ENS DAO Treasury & USDC/Stablecoin Risk (Due to SVB Bank Run & Circle Involvement)

🗳️ Meta-Governance
43

As someone with “investment” background, may I suggest smth

:bulb: Rushing into buying and selling stuff under emotions, doing it “in this moment” is the the worst thing you can do. Sudden quick emotional decisions = you loose money, like always.

:bulb: This USDC action is a result of a very long chain of events, so if anything, you should’ve been acting long long time ago on this agenda. You should be anticipating market on some realistic assumptions, not reacting to current events (in theory anyway). If you rush into reacting to current events, that means you are already late.

:bulb: Selling ETH to USDC is already a diversification. How much more diversified do you want to get? Moreover this treasury structure meets operational requirements, in other words it meets the annual budget requirements and dare should I say very tightly. Do you really want to diversify even into smaller parts to keep flipping it constantly back and forth and loosing even more money in the process?

:bulb: USDC is as bluechip as it gets, there are not that many alternatives, which are “quality” and which meet operational requirements. You can certainly diversify into DAI, USDT, or my favourite sUSD, but is it really worth it given all other considerations?

:compass: I can understand how and why everyone is so emotional on this. Severe depegging of USDC is probably once in a lifetime event, like seeing a comet :comet:. Please people let’s be rational about this →

Seeing a comet, does not mean we are into century of floods and plague! :sunglasses:

Whatever you want to do reacting to such an event you are already too late. Diversifying into other stables same as with any other big decisions should not happen momentarily, if anything there should be a well argued discussion.

In conclusion: Ma’am, a giant head in the sky is controlling the weather. Did you wanna play checkers? Let’s be rational!

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44

This is not true for those who:

  1. rushed and got out of FTX.
  2. rushed and got out of SVB.

I always was against this.
I stated this was stupid to do,
(esp. right after the FTX/FTT mismanagement).
We are in Crypto…why would we trust everything with USDC or FTX?
We may have may the worst decision, but we will not know until we are the last DAO holding.

USDC has the potential to become FedCoin.
They can freeze the ENS DAO account, upon court order.
ETH is superior. It is a bearer asset; USTC & sUSD is NOT!

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45

with all due respect Gary luck is not a strategy sorry

again, sorry but I can’t comment on that, maybe you weren’t persuasive enough, I don’t know

I really hope not

Everything has a potential to be bad apple

Gary, I know that you are one of ENS’ most passionate advocates, and in my mind there is no doubt that your concern is genuine and its much appreciated. Would you please allow me to add a few facts for extra colour.

:red_circle: SVB is the largest bank to fail since 2008 - bad

:red_circle: a lot of tech and blockchain startups relied on it - bad

:red_circle: majority of creditors had way above insured threshold of 250kUSD in deposits, so they are not getting money back - bad

:yellow_circle: is it going to cause domino effect? - probably not, we’d see the ripples by now - neutral

:green_circle: is it anything like 2008? - no

:green_circle: USDC assets are well diversified - see bellow - good

:yellow_circle: USDC total exposure to SVB is 3.3bnUSD / 43.2bnUSD total = 7% - not bad not good

:yellow_circle: USDC will probably recover way above insured 250kUSD, we don’t know how much so - not bad not good

Is this extraordinary event? - yes, are we on the brink of collapse of stablecoins as we know them? - probably most likely no. Even if 80% of every USDC holder will run to redeem now, it’s not going to crash USDC.

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So I think the bottom line is that, nothing to be liked about this situation, but feels like it’s not a “comet”, not from numbers and logic point of view anyway.

UPDATE1:

“…Circle, as required by law under stored-value money transmission regulation, will stand behind USDC and cover any shortfall using corporate resources, involving external capital if necessary…”

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46

Wow. Just. Wow.

Psychology? Magical thinking makes Circle “good” and GS won’t let it drown. Everything you describe as a positive brings to mind the term “too big to fail”…google it.

48

Why not follow in the footsteps of the best money managers and have a well-diversified basket?

Easy. The ENS does not make it without Ethereum making it. There is no need to diversify unless you are talking about other chains being integrated, and holding the underlying security token in those chains used to protect the network.

The problem is that the DAO is opaque, and pays employees 5x market rate for services that are not needed, and worse, not being rendered since on github the project is basically abandoned in most repositories. Maybe there are private repos where the work is being done, but it’s not made apparently to users.

@Alisha.eth If you would like to put forward a proposal, you’re welcome to draft one and put it to a vote.

Subtle passive aggressive downtalk. Not appreciated. You know the score that the majority of token holders (insiders including you) have spoken strongly against anything involving DAO contraction, dissolution, or transparency.

@ SpikeWatanabe.eth with all due respect Gary luck is not a strategy sorry

Avoiding American based companies is not luck, it’s common sense. USDC is American based.

:red_circle: USDC is synthetic of a centralized s-coin issued by a country that started, and is currently losing WWIII - Badder than Bad

I’d like to add that behind the scenes people see SVB’s failure as a direct attack on the USA. We will see if these rumors have any truth. The goal so far in the mostly cold war has been to attack with abstract ways. We still don’t have a definite answer if the pandemic was an attack or not. These things have plausible deniability if true, but the fact is the world is trying to kill the USD while the US is trying to kill crypto because it sees it as the main threat vector. That’s what makes Monday so interesting. If the US is forced to print its way out, it’s pretty much all over in terms of the cold war.

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Deposits are safe: Federal Reserve Board - Joint Statement by Treasury, Federal Reserve, and FDIC

Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

Similar arrangement for Signature Bank:

We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.

USDC slowly regaining its peg.

+1

Though it wasn’t necessary this time, it seems prudent for the DAO to introduce governance functionality that allows authorized users to take a limited set of defensive actions in an emergency, e.g., like-for-like swaps and transfers to escape compromised infrastructure. BGD Labs proposed something similar to Aave DAO in November. MakerDAO discussed adding an Emergency Response policy last month.

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50

Rather than this, I would prefer to diversify atleast a significant portion of the treasury into a more robust composition of assets. Whether that is many different stablecoins, or also includes other instruments, would need to be worked out. I think looking at what Maker uses to collateralize DAI is a good place to start.

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51

Can IRL land ever be a consideration?

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@garypalmerjr we are in a clear, at least for now

https://twitter.com/jerallaire/status/1635059024050937856?s=61&t=fQWyJKG01ThrY5Mou_cpIg

Circle is getting the money back

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I don’t personally feel that is feasible. At least not for the foreseeable future. I prefer the treasury consist of entirely or almost entirely on-chain assets.

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Q: Is it foolish to look at the market this AM, to see Charles Schwab & other banks absolutely tanking, being halted, other concerns, etc…And then think, “we are in a clear”, when this was just the tip of the issues that the financial & banking sectors (and thereby everyone) are about to face?

The risks for ENS are not over;
We are in the eye of the storm.

We are not in the clear.
I continue to say out loud:
Centralized counter-party [NON-bearer] assets are a risk.
We should be holding ETH; but if we must hold stables due to ENS DAO politics of market,
Then we should “diversify stablecoin assets”, (especially when USDC can freeze accounts).

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55

Don’t be fooled by the popular narrative. Does anyone actually believe that this bank became insolvent? This is clearly a planned event. Just watch SVB CEO give his recorded speech. The language he chooses which was structured around how they are “sorry” and have “heavy hearts” is a tell-tale. In events that are a shocker with sudden onset, people don’t prepare a video like that. If there is a response video, there is most often than not a distinguishable effort to give some light as to “what happened”. But this…was well prepared.

It’s “we are sorry we had to do this. We know it is going to affect a lot of people, but that’s just the way it has to be for something…” ( that me and you (yes, you reading this don’t know )) “…in the economy to work out properly.”

That being a specific industry wide thing only or on a federal level, or both-- that I don’t know.

If I read correctly, the $3.XX billion dollars was seemingly missing for the banks liquidity (referencing just circles cash). But Federal bails out. That money is somewhere.

I believe there is a a bigger move. Maybe taking back capital from startups that are living the high-life before success. Work hard, play hard. If the industry isn’t working hard enough putting out innovative products then you gotta pull the plug on the whole thing as a wake up call to keep up with the rest of the world. Or simply taking the money to back to fund supplies to wake up this cold war and really start spinning up the economy and industry for ammunition, weapons and defense supplies before it’s too late.

Either way, It was more than a wake up call. I believe it was a huge WARNING to exit stablecoin positions before the bomb really drops. If I’m right, then that would without a doubt mean that VIPs within the cryptocurrency industry from banks to protocols thus care about those who use these alternative financial means. They may have not said it outright because that would have caused a completely scare meltdown frenzy all at once.

Restructuring Capital Market Industry Funding Phase 1

-show how much the market will be afftected from this X amount of dollars
-recover the deficit of USDC and restabilize it’s peg as a warning
-give ample time for major (crypto) markets and protocols to exit their positions*
-then the real aftershock bankrun will happen
-havn’t got out yet? we gave you plenty of warning

Get out of the stables ASAP. Not safe right now.

Why tip-toe on a risk when the signs are clear and obvious, warnings are in place. Exit the positions and preserve in a different asset. Why hold an asset to preserve 1USD to 1USD when we can’t guarantee it’s stability to preserve the 1 USD. Not only that, but 1 USD is capped at 1 USD. It will never be worth more that 1 USD. Ethereum on the other hand has unlimited upside.
Do we not have faith that Ethereum itself won’t rise in value? There is no reason to not.

56

It’s a great idea though it comes with a host of ancillary issues such as maintenance / upkeep, liability related to accidents or code compliance issues (even just for land without a structure) - without proper IRL supervision there is a risk of serious exposure including losing the land / investment.

Purchasing an island would be a viable option if exploring this avenue…

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57

Yeh they are valid and real potentials issues that would be involved.
However, perhaps we can source advice and guidance from some established professionals within the sector who could put together a proposal or something.

If I’m not mistaken, ChainLink are able to take real world data/assets and convert them to blockchain verified data.

We could even utilise subdomains as land ownership shares and permissions. I can see the whole thing being structured on ENS and using the text records creatively.

In a perfect world I envisage a McDonalds type scenario where by we (ENS Treasury / Holders) buy the land upon which Would secure a long lease with a well established business or even one day an actual IRL ENS Labs / HQ node that pays rent back into the eco system.

Also, I would encourage exploring resort / leisure and tourism infrastructure as we move into this post pandemic world.

All of this may of course look and sound like a far fetched fantasy, however it is a very real option with the amount of money sitting there.

Or what about building a web3 specialised college campus upon it. That way it would still fall under the banner of public good…
:blue_heart:

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This is not related to my post & this topic;
Plz make a new post about this on the Forum.
Plz keep this thread about ENS DAO holding Stablecoins.

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59

You asked questions and opinions…I answered with due diligence not meaning to cause any rhetoric.

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Ok @garypalmerjr I admit that I underestimated the extent of the problem, it probably is systemic in nature, allow me to highlight a couple of points

:bulb: I’m a decentralised Ethereum maxi myself, so I totally understand where you are coming from when you are saying that Eth is a perfect asset in many ways. However in this instance Eth is a very bad asset from financial planning point of view, the volatility of Eth is so high that it is very difficult to be sure that there will be enough money for the coming years.

:bulb: There probably is a systemic problem with US banking system and economy in general attributable to the fact there were so much helicopter money, however in my opinion following 2008 crisis the system is so much more resilient now and very efficient in terms absorbing shocks. Those people in Central Banks (not only in US) will be working very hard to avert spread of contagion.

:bulb: USDC and surrounding systems are indeed affected, but I still maintain that not to such a catastrophic extent so they need to be abandoned completely.

From analytical point of view:

:compass: Crypto markets are so small compared to the rest of the economy that no matter what you do, if you are working with tokens be it Eth or USDC you will be affected.

:compass: When you are suggesting to diversify into Eth there is also a logical problem here. You want to diversify to reduce risk that something bad will happen with the budget, hence use Eth as base asset instead of stable coins. The problem is that it has to be really critical situation to affect USDC catastrophically, in such an event Eth will also be affected, and the chances are the very ability of ENS to function will be jeopardised. For USDC to be dead, dollar pretty much has to be dead, and in such an event even if Eth is alive, not much functions in the world either.

:compass: I think crypto sector and fiat economy must be disentangled. If you want complete stability for the coming years, then you need to be looking at liquid fiat instruments. US fiat economy is many orders of magnitude larger than crypto sector and it will be like this at least for the next three years, you can’t be independent of it. In order to strip away USDC and reduce risk further, then in my view the next step in that direction are T-Bills. Bank deposit is no good because we all know about problems with banks serving crypto community.

:brain: Such an approach does create a lot of problems on its own, like legal structuring and the fact that it goes against decentralised ethos. In many ways USDC is a perfect compromise between Eth and T-Bills (or fiat dollars even). I’m not going to build comparative analysis here between various stable coins, there are not that many options and I think everyone will agree that USDC is the least evil one.

61

Spike, you said:

…but then you said:

So to be clear:
You are a “decentralised Ethereum maxi”, who thinks “USDC is a perfect compromise”,
→ when USDC can freeze any USDC in any account; & prevent redemptions via opaque centralized middlemen (from private boardrooms to legal actions).

Spike, you are telling us to trust the centralized systems,
…because we need to compromise our ethos for convenience!
Now, I do not trust you (or your logic) as a delegate of ENS DAO.
With logic like yours, we should hand over Web3-ENS to ICANN (ie: bad logic).

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to put it in one sentence

if USDC fails completely, that means that US economy is most likely completely dead or close to it, which in turn means the world is in ruins, and even if Eth is alive it doesn’t really do any good, because there is no infrastructure to bake and sell bread to eat, in that paradigm USDC is acceptable compromise for the time being, especially given that as stable coin it meets financial planning requirements

maybe if I phrase it like this, it makes more sense, I don’t know how else to put it

EDIT1:

This may sound a bit extreme, but the context is such that Circle is very deeply integrated into financial ecosystem both fiat and crypto, and for it to be dead there has to be a lot of adjacent mechanisms to be dead around it, like banks, investors not believing in it, people not using it within crypto ecosystem and so on. Making strong assumption that USDC is a bad financial instrument for ENS financial planning is like tearing huge chunk of meat from otherwise more or less healthy body.

63

USDC really isn’t even that big, relatively. For example, Tether has almost double the market cap. Coinbase’s market cap is quite small too.

For perspective, Luna market cap was bigger than USDC is now, and it went to zero in about 2 days.

But I’m getting off topic.

For the record I personally think the treasury should be diversified into a selection of stablecoins, ether, wrapped bitcoin, and perhaps a few others like RAI.

And Gary, technically, any contracts on Ethereum can be frozen, not just USDC. As we saw with Tornado Cash. And that was just a super softball first attempt to impose control from the government.

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