Vote 016A: How many $ worth of stablecoins should be distributed from Treasury to rebuild trust in Gro after UST depeg?

Vault users lost funds when UST depegged. While the protocol worked as designed and PWRD users were protected by Vault, the design did not include an automated stop-loss mechanism that could provide back-stop protection for Vault users. This vote proposes the DAO to consider going beyond protocol improvements and vote on a distribution of stablecoins to affected users to win back their trust. This would be a weighted average vote that will let the DAO decide what amounts to be spent on this effort.

Note that Vote 16A only covers stablecoin distribution. Please refer to Vote 16B for GRO token distribution.

Background

• Gro Protocol was impacted by the recent depegging of the UST stablecoin, the third largest stablecoin by market cap. One of four strategies was exposed to UST through Curve on Ethereum, resulting in a partial loss of funds for Vault users.
• PWRD users were shielded from the UST depeg as Vault protected PWRD. As the leveraged product, Vault took a larger share of total protocol losses since it also took on the loss of PWRD.
• Vault withdrawal was not available at times when the PWRD protection utilisation ratio capped out or when stablecoin prices between Curve and Chainlink feed were too far away from each other. This was the same for Argent zkSync users as there is a process to bridge funds from L1 to L2 which was impacted in the same way.
• Gro protocol is built to be a permissionless protocol that lets users make their own decisions on entering a portfolio of stable strategies. In the Gro community and in the core team, there were both users who believed that UST would recover and those that believed it would fail. As a core team we did not want to make a centralised decision / "bet" on users' behalf so the priority was to enable users to make their own decisions and work around any safety measures that prevented withdrawals.
• As the situation worsened, it became clear that the community was no longer divided and most considered that UST was a broken strategy. At that time, the core team started winding down the strategy which moved assets out of UST into USDT reserves. We regret that we hadn't implemented automated stop-loss mechanisms into the protocol in addition to manual integrity assessments. We are also reflecting on whether it is feasible to pursue higher risk strategies in a trustless or decentralised setup.
• More detail in the community forum post here.

Proposal to distribute stablecoins and GRO to affected protocol users

While the system worked as designed and PWRD users were protected, the protocol risk and yield tranching design did not include an automated stop-loss mechanism. Multiple proposals have been raised to improve protocol design, including stop-loss mechanisms and DAO voted strategies.

To rebuild trust in the Gro brand and encourage Vault users to use Gro products in future, we are proposing the DAO goes beyond protocol improvements, and considers voting on a distribution of stablecoins and/or GRO to affected users.

Over $2mn losses to the Gro DAO treasury, as the largest Vault holder, together with exits from affected users, has substantially reduced protocol TVL. As a result, the treasury is earning less from stablecoin yields and performance fees, which affects how much can be distributed to impacted Vault users. DAO members have suggested it is important to balance the need to rebuild trust with the treasury's sustainability for future growth.

The proposal below aims to balance that through dividing the distribution into 2 parts: (1) stablecoins that would be distributed over 24 months to impacted users as covered in this vote (Vote 16A), (2) vesting GRO tokens to enable governance participation and longer term buy-in to the success of the protocol which is covered in Vote 16B.

Vote 016A: Stablecoin distribution to impacted users to rebuild trust

• PWRD Stablecoin or Gro Vault Token could be distributed to impacted Vault users to help rebuild their trust in Gro protocol. While we cannot measure trust lost, we would propose a distribution based on the proxy of percentage of funds lost.
• Some community members suggested that all users should receive the same percentage regardless of how much funds they had in Vault, while others suggested to help smaller wallets.
• This proposal suggests applying the same percentage for all users with the exceptions for operational & gas efficiency that (1) those receiving <$1000 would receive their funds upfront while others would receive their distribution over 24 months, and (2) minimum threshold of $10 allocation to be included.
• Funds would be escrowed into a smart contract for ongoing release to user wallets, so that the implementation is permissionless. Argent zkSync does not support smart contracts yet so alternative implementation would be required.
• As at 15:30 UTC on 27th May 2022, Gro DAO treasury has around $9,500,000 available (excluding GRO tokens and deducting existing commitments) after it took a loss of ~$2,400,000 as one of the largest Vault holders.

Voting methodology: weighted average

In order to reflect the range of opinions of all GRO holders we are setting each vote up as a weighted average between the different options. This reflects learnings from previous critical DAO votes where a binary option resulted in many dissatisfied DAO members.

The ranges below are ambitious but achievable given necessary DAO runway to support future growth.

Voting process

This vote was discussed in the Gro community forum and Discord for 7 days. The vote will run live for a further 7 days.