Tornado Cash Treasury Diversification

Tornado Cash Treasury Diversification

Hello everyone,

For quite some time, I have seen suggestions about diversification of the Tornado Cash Treasury on Discord.
Therefore, I make a proposal on the forum.

It is possible to diversify our community treasury. I propose that this diversification be useful by providing liquidity on the ETH/TORN pair.

This post contains a vote that will allow us to consider an amount of TORN offered for sale.

Afterwards, we will have to make a governance proposal in order to have an official decision from the community.

Quite simply, in order to diversify the Tornado Cash Treasury, the DAO will need to provide liquidity for the ETH/TORN pair. In order to do this, TORN will need to be sold for ETH for the DAO to become a liquidity provider.

Uniswap is currently the decentralized marketplace with the most volume for TORN, hence this choice.

First, we have to choose between Uniswap v2, Uniswap v3 or maybe hire a Binance pro market maker.

first choice
  • Uniswap v2
  • Uniswap v3
  • Binance pro market maker
  • None of the above

0 voters

Here are the potential TORN amounts we could use to provide liquidity. If you have other ideas, please feel free to discuss them here.

Amount of torn sold for liquidity providing & diversification
  • 100k TORN
  • 200k TORN
  • 300k TORN
  • 400k TORN
  • None of the above

0 voters

Please give us your opinions so we can brainstorm around this topic, whether it is for the amount of TORN to sell, or even for another method of diversification,…

Thank you all. I wish you a happy holiday season. Take care of your family and friends!

4 Likes

Diversification is a great topic and I’m glad you’ve ignited such conversation, at least relatively on a familiar and small scale. The discussions of V3, being an equitable bearing of liquidity provisioning are far and few between due to the competitive nature of concentrated liquidity.

In a paper cited “Strategic Liquidity Provision in Uniswap v3”, an analysis is undertaken in auditing certain liquidity strategies based on risk. The more risk willing actors, obviously pledging liquidity to more concentrated ranges (proportionally) and the less risk-averse actors distributing liquidity to broader ranges (uniformly). It was found that proportionally based strategies reap the most utility but of course, requires rebalancing based on the probability of the current price swinging in either direction. This strategy dismisses the instances of volatility and if not upkept, will be highly unprofitable and out of bounds of potential fees.

image

Figure 9: Expected utility of the optimal, the best proportional, and the uniform allocation for different risk preferences (values of 𝑎). For each level of 𝑎, utility is normalized
by the optimal expected utility for that 𝑎. At lower levels
of risk aversion (e.g., 𝑎 = 0, 0.1, 1), the proportional strategy
strongly outperforms the uniform allocation. At higher levels of risk aversion (e.g., 𝑎 = 10, 15) the uniform strategy is
optimal.

This brings us to the uniform strategy, the strategy prevalent in Uniswap V2. It is well more suited to provisioners who do not want to encumber risk and asks the question of - why even deploy such strategy to V3 atall if you’re competing against automated keepers. In my opinion, I think V2 is the more familiar, less risky, and balanced landscape to launch a protocol-owned liquidity strategy.

1 Like

On the topic of allocation amounts, I personally think allocating at least 1% and at most 5%, of the treasury’s resources would be a viable economic strategy to deploy. This could be executed incrementally which may not or may not reap positive profit relative to deploying all at once, but could maximise potential future liquidity campaign resources without affecting current deployments or strategies. Hence why I am more leaning towards the former incremental strategy.

2 Likes

I would also support an incremental strategy to reduce price slippage.

1 Like

a few random ideas/comments

selling $TORN (in some way)

  • TWAP sells on DEX might be the easiest way while avoiding any significant slippage. this might have to happen over quite some time since 12m$ is relativity high compared to daily trade vol and liquidity. got some concern over market sentiment tho. but I would be negative sentiment at best, big dip at worse. if the market decided to dump torn the final eth that the treasury receive will be a lot lower than expected.

  • auction off $TORN. this might be hard to do given that $TORN is liquid on the open market. will probably have to auction off at a discount. this might result in an instant dump unless there’s some lock-up. so maybe a few batches of auctions + some vesting.

These 2 options are kinda similar but with their own trade-off. TWAP is kinda easy with an ok expected result. while the auction is a more complex and risky one but if executed well it’s might be better.

selling $TORN option.

this might be a fun idea to explore. this will automatically become a covered call strategy since we already have $TORN. If we set the strike price at a point where we are happy about it. there are 2 cases either

  • $TORN price is below the strike price and the buyer will not exercise -> we get some premium from the selling option. still a bit better than not selling this at all. we still have the TORN and can repeat this again.

  • $TORN price is above the strike. buyer exercises the option. we get to sell at the price we ok with + premium. this is more than fair IMHO.

on providing liquidity (with ETH from sell, option sell)

I would like to point out that providing liquidity might have some downside. if the goal of diversifying TORN’s treasury is to become less volatile and less correlated with $TORN itself. providing LP on DEX mean this portion will take IL based on price movement. protocol own liquidity is great but this will nether be too much more stable nor less correlated. so depending on what we want.

Invest! (with ETH from sell, option sell)

some low risks investments might be good. maybe a diversified set of tokens. maybe IB asset. something that less correlated with $TORN. if we want to be more stable and less correlated. this might be better than providing liquidity. (but if we want POL then POL)

Token Swap

deal with other relevant protocols to do a token swap. in a treasury <> treasury manner. this depends on finding a good protocol to deal with.
pros -> get alliance, more diverse, minimal price impact.
cons -> not getting ETH/stable, quite hard to find protocol with synergy with torn, complex deal especially as a DAO to DAO lol

wait and see

look like a few protocols try to allocate their treasury better. given that we don’t have any urgency. maybe we should just wait, see, and learn from others protocols (probably mistakes)

1 Like