Hello Wonderland family,
This proposal is in response to the recent WIP proposal for Bastion Trading to become the Treasury Manager of the Wonderland Fund. After much thought, I decided to put this proposal forward to co-manage the Wonderland treasury with Bastion. I write this proposal being a personal investor in Wonderland and with a view that I only want the protocol to reach its full potential and believe it’s the best path. I am quietly hopeful that with the continued support of the community and with multiple professionals working to enhance shareholder value, we will come back to prove the haters wrong in a major way.
Whilst I understand that Wonderland investors want to see any form of progress and Bastion is the only candidate that has put themselves forward for TM, I would urge that checks and balances need to be put in place that Bastion is not the sole Treasury Manager. Whilst this was the case with Sifu you might argue, he was the protocol’s founder and had a proven on-chain success history with management of his public wallet.
Being a personal investor with a genuine interest in achieving above average long term returns on my Wonderland portfolio like the rest of you, I decided to conduct some basic due diligence on Bastion and its past fund management performance, which is shared below. Please note that I don’t have one feeling or another towards Bastion and only want the community to be properly informed when voting.
• In their original post, Bastion stated that it is currently a fund manager with a history of fund management in the cryptocurrency space. Upon review of their website: https://www.bastiontrade.com/group, it is evident they are domiciled in the Cayman Islands under a SPC (segregated portfolio company) fund structure.
• An SPC structure allows the legal entity (the SPC) to create various “Funds” (known as segregated portfolios or SPs) with the assets and liabilities of each Fund ringfenced for legal purposes.
• It seems Bastion has two active funds; Nexgen Fintech SPC Tiag Digital Labs SP Fund which runs arbitrage strategies and Nexgen Fintech SPC Satoshi Strategies SP Fund which seeks to replicate the performance of Bitcoin but enhance returns through positioning in synthetic longs and lending BTC.
• The fund manager on each Fund is Nexgen Investment Management and not Bastion Trading.
• NexGen (https://www.nexgenfundplatform.com/about-nexgen/) is a turnkey solution whereby anyone can start a regulated fund under someone else’s structure (NextGen), where you operate under their license for a fee. Typically seed stage funds or one’s with less than $20 million in AUM take this path due to its ease and cost efficiency.
• To have a regulated fund in the Caymans, you need a fund administrator, fund auditor and investment manager acting for the Fund that are all licensed and the NexGen SPC allows third parties to rent this structure for a fee (usually that third party is placed on offering documents as an “investment advisor). NexGen are the directors and own management shares at the SPC level, but a third party can agree to run a Fund within their umbrella structure either for a fixed annual fee or percentage of AUM, which is normally shown in the Investment Management Agreement between the parties.
• A review of the Cayman Islands Monetary Authority (CIMA) site shows that Nexgen Fintech SPC is registered with CIMA: Search Here For Entities Which Are Currently Registered With CIMA. SPs do not get registered with CIMA (only SPCs).
• Funds are also required to have a Global Intermediary Identification Number (GIIN) registered for FATCA and CRS reporting. Nextgen does have a GIIN: GIIN Lookup, however the two funds (SPs) named above do not. Usually, a GIIN is a requirement even for funds that don’t accept US investors, but there are some exemptions for this, which may apply here.
• In terms of Bastion’s fund performance and what it has earned its investors since 2018, ROI figures are shown below:
2022: 1.1% (YTD up to end of February).
• Quote from their note to investors: “After a 0.94% return in January, February indeed turned out more challenging, with the fund barely scratching a positive return of 0.18% (these are net of fees and expenses)… DeFi returns also got more challenging.”
As stated, I would like to propose the Treasury be managed by Bastion and myself for the interim 3 month trial period. I believe this is best for the protocol, both from a risk management perspective and having multiple brains managing the Treasury to achieve the best possible yield.
Many of the other proposals I have written in my previous articles are not part of this proposal – this is solely for treasury management. All other aspects mentioned previously can be put in play at a later stage once the Treasury is functioning to its optimal capacity and we have community feedback on those issues. We need to prioritise things around their importance and Treasury growth is paramount right now.
I do not agree with some of the proposals put forward by Bastion in terms of fees. Initially the performance fee was at 10% and was lowered to 5% but on the basis this is a monthly distribution with no mentioned hurdle rate. This cannot be allowed to happen given the situation they are stepping into, yields available in defi and size of the Treasury. Here are my views on the terms the terms I believe are most equitable:
• Quarterly Distributions: I am very much against payments being made for performance fees at the end of each month. This is a quarterly appointment and performance fees MUST be paid in line with that appointment. I have never seen a fund manager being paid out every month, usually its quarterly, bi-annual or annual. Furthermore, in the scenario whereby positive performance was achieved in the first two months and that was wiped away in the third month which then leads to a termination of the TM role following their tenure, they would keep fees earned if those positive months came before any red months.
• Hurdle Rate: This is a no-brainer – performance fees cannot be taken straight off the top, especially given the size of the Treasury. A Treasury of $230 million can be easily stuck in a 40% stablefarm that’s earns the protocol $92 million annually which would equate to performance fees of $4.6m at 5% and $9.2 million at 10%. The hurdle rate I believe should be around the 15-20% APR which equates to 3.75 - 5.00% for the quarter. As a co-manager of the treasury, I would be very confident of getting well above that figure and do not think compensation should be given out for minimal work, given the returns possible in defi.
• Performance Fees: I believe this should be at 7.50%, split equally between co-TMs. Should hurdle rate be 15% APR (3.75% per quarter) and 5.00% per month is earned (15%/quarter) on a $230 million Treasury, the total position at quarter’s end would be $264.5m with a hurdle rate of $238.6m resulting in a net realisable profit of ~$26m, where $1.95m would be paid out in total for performance fees.
With regards to my experience, I also run a fund and have been in the crypto space since 2013 and have a large amount of experience when it comes to defi and portfolio management. The need for a joint TM during this transitionary phase is critical as performance fees are incentive based for a limited period and a manager’s interests may be to take unnecessary risks with “house money” to bolster that fee. Whilst I am not insinuating Bastion would do this, it’s just responsible risk management practice to not provide all the power in one set of hands when the quantity is unknown.
• Professor + Skyhopper = Joint TMs.
• Performance Fees = 7.50%, paid out equally at the end of each quarter.
• 15% APR hurdle rate.