Summary
TIP-21 outlines a proposal to expand TreasureDAO’s partnership with Flowdesk SAS (“Flowdesk”) as its ‘market-making-as-a-service’ partner and amend the original contract as set forth in TIP-17 by:
- Supporting an unlimited number of exchanges instead of Sushi and one (1) CEX (previously strictly FTX);
- Enabling new services not previously offered on the previous contract, including: treasury management, brokerage services, and a MAGIC funding program;
- Increasing and adding in greater flexibility for the DAO council to adjust capital at work and collateral dynamically; and
- Revise the contractual commercial terms with the following to capture the above:
- Extend the contract duration from 3-months by an additional 3-months (rolling basis);
- Adjust the monthly retainer fee from $3.5k to $12.5k
The amended market making arrangement will become effective only after the ratification of this proposal and upon the future listing date on Coinbase (as announced by Coinbase Assets’ Twitter account on December 2, 2022 at 12:10pm).
Rationale
Putting aside the recent FTX bankruptcy filings for a moment, since going live with Flowdesk in combination with the FTX listing on October 11 through to November 7, Flowdesk was able to trade ~US$2.1M in volume and $22.5k in positive PnL while remaining delta neutral*. During this time, arbitrage opportunities between FTX and other exchanges were missed due to the agreement with Flowdesk being limited in scope to FTX.
While recent events have shaken the market’s faith and raised questions about the long-term sustainability of certain CEXs, we believe that maintaining strong liquidity, healthy books, and price harmonization is still crucial for the MAGIC token over the long term. While in the short term we will likely see continued volatility and uncertainty, we expect the market to pick up in the long term. As the Arbitrum ecosystem and Treasure’s gaming ecosystem specifically continue to ramp up, we anticipate that we will see greater demand from players, wider market attention, and increased trading volume and liquidity across CEXs and DEXs over time that may lead to future CEX listings. Major CEXs tend to list projects with little to no notice (typically 24 hours ahead of listing), making it challenging for a DAO to move swiftly in order to seek approval for individual listing and deploy the necessary capital for each. We believe this amended proposal grants the DAO the ability to continue pursuing new CEX listings with minimal distraction to existing team operations.
Given the uncertainty of the landscape of CEXs and overall downtick in trading volume, we are approaching market making cautiously and conservatively. We believe there are unseen ripple effects being felt by other exchanges that call into question solvency and, as such, plan to enact this revised market making arrangement only upon the listing of a regulated CEX, such as Coinbase (as announced by Coinbase Assets’ Twitter account on December 2, 2022 at 12:10pm).
In the long term, Flowdesk’s funding program will enable Treasure to undertake future strategies to divest and buyback tokens to fund the DAO treasury (with stablecoins and/or MAGIC). Flowdesk has experience in running funding programs over CEXs and DEXs for notable foundations using in-house algorithmic trading strategies tailored for each client. The availability of this funding program will allow Treasure to de-risk on an ongoing basis and reduce the need for the council to run structured divestment initiatives which can be very time consuming and resource intensive. Flowdesk is a regulated institutional player with strong internal policies and extensive connections to CEXs. Flowdesk executes its trading strategies using the most liquid exchanges to minimize market impacts, with trading activity capped at 1.5-2% of daily MAGIC volume. A future DAO proposal will be put forth for ratification before any of these added services are triggered.
Background For more information about the original market maker selection process, background on Flowdesk, and the initial arrangement, please see TIP-17 Market Making Partnership with Flowdesk to Provide Liquidity for MAGIC.
*The DAO treasury is mostly denominated in MAGIC but includes USDC and ETH used to finance developer operations. The DAO keeps its treasury in various multisig wallets, with no funds held on CEXs. The current public balance of treasury held assets can be seen on this Zapper dashboard. However, because of Treasure’s Flowdesk arrangement regarding FTX, we unfortunately lost 279,201 MAGIC and 167,724 USD on the platform at this time. Altogether, Flowdesk currently holds custody of the following on the DAO’s behalf: MAGIC (592,253.58), ETH (21.0181), USDC (8,052.80). We have been working very closely with Flowdesk to attempt to recover the funds but, like nearly everyone else exposed to FTX, to no avail thus far.
Proposal
The proposal seeks to expand TreasureDAO’s partnership with Flowdesk by amending the original contract and market making arrangement initially set forth in TIP-17:
- Term: 3 month initial contract → renewed on a 3-month rolling contract
- Trading pairs and exchanges: 2 (FTX and Sushi) → unlimited number
- Begin market making for Coinbase and OKX as soon as possible with other high quality exchanges added over time in a conservative and strategic manner
- Monthly retainer fee: $3.5k → $12.5k
- Working capital requirements (notional):
- CEX: $150k in MAGIC and $150k in USD → $500k in MAGIC and $400k in USD
- Sushi: $150k in MAGIC and $150k in ETH - supplement with additional $100k in ETH
- Adding flexibility to allow the council to adjust working capital requirements based on the strategy and market demand
- Profit sharing: No change - Treasure will receive 100% of any potential profits
- Other services: The amendment will enable new services not previously offered, including: treasury management, brokerage services, and a MAGIC funding program. Flowdesk will continue to provide ongoing account management, reporting (daily and monthly reports), and service via Telegram chat.
The amended contract will become effective only after the ratification of this proposal and upon the future listing date on Coinbase (as announced by Coinbase Assets’ Twitter account on December 2, 2022 at 12:10pm)
In the event that Treasure would like to initiate a withdrawal to return funds from Flowdesk’s custody, a request would be initiated using Telegram with validation provided through a form to be processed within 24 hours at the latest.
Polling Period
The polling process begins now and will end on December 6, 2022 at 5:00am UTC. If quorum is reached, a Snapshot vote will be put up shortly thereafter.