SDIP-22: NFTfi Lending/Borrowing Program

glorysk87

SDIP Authors: glory
Project lead: glory
Squad: Treasury, Acquisition
Creative approval: N/A
Time Required: 1 hr per active day
Complexity: Medium

Abstract

We propose authorizing the Acquisition Squad for the following activities on NFTfi:

Ability to borrow against up to 10 Squiggles simultaneously from the DAO treasury at any one time. Only non-significant floor Squiggles will be allowed for this program.
Ability to lend up to 50 ETH in aggregate (exclusively against Squiggles) on NFTfi

This authorization shall be valid for 30 days starting from the date the Snapshot vote passes. The operators of the program (defined below as the signers for the NFTfi Program Wallet) will have discretion over specific loan terms as long as they stay within the aggregate limits set out in this proposal.

Motivation

There are two primary reasons for authorizing this activity. First, this can act as a way for the Acquisition Squad to get some practice with a lending protocol in anticipation of launching an expanded lending program in a future season. Second, NFTfi has already confirmed a token airdrop in “Q1/Q2 2022”. NFTfi has been rumored to have already closed its Series A round of funding and therefore could be ready to execute its airdrop in the coming weeks. Executing this SDIP will allow us to increase our probability of being included in any potential airdrop.

For the airdrop, we conservatively think this could generate $10,000 US worth of $NFTFI tokens for the DAO (see appendix for calculations).

Success Conditions (OKRs)

Participate in the NFTfi airdrop
a. Earn at least $10,000 USDC equiv. in NFTfi tokens during the airdrop
b. Issue at least 10 loans successfully
c. Borrow at least 50 ETH
Gain DAO experience in lending protocols

a. Identify and record risks, issues or limitations with our ability to operate loans at scale
b. Produce & share a report after the trial period, detailing our performance and any key insights

Specification

Two new 2 out of 3 Gnosis vaults may be set up for this activity (NFTfi Lending Wallet and NFT Borrowing Wallet) - proposed signers are NiftyFifty, Gregg, and glory

a. Lending wallet will be funded with ETH from the Genesis wallet
b. Borrowing wallet will receive Squiggles transferred from the DAO treasury
c. If Gnosis doesn’t work properly with NFTfi (it has a history of being buggy with NFT and defi platforms), we propose that this program be operated with new individual wallets managed by one of the signers listed above. In this case, we’d propose the limits set in the “Abstract” be reduced to 5 Squiggles and 25 ETH respectively.

If this program defaults on any loan taken on one of the DAO’s owned Squiggles, the entire program shall be terminated immediately, all authorizations revoked, and all assets (Squiggles and ETH) sent back to the Genesis wallet
To maintain the safety and security of the DAO’s collection, no more than 10 DAO Squiggles may reside in the NFTfi Borrowing Wallet at any one time. This means that if the NFTfi Borrowing Wallet has 10 DAO Squiggles in it, those Squiggles must be sent back to the Genesis wallet before it’s able to receive 10 new Squiggles.
If an NFTfi airdrop does occur, a vote will be held in the “Ongoing Votes” channel in Discord to determine what to do with the tokens (sell, keep, etc)

Launch Details

Project will be launched according to the specifications above, at the timing and discretion of the wallet signers/operators.

Costs

50 ETH (though some or all of this could return back to the treasury depending on the outcome of the lending activity)

Rewards

N/A

Appendix: Quantifying the Second Benefit
It is believed that NFTfi has sold a total of 5% of its equity at a total FDV of $150,000,000 US. According to Dune Analytics, there are 1,054 users of the platform (borrowers + lenders).

ENS Domains’ airdrop is a good illustrative example of how tokens may be allocated. ENS Domains never took outside investment and airdropped 25% of tokens, allocating a minimum amount per user and additional for those who signed up for longer terms.

To arrive at an estimated value for this airdrop, we’re assuming the following:

NFTfi airdrop 20% of its tokens. Of which:
10% of tokens spread evenly among all users
10% of tokens allocated based upon volume loaned/borrowed.
$50MM valuation

Based upon these assumptions that would be an airdrop value $5,000 US for each NFTfi user/wallet, (plus additional tokens based upon volume borrowed/lent).

The below sensitivity analysis rates the value of the airdrop assuming the airdrop assuming the airdrop is done on a per-user basis (rather than on a volume basis).

We believe an estimate of $5,000 per wallet/user is a relatively conservative estimate.

With two active DAO wallets, we think this could yield $10,000 worth of $NFTFI tokens for the DAO.

Sensitivity analysis:
(see brief: https://docs.google.com/document/d/1_9sil1Mutj5kIzYDu14ZOVQkjEHrMC_rw5XIqG3I2YY/edit#)

NiftyFifty

I fully support this proposal. Perfect timing to start SquiggleDAO's NFTLending activities with the additional incentive of a potential NFTfi airdrop.

cheesebiz

I am in full support of the proposal. Just one clarification question: is the sole purpose of the DAO borrowing ETH using Squiggles as collateral to gain experience and exposure for the airdrop?

glorysk87

cheesebiz Primarily, yes. Obviously if we can loan at low LTV's to acquire cheap Squiggles that's a great outcome. But with the small "test & learn" style of the program I don't expect that will be the result. And with the small size of the program, I also don't expect we'll be earning much in terms of interest.

cheesebiz

Okay. Sounds good. Long term it makes a lot of sense for the DAO to act as a lender, but I don’t see value in the DAO borrowing funds. But i think if it’s a short term project to gain some experience and potential exposure to an airdrop it seems worth it.

glorysk87

cheesebiz Agreed - the borrowing in this case is mostly to get some activity on the record for the airdrop. I think if we start up a full fledged program it should be almost exclusively lending to own Squiggles.

quickrider

I support this one. Increasing liquidity to Squiggles is important and lending will provide additional yield to the DAO. I would suggest 100ETH for lending activities. The borrowing part I'm less certain we need to do. We will get the airdrop with just lending. What rate would the DAO be borrowing at - and would the expected airdrop be greater than the interest paid? Given the details of the airdrop are unknown I'm guessing this is a difficult one to answer (unless you know more info than the market). It might be worth marketing the lending side more to increase the volume of lending we can do (and therefore the airdrop potential). I'm not adverse to the borrowing though but am unclear if it makes financial sense.

0xgregory

quickrider Has a good point here. Perhaps the airdrop is less of a priority than actually facilitating the most useful aspects of defi for the squiggle. I think this is a good approach to 'test the waters' and learn how to do this before we increase the lending amounts.

glorysk87

The airdrop is definitely the secondary objective. But borrowing and repaying early seems like a pretty easy way to hopefully get some credit for an airdrop, especially since the likelihood of not having any of our loan offers accepted is likely pretty high. To me it seems like pretty low risk/high reward, but if there are strong feelings against borrowing we can strike it from the proposal.