and for implementation to begin as well as testing. The specification for asset onboarding EGPs must include the following components:

Asset Classification

1. Name of proposed asset.
2. Strategy or single yield source.
   1. Underlying asset classification.
   2. List of all underlying assets.
   3. If the underlying asset(s) is a stablecoin.
      1. What mechanisms does it use to maintain stability?
      2. If it’s not a stablecoin, what drives the underlying asset(s) price?
      3. Yield source(s) according to each underlying asset.
         1. Organic (e.g. lending, borrowing, underwriting risk).
         2. Emissions.
         3. Inflation.
      4. Enumerated underlying asset(s) liquidity.
   4. Can the asset(s) protocol economics be modified?
      1. What economic protocol parameters can be modified?
      2. What are the requirements to change protocol parameters?
      3. Asset strategy fixed or flexible.
         1. If flexible, who/what is able to modify the strategy?
         2. List all modification requirements and scenarios. \

Proposed Term Duration

• Include the proposed term length and start date for new onboarded asset post on-chain approval.
• The proposed term length should be no longer than 6 months.
• The start_date can start no later than 2 months after on-chain approval.

Technical Implementation

• The final code that will be used directly in the on-chain vote to execute the EGP.
• Refer to the [Yearn Vault AYearn Vault Asset Proxy Implementation Guide
• There should exists a whitelist of people who are qualified to create the implementations on-chain (i.e the proposal).
• Initially the whitelist will be individuals who have successfully created a proposal on-chain. Currently that list would be:
• Element Core Team
• Greg
• John
• Members who submit their own proposals (have the code written), and successfully execute on-chain, will be added to the whitelist.
• If a proposal requires implementation by someone else, the DAO will first enlist from the whitelist, if no one from the whitelist is able to take on that task, the DAO will put a bounty out for someone to make the proposal.
• This requires funds to exist that can be spent perhaps a few thousand dollars, and we can determine bounty sizes from there.

Test Cases

For the implementation or testing of the technical implementation.

Security Considerations

Proposed Asset’s Reputation and Security.

1. List of all directly related protocols to the classified assets above.
   1. All relevant audit information including a report (if public).
   2. If not public it needs to be acknowledged.
2. List any past vulnerabilities or exploits (including stolen funds).
3. List any exploits or discovered vulnerabilities by white hat or bounty programs.

Technical Review Plan or Audit Information

• Third party audit provided and or sign-off from security pod

Next Steps (Voting Outcome Summary)

Clearly outline the next steps for this proposal. This includes a recommended review period for the technical solution, what voting “yes”, “no” and “abstain” entails, and what the outcome and next steps would be if the proposal were to pass the Off-Chain Poll and On-Chain Vote.

• For example:
  • Discuss this proposal on the forum and discord.
  • Implement a poll on this proposal on Snapshot.
    • If passed: This proposal will move to an audit review period.
  • A code review process will take X and should not be moved to an On-Chain vote before it has been deemed safe.
  • Implemented a vote on this proposal on Element Governance Dashboard
    • If passed: This proposal will be executed and the following will be implemented into the Element Protocol or the Element Council Protocol.

Due Diligence Report (Performed by Protocol & Security Pod)

Factual Presentation

This section should attempt to answer the questions below as applicable to the asset being onboarded. The questions are intended to be broad in scope and cover a variety of possible yield generating positions. Information presented in this section should be fact-based and unopinionated.

Yield Generating Position

• What is the liquidity of the position?
• What is the liquidity of each underlying strategy?
• What are the financial risks associated with each underlying strategy?
• How does the position’s liquidity compare to the underlying assets’ circulating supply?
• How do users interact with the position? Characterize these interactions and profile these users.
  • frontends and other smart-contracts / strategies that interact
  • unique daily wallet address interactions
  • average $ amount per user
  • token balances of these users
• Are there any restrictions in place on usage of the position by protocols or individuals?
• What governance processes are in place for the position? What is the scope of governance changes?
• Are there any legal entities responsible for the position and underlying assets? Where are they based? How are they structured? What jurisdictions do they fall under?

Underlying Assets

• What are the tokenomics of these assets?
  • fixed vs variable total supply
  • inflation/dilution schedule
  • major liquidity events / unlocks
• What is the liquidity of these assets? Where is this liquidity?
• How does the circulating supply compare to the float? Are there any lockup or staking mechanisms in place?
• What drives the demand of these assets?
  • what is their utility?
  • rewards offered and how they scale
  • competitive advantage
• Have any assets been depegged or experienced extreme volatility over the past year?
  • histogram of daily % price changes over the past year
• What is the distribution of these assets? How were they initially distributed?
  • pie chart of top 100 holder addresses by amount
• Where is this asset used in the ecosystem? What protocols are involved?
• How do users interact with the position? Characterize these interactions and profile these users.
  • frontends and other smart-contracts / strategies that interact
  • unique daily wallet address interactions
  • average $ amount per user
  • token balances of these users
• Are there any restrictions in place on usage of the position by protocols or individuals?
• What governance processes are in place for the underlying assets? What is the scope of governance changes?
• Are there any legal entities responsible for the underlying assets? Where are they based? How are they structured? What jurisdictions do they fall under?

Economics

• What does the historical return profile look like?
  • histogram of returns by period
• How are these returns affected by additional liquidity?
  • calculations/projections to back this
• How are returns affected by changes in the underlying asset?
  • calculations/projections to back this
• Enumerate potential loss scenarios
  • losses that have already happened
  • potential future scenarios

Stakeholders

• Who are the key stakeholders?
  • Add links to relevant twitter/linkedin/github profiles
• Are they anon or doxxed?
• Do they have any previous projects/experience? What are they?
  • overview of previous projects
  • current status of previous projects

Communication

• What forms of communication does the protocol use?
  • links to discord/telegram/twitter etc.
• How long have they been in use?
• What frequency are communications sent out?
• How have issues been communicated in the past? How long did it take for the issues to be communicated? Are they followed up on?
• How active is the community in each form of communication?
  • Number of members/followers
  • avg. number of daily messages / replies
• How does the community interact on these communication platforms? With what frequency? Are these typically surface-level (wen moon) or deeper technical questions? Characterize the interactions.

Conclusion

Use this section to provide additional context, summary, and takeaways regarding the information provided in the factual presentation. This is a place for the reporter to provide informed opinions based on the facts presented, along with a recommendation on how to proceed.

Considerations

• A social proposal is made to have a set list of predetermined seeders for all term deployments
• Incentivized seeders
• monthly all asset review process to see if they are viable
  • maybe include a testing environment in the future like apetax?
• Asset removal process (near future)
• Do we want to require the proposer, if they are another protocol, to own ELFI tokens and participate in governance?

Amendments

This framework can be amended in the future by passing a social proposal.

Next Steps

• Discuss the Asset Onboarding Framework proposal on commonwealth forum and discord.
• Gather feedback and make necessary changes.
• When all feedback is gathered and if necessary changes are made, the proposal will move to an off-chain vote (Snapshot).
  • If off-chain vote passed: This proposal will move to an on-chain vote
    • Implemented a vote on this proposal on Element Governance Dashboard
  • If on-chain vote is passed: This proposal will be executed and the following will be deemed as a new DAO process, etc.
    • Create new discussion category called “Asset Onboarding (Executable) Proposals” with the framework and application template pinned.