BIP - Put Botto's Treasury to Work - Botto

BIP - Put Botto's Treasury to Work

Carbono

1. SUMMARY

This proposal suggests Botto allocate 200ETH from its treasury to invest in staking through Lido. Staking generates low-risk, steady revenue for the project that could be used to contribute to all types of activities, such as tech development, human resources, marketing activations, or simply help extend Botto’s operational runway.

(The use of the funds is beyond the scope of this proposal)

Botto currently holds 333.4701ETH in its multisig. Numbers may vary weekly during the life of this proposal according to sales activity.

2.RATIONALE

Botto is more than just an NFT project; it pursues the creation of the first truly Decentralized Autonomous Artist, where autonomy represents the ability to realize our artistic vision while ensuring our long-term sustainability. Our mission is to balance creative expression with the financial responsibility required to bring our artistic vision to life.

While we've been steering clear of risks in our treasury management thus far, many safe opportunities are within our reach. Botto’s $ETH can be easily staked in Lido, a reputable, battle-tested DeFi protocol, to put our assets to work.

Our proposal suggests explicitly staking 200 of Botto’s ETH with Lido.

Staking Botto’s ETH with Lido

Why Lido, and how does it work?

We suggest staking 200 of Botto’s Treasury Ether through Lido, the leading liquid staking protocol by most metrics (TVL, amount of staked ETH in management, number of validators, etc.). Lido is one of the pioneering liquid staking protocols and has been thoroughly battle-tested. Its LST, the stETH, has the highest liquidity and the broadest scope of implementations in DeFi across different chains, which minimizes risks. Lido distributes the revenue obtained from staking proportionally among stakers, compounding the profits as time progresses

Liquid staking offers a variable 3-4% APY on staked Ether, with very low risk and little operational overhead. The staking process involves locking Ether through a liquid staking provider and receiving a Liquid Staking Derivative -a derivative ERC-20 that can be kept in custody in any wallet, and that acts as the receipt of a staked token while can also be used across DeFi protocols. LSDs can be redeemed by the holder in exchange for the corresponding ETH through the same liquid staking protocol or by selling it in the market.

Suggested allocation

The suggested initial allocation of 200 Ether. Considering an estimated APY of 3.5% and a price of Ether at current levels of ~$2,200, this would result in 7ETH in revenue, or $15,400, after a year

The decision to increase the allocation, unstake the funds, or use our stETH in other DeFi protocols is outside the scope of this proposal and should follow the regular governance process.

Risk mitigation safeguards

The team reserves the right to intervene urgently in case circumstances require it. We refer to highly improbable situations, such as smart contract risks or hacking cases. In these extreme cases, the team reserves the authority to intervene solely to convert stETH into ETH or USDC. Once the funds are recovered, they will remain in the project’s treasury indefinitely.

3. CRITERIA OF SUCCESS

Staking is a low-effort, low-risk investment strategy that generates a risk-adjusted yield. Successful implementation of this BIP would mean Botto generates an estimated revenue of 3-4% of the staked ETH yearly following the undertaking. This treasury strategy could continue indefinitely if the funds are not needed for alternative purposes.

The team will monitor the behavior of invested funds in case an intervention is required.

4. DISADVANTAGES

Staking is one of the most straightforward and safe ways to generate yield in crypto. Like any other DeFi category, it involves certain risks that we have evaluated and outlined below.

Smart Contract Risk. As with any DeFi protocol, there is a degree of smart contract risk. Lido is one of the strongest and more thoroughly tested protocols, and there is hardly a safer option for staking.

De-peg risk. Both liquid staking derivatives and stablecoins can be subject to depeg events, phenomena when the asset devalues compared to its reference asset (ETH).

These events are improbable and virtually impossible to predict. The only measure the team can take is to create safeguards that allow swift reaction from the treasury managers to minimize damage in case of such an event.

Decentralization Critique: Lido has faced scrutiny for its level of centralization. Though the issue is debatable, it may affect its reputation and its position in the market. Lido is actively working on solutions to address these concerns, and we should stay vigilant of these discussions.

Governance Risk. A manifestation of Lido’s centralization critique is the DAO’s governance system. LDO holders steer Lido. Some claim that the incentives of project token holders could misalign with those of stakers. It is unlikely that Lido’s governance will affect staking.

buffets

No objections to the idea of deploying some of the treasury's ETH to earn yield via staking on Lido.

But wanted to find out more about the considerations behind the proposed size of 200 ETH. I'm not too familiar with what is the standard practice among the major DAOs, but ₆₀% of ETH staked does seem a tad too high from a risk management perspective?

Carbono

buffets

Thanks for you comment. We did consider other amounts or percentages, but at the end of the day, the most important thing is that we have the ability to withdraw our position in stETH very easily, thanks to stETH's liquidity. The risk, in that sense, is as small as it can be.

Also, Botto's runway relies mostly on USDC available in the Treasury. This proposal precisely wants to activate our idle ETH.

eltito

Having read the proposal, I would like to express my point of view on the matter. Keep in mind that I am not an expert in the field. Even so, allow me to express my concern about it, as stake such a high amount of the treasury is not a minor issue.

In the "Risk mitigation safeguards" section, you explain how we could come out unscathed from a supposed attack on the smart contract. If this happens, it is most likely that you will not have time to recover the funds, and consequently, we will lose a large part of our treasury for a gain of 3-4%. I sincerely believe that the risk is not worth it.

A question arises: Is there a compelling reason or imperative need to expose 200 ETH of our treasury? Or is it simply to obtain a return? Regards

Carbono

eltito

We never meant to imply that we "could come out unscathed from a supposed attack on the smart contract". We just wanted to make clear in the proposal that the team reserves the right to intervene swiftly in case it was necessary. We agree that the worst possible scenarios are way beyond our ability to prevent.

But, answering your question, we also believe that the likelihood of that scenario is extremely small (never zero). From a risk/reward perspective, staking with Lido is such a safe and reasonable strategy that over $22B in ETH has been devoted to it.

eltito

Carbono

Thanks for answering. Sorry to be so pessimistic, but $22B ETH +1 could be the decisive amount and would sink our treasury. For this reason I was asking about the need to implement this action. All the best

zoku

I don't have much to say, the idea is good and it makes sense that we put our funds in an active mode to generate profits. I consider, like buffets, that 200 is a very high figure evaluating the total funds. If there is room, I would also like to suggest a much lower % of funds allocated to riskier investments.

Hope we can activate this.

siphonophore

Generally supportive of the idea to earn on treasury assets, but would welcome smaller steps over time rather than 0 to 60 in one go. Nothing wrong with setting a target of 60% and gradually deploying to get there as the Lindy of these apps grow. Id, also prefer to deploy across LSTs to reduce liquidity risk (thinking about a withdrawal pause or UI issue).