Zero Liquidation Loans: Bankless DAO 🤝 Forth DAO

Bankless DAO – Onboarding 1 Billion People to Crypto :handshake: Forth DAO – Creating a Safer, more Resilient, Financial Ecosystem

Hey Bankless DAO,

September is Suicide Prevention Awareness Month. Earlier this year, several people died by suicide following the LUNA debacle. Many others lost their life savings. The implosion rippled far throughout the ecosystem and spared no one, as the market witnessed cascading liquidations sending the price of ETH all the way down to $888. The greed of the few induced the misfortune of many.

Is this still positive-sum?

Decentralized Finance has transformed many lives, but it is far from perfect. If we are going to successfully build a better world with web3 technology, then we will require a more stable financial system. On our mission to onboard the next billion people, we must create more safety nets for all participants. This natural collaboration of Bankless DAO and Forth DAO is likely to yield positive-sum outcomes.

The Bankless DAO (nation) is awesome, but it is not a revenue generating entity that distributes dividends or rewards to its constituents - yet. I’d like that to change, and we can do so by leveraging the novel ButtonZero financial primitive: Tranche.

Both parties can take advantage of Liquidation Free Loans:

The video above explains how Liquidation Free Loans can facilitate positive outcomes for both lender and borrower. Lenders can earn a 25% yield, while borrowers bear no risk of liquidation and retain the chance to capture upside.

Bankless DAO Treasury owns approximately $2.3M in $BANK. Because the value of ETH is expected to increase programmatically after The Merge…PoW vs. PoS…

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…Bankless DAO can benefit in the following ways or some combination thereof:

  • Convert $800k worth of BANK into USDT  Lend out $800k USDT to earn a yield of 25%  $1M USDT in 6 months
  • Convert $BANK into $ETH and take out a Zero Liquidation Loan to immediately create liquidity for various purposes:
  1. The liquidity can be distributed to each DAO member evenly, or based on $BANK holdings, or some other contribution-oriented metric
  2. The liquidity from the Loan itself can be used to hedge against the Z-Tranches
  3. Other DAO led initiatives
  • OTC trades with Forth DAO to circumvent slippage issues

Beyond these immediate opportunities, it might behoove us to explore the Button-Wrapper.

This smart contract will convert $BANK into an elastic asset and empower us to issue Zero Liquidation Loans collateralized by $BANK.

The codes have been audited. The community is aligned and has been since before 2020. From a system design perspective, there do not appear to be any glaring flaws as Risk is transferred and tranched elegantly. The limiting reagent at this time is Liquidity.

I would love for a fruitful discussion to follow. I will answer questions to the best of my ability.

So first off, LOVE the ideation and attempts at innovation.

Doing something that generates yield in a significant way may be in the future of the DAO.

With that said, this has a few challenges that come up for me, namely:

  • Liquidating that much BANK would obliterate the price. If we were to do something like this it would need to be very strategic.
  • We would need to research and examine this plan and platform at l-e-n-g-t-h.
  • There are a number of similar providers out there, and we would want to align ourselves with platforms that have conservative, audited and long term orientations.
  • I don’t think we would want dividends going to BANK because they aren’t incentive aligned (although maybe veBANK holders…).
  • Additionally as a DAO we would need to agree that we would want dividends to be distributed.

Still digging into this.

2 Likes

Thank you for your input. I agree wholeheartedly with your view, and we should do our thorough due diligence.

  • Liquidating the BANK on open market would certainly obliterate the price. However, I’m unsure how this would play out if the $BANK token were to be button-wrapped and “liquidated” for USDT loan and Z-tranches in the Button Zero app. In this event, we as a DAO would need to do our best to ensure that the the value of $BANK rises in 6 months time to realize a net positive redemption of Z-tranches and the underlying buttonBANK tokens.

  • Plenty more information can be found on the Buttonwood website.

  • I am unaware of any other platforms offering Zero Liquidation loans. Please link so that I can also learn.

  • Right, they should not go to just any $BANK token holder. The distribution should be contingent upon parameters such as: $GIVE token allocations and other proof of work/contribution via Coordinape; length of time holding $BANK (e.g., some folks like me have rarely ever sold $BANK); Decentralized Identity Verifications; contributions to Public Goods; etc…reputations that align with the DAO. veBANK is a solid idea - I hope the proposal leads to a positive outcome.

  • Instead of distributing “dividends,” can we coordinate with Forth DAO to facilitate distribution of AMPL “dividends” to Bankless DAO members? This is in the best interest of both parties. Forth DAO has the chance to educate more people about AMPL and incentivize them to interact with dApps in their ecosystem. Bankless DAO members receive one of the only non-dilutive moneys out there, and receive an asset that they could collateralize to take a zero-liquidation loan on the Button Zero app.

These are some preliminary thoughts.