[PIP-4] nDEFI Rebalance

This proposal aims to improve the functionality and composability of nests on Polly Finance.

It has spent over a week in the Polly Governance Proposal section of the forum to receive feedback.

Summary: This vote will cover the following items.

• LDO will replace SUSHI in the Polly nDEFI basket.
• Bao Finance team can rebalance all Polly Finance baskets without a governance proposal.
• The Bao Finance team can replace assets which no longer meet the predetermined criteria for baskets with assets that meet the criteria.

Detailed information below.

Abstract:

nDEFI is in need of rebalancing due to the current imbalance in the initial scope assets. The rebalancing process necessitates a government proposal. Our proposal suggests eliminating the governance process and opting for rebalancing based on predefined criteria.

Motivation:

The necessity for rebalancing nDEFI has been overdue, as the current composition of assets is no longer valid. To reiterate, the basket’s scope includes:

• The Polly DeFi Nest comprises the top 5 projects by TVL on Defillama, with liquidity on Polygon.

• Each project’s weight is determined by the TVL divided by the Fully Diluted Valuation (FDV).

• The selection criteria for these protocols are as follows:

  • Protocols chosen based on TVL, using DeFiLlama’s website.
  • They must have at least $250k in liquidity on Polygon.
  • A Chainlink Price feed on Polygon must be available.
  • They should have at least 7.5% of the total supply in circulation with a predictable token emission over the next 5 years.
  • The protocol must have been operational for at least 3 months to be considered for inclusion in the nest.
  • In the event of a security incident, the team must have responded responsibly and promptly, offering users a reliable solution and documenting a transparent breakdown of the incident.
  • They should have an Ethereum focus and a sufficient level of decentralization.

LDO meets the criteria and will replace SUSHI. Currently, each rebalance proposal requires going through the governance process, but we aim to eliminate this step since the criteria for the nest are established. The Bao Finance team will handle changes to the composition and rebalancing ratios as part of their regular workload and at specified intervals.

Implementation:

The multisig will rebalance all positions in the nDEFI basket. Currently, the nDEFI basket is heavily weighted towards AAVE, and the AAVE position will be adjusted to its correct ratio. The excess AAVE will be swapped to rebalance other assets. Additionally, SUSHI will be removed and replaced with LDO.