Authors:
Ben Simon, Andrew Kang
Summary:
We propose that the Empty Set Treasury sell its ESD into USDC as a temporary, price-stabilizing measure. This sale need not serve as binding precedent. Later on, If it so chooses, the DAO can vote to re-buy ESD at the target price. Alternatively, the DAO can vote to keep some/all of these non-ESD assets as reserves, in line with the proposed fractional reserve system for ESD v2.
Background and Rationale:
Until now, the ESD Treasury has functioned as the primary source of funding for protocol research and development. Recently, however, a few of ESD’s lay leaders have proposed a new vision for the protocol (ESD v2) in which the ESD Treasury will play an active role in price stabilization through a fractional reserves system.
ESD v2 is still being researched and debated. But at the moment, a provisional version of ESD v2’s proposed price-stabilizing mechanism could prove quite beneficial to the health of the ESD network. ESD has been trading well above $1.03 (TWAP of the supply expansion ceiling) for more than three consecutive days. Like many other community members, we are thrilled with ESD’s traction but wary of the negative effects of sustained overheating.
If passed, this proposal would facilitate a market sale of the Treasury’s ESD into USDC by the protocol’s multi-sig signers. It would enable the multi-sig signers to sell all of the 3+ million ESD that the Treasury currently holds, as well as future inflationary rewards while the price remains above the peg (if the Treasury does not sell future rewards, it will hold diversified reserves). As Will Price noted in the Discord, other ESD holders might front-run the treasury, but this would help to achieve the desired effect of the treasury sale in the first place.
It is important to emphasize that this ad hoc measure need not constitute rigid precedent. This is by no means a Trojan Horse attempt to rush through significant changes to the protocol. The debate over the details of ESD v2 will continue, and it is entirely plausible that ESD stakeholders will vote against a new design in which the Treasury plays an active, Central-Bank-esque role in stabilizing the ESD price. As such, in the future, the DAO could always vote to re-purchase ESD with its newly-acquired assets either closer to the target price or during a future contractionary phase. Alternatively, the DAO could choose to keep some or all of the purchased assets in the treasury for the foreseeable future, in line with the fractional reserve system proposed for v2.
Specifics: (edited in accordance with Lewi’s suggestions)
- The multi-sig signers will execute batched sales of 500k ESD to USDC at each epoch
- These sales will continue until either the Treasury supply is exhausted or the price drops below 1.10 USDC
- Once the price of ESD drops below 1.10 USDC, the signers will stop selling and have to create a new TIP to sell more ESD.