Treasury Co-Management Proposal: Professor & SkyHopper

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.

Bastion Trading

• 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.

Performance History
• In terms of Bastion’s fund performance and what it has earned its investors since 2018, ROI figures are shown below:

2018: 3.70%
2019: 6.40%
2020: 11.50%
2021: 49.2%
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.”

Treasury Co-Management

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.

Management Terms

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.

TLDR:
• Professor + Skyhopper = Joint TMs.
• Performance Fees = 7.50%, paid out equally at the end of each quarter.
• 15% APR hurdle rate.

22 Likes

Professor would be a huge addition as co-TM, I am highly in favor of this. Very insightful post as usual and agree on everything you said here having checks and balances and the minimum hurdle.

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The governance process is so slow, I wish you’d proposed this earlier. Had my reservations about Skyhopper but he was the only dude that wanted the job and treasury is doing nothing. I am definitely for this proposal and hope common sense prevails that they just do a snapshot vote with three choices (i) Sky as sole TM (ii) Sky+Prof as joint TMs or (iii) No to both previous options

6 Likes

I mean….

Double TM

15% APR hurdle rate

For just 2,5% more

This is an obvious yes!

But I think that this has to be discuss with SkyHopper first. When this is done, both of you can submit the proposal to the community.

In the meantime it’s more important to start to invest the treasury. We can go with the skyhopper proposal for this 3 month and then discuss a new Treasury management

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1% return this year is embarrassing, you could’ve stuck it into stables and earned more, no wonder he doesn’t want any minimum benchmarks…

that chart is for a separate arbitrage fund it looks like

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it’s just in 2 months. The same months whose saw bitcoin doing 47k to 37k

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IMO, DAO (& I believe Dani) won’t accept anon as TM. So, you may first reveal yourself.

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@The_Professor what’s your Linkedin / Twitter / other social media / website?

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Great insights from the Professor like always, but you have said you wanted to stay anonymous… Are you planning doxxing yourself (at least to Dani) ? Cause even if you are writing great articles and seems very knowledgeable, I can’t see the DAO voting for you otherwise… We know you are smart but we still need proof of your experience and TM skills, without speaking of the impossibility of having an anonymous TM after what happened before ! (Talking about liability not past mistakes ofc, just need to know who is responsible in case of wrong doing )

Like others I would also have liked you manifested earlier as gouvernance process is very slow and we need to put this treasury at work asap

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FINALLY! Thank you for providing us with an alternative to Skyhopper’s proposal. Sorely needed.

I agree with all of your points regarding the performance fee and risk management.

Two questions:
1.) Bastion’s results as you’ve put them seem unimpressive. Why do you propose a joint TM structure instead of proposing yourself as the only TM?
2.) What do you envision as a setup for you and skyhopper working together? I.e. who has the last word on disagreements? Do you have daily meetings? Decide everything together? Each gets 50% of treasury? How will this work in detail?

2 Likes

I am happy to see you back, professor.
I was also not happy about bastion being the only proposal.
Happy to see an option.
At this stage, I don’t mind to wait more, with this slow process, instead rushing to it.
I was already planning to vote no to their proposal.
Let’s see what the community will decide :pray:

And thank you always for your detailed proposals.

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While I think it’s good to have two TMs to manage one of the largest defi funds, this proposal is too late for this round of voting and is more suitable to be revisited when Skyhopper’s term has ended (assuming he is voted in) at the end of 3 months. This period of time is for us the community to get to know you and perform our own due diligence to assess if you are suitable for the job. I would be comfortable exploring this further if you reveal your identity and job history/experience, similar to what Skyhopper has done. If you wish to doxx yourself only to the core team, then I think a treasury advisor would be a more suitable role. Optics and transparency are important for obvious reasons.

To put more context over the Jan/Feb 2022 performance you highlighted through that their investor note, CRYPTO20 (an index fund of the largest 20 cryptocurrencies by market cap, comparable to the S&P 500 for equities) performed -26.5% over that period. In reality his fund generated an alpha of +27.7% over those two months.

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This is an interesting post to say the least. You’ve put forward some thoughtful due diligence about Bastion, however, you’ve taken very little time to outline why you’re an ideal candidate to co-manage a treasury.

I have a few questions and observations for you that will also help Wonderland make the most informed decision on this subject:

This is great to highlight. Can you share your own P&L over the same time period with links to your wallets for the community to review (as well as any evidence to prove they belong to you, obviously)?

Having exactly 2 decision makers can be a recipe for gridlock assuming you’re not aligned on a decision or proposal. How do you envision this working in practice?

No argument here - I would love for @TheSkyHopper to view this part and provide his insight on quarterly vs monthly. I can envision that this may have been an oversight following the transition from the initial fee structure of a monthly payout of 100k/month to the 5% of all profits. I am curious about the significance of quarterly vs monthly for you in this case - what issues would you predict could be avoided if we were to roll this quarterly instead of monthly?

The example you provided is true of any timeframe, is the core of your argument here based on the 3-month tenure proposal?

I would go in a different direction here, personally, by tying the hurdle rate to the value of wMemo & revenue generated to token holders. Given that we have no mechanism to redeem our share of the treasury at fair value (backing price based on the assets in treasury), all we can do is sell the wMemo at market price. The only benefits I’m seeing today to holders are the price increases of wMemo and revenue sharing.

Imagine a scenario where our treasury grows to 1B, but the price of wMemo stays at around 30k? I would be uneasy to say the least that we would be paying over $52 million in that scenario in performance fees unless the frogs are equally benefitting from the total value of the treasury.

So for this part, I would start the hurdle at our current true backing price (I heard anywhere between 40-50k per wMemo). Then add the APR % on top of that number to determine what good performance looks like. Which, could vary a bit on how we get the numbers on a quarterly (or monthly basis).

For example:

  • Day 1 of Quarter, wMemo is trading at 50k USD and the treasury is worth 250M.
  • Last day of Quarter, wMemo is trading at 75k USD and the treasury is worth 400M.

Assuming a 15% hurdle on top of that 50k means that the profit for the TM starts after 57.5k USD.

  • When wMemo is trading at 57.5k USD, let’s assume that a snapshot is taken and treasury was worth 300M.
  • At the end of the quarter, this would mean 100M is in play for TM profitability, which at 7.5% would be 7.5M.
  • Next quarter starts, and the hurdle begins at 75k USD + 15% - so they need to get wMemo over 86.25k in order to profit.

This may not be sustainable in a vacuum which is why I also would consider the revenue share element to this - but that’s a much deeper thought exercise

You could just as easily have another situation where wMemo price increases and treasury remains relatively flat - In this quarter, the situation will be better for Holders than TM, but assuming our TM also holds wMemo they still come out with a win.

Alternatively, the opposite could be true, where the treasury grows 75% in a quarter, but for whatever reason wMemo price stays under the the 15% APR. While we would thank the TM for their work on the treasury, this changed nothing for the holders.

This incentivizes the TM to find creative ways (buybacks) to ensure that wMemo is trading at a value that benefits those holding the tokens. It also works to limit abuse from a TM artificially pumping the price above backing to max out their % as they would be using the assets that would count towards their profits for this endeavor. if they want to pump it with their own funds outside of those in the treasury, while it’s unethical, we technically still all benefit during that window

@TheSkyHopper - I’d be interested in getting your insight on this part as well :).

You’ve done some decent due diligence, and raised important concerns, but not really sold us on why you’re the right person for the job. Like in any professional setting, it’s easy to criticize policy and find fault, but I think we need to be a little more solutions oriented to make the case that you deserve the 975k from the scenario you described above. SkyHopper lists out a lot of things he will do with the treasury - what would you recommend we do with the treasury?

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I love the way the professor thinks. Assuming P is doxxed and provides P bonafides I propose with a treasury this size, is there any logic to having these two entities manage an independent portion of the fund to help us evaluate the better performer? At some point there may be a need for a “Head” TM sharing guidance and giving direction where necessary. This division of responsible oversight might help us understand what is being accomplished by whom.

These 3 choices please:
(i) Sky as sole TM (ii) Sky+Prof as joint TMs or (iii) No to both previous options

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This is huge. It’ll bring balance to the fund and put another set of eyes on what the treasury is doing. He’ll make sure what is done helps Wonderland. I love this idea.

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If we actually care about this we need to make sure it’s discussed in the Discord!

I’m not dealing with undoxxed TM anymore.

If you want to be part of this, you have to tell us who you are what credentials you have.

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Edits to original post:

Management Strategy

I will comment on each of the items listed in Skyhopper’s “Low Level Details” of his proposal:

• Restart Buybacks: I would also restart buybacks as it does create value for the protocol. I anticipate that this will only need to be done for a short period of time and the current market value vs backing should be taken advantage of.

• Re-establish Directional Exposure: My current outlook on the market is short term bearish and I would suggest we deploy the majority of funds into stable farms and other low risk strategies to begin with and wait for a market drop before taking further directional plays. I would take this directional play once the market drops a little more and would be wary of taking any metaverse token exposure for now as a pure long.

• Optimising Yield Farms: Yields have dropped across the board since the beginning of the year in stable assets, however I believe they’ll be huge opportunities going forward for short windows that can be taken advantage of with a plugged in TM. Recent opportunities the DAO has missed for large short term stable yields include Platypus, veDao, Vector, Stargate, Solidly, Yeti to name a few. There will be many reputable forks of these protocols coming out in the future that can provide a tail wind to boosting the Treasury. The key is to be in early and aware of these opportunities when they come around. Here are my current picks for safe yield farms available:

• Aave V3 Avalanche: Currently 70% on WETH, 19% on WBTC and close to 80% on stablecoins.
• Yeti Finance: Staking YUSDCRV-f for 63% APR
• WETH/USDT or USDC LPs on Uniswap for 40-50%. Frax pairs might also be of interest (FXS-FRAX) as well as others.
• Rebalancing spell portfolio to change s portal of sSpell to mSpell paying 30% APR in MIM.
• Beefy autocompounding aTriCrypto vault: Basket of 1/3 wBTC, 1/3 wETH, and 1/3 USDC,USDT,DAI. Stable within the world of yield farming due to consistent yields with blue chip assets, high TVL and highly vetted platform, etc. Add an autocompounder like Beefy. Current yields have come back a bit to 13% but worth keeping an eye on.
• Anchor (aUST): 18-20%. Think about adding a delta neutral Mirror strategy for increased yields. Can also use Aperture Finance to automate the delta neutral process for around 30-35% APR, although it comes with some small risks as it’s a new platform but positive side is that founder’s are doxed.
• GMX: Perp exchange where you contribute liquidity and act as the “house” for perp traders. GLP is an index token with a basket of assets (BTC, Eth, USDC, USDT, Avax etc) where you earn 70% of the platform fees and GMX is a governance and utility token where you can get a multiplier on your GLP and earn 30% of the platform fees. Price to sales ratio of GMX is also undervalued compared to other competitors (Perpetual Exchange and dydx – see tokenterminal.com gmx metrics). Currently on Arbitrum GMX APR is 27.20% (10.42% paid in Eth and 11.26% in escrowed GMX) with GLP at 52.14% APR where 31.91% paid in WETH and 20.23% in escrowed GMX.

Excluding wMemo, BSGG and relevant LPs for each the largest assets in the DAO wallet are MIM ($115M), ETH ($27M), WBTC ($3.8M), Sushi ($3.5M) and FTM ($2.8m). I would deploy MIM, ETH and WBTC into a spread of the above protocols to diversify risk and liquidate the FTM and Sushi positions. If we want more stable exposure against our directional assets such as ETH, we can take an interest free loan on Liquity and deploy them. If we want continued FTM exposure we can farm FTM-USDC on Liquid Driver @ 36% APR or pair with our ICE position for 88%, although I would prefer holding our ICE position naked without an LP (or even increasing) as the price is at an all time low and can jump significantly with any new product launch. Regarding the Convex (MIM+3CRV) position, its currently earning 10.68% and we have $40m exposure. We also have significant exposure to locked CVX, so I would suggest we reallocate a portion of this position.

Regarding more medium-higher risk stable plays, we might also look to allocate some stables into AMMs on the Astar Network, which is a new EVM chain on Polkadot. Current AMMs include Arthswap, Starlay and Astar Exchange, all with very high returns on stables. Given the above protocols are fairly new there are still risks of being exploited but might be worth taking some small exposure. AMMs for new chains have historically performed well if you get in early enough. Other interesting projects coming in the future on Astar include: Starbank (Balancer fork), Avault (Yield Aggregator) and MuuFi (Solidex fork).

I suggest the above low risk strategies to begin with as I am short term bearish on the market. Once there’s been a good enough dip in the market, I would start allocating some small exposure to gamefi/metaverse and other defi tokens.

The Bigger Picture.

Lets be honest, none of us got into Wonderland to have the Treasury farm at a conservative APR – this is just a temporary yield generating focus that allows us to build our treasury pool to invest in projects that could 10x later down the line. We all got into Wonderland because collectively we could become our own VC or PE fund and make a multiple on our investment like many of the other VCs. Whilst I believe that investing in good teams and early-stage projects should be part of our portfolio allocation, we should also be looking at dedicating a portion of our Treasury to becoming venture builders ourselves. As an example, we could allocate a portion of the Treasury to pay developers to create the coolest and innovative protocols in Defi which would all be revenue generators for the protocol. Think about the biggest pain points in defi and consider how to automate them for users, taking a performance fee along the way. Yearn did this in the early days and so many others have come and gone making a solid buck along the way. There is so much potential to be game changers and build our own protocols that could generate revenue for years to come.

Moving Forward

I recognise that the Snapshot is now live and this proposal has come somewhat late and I do not want to hamper any progress we’ve made so I would urge you all to vote Yes to bringing Sky on as TM. As this proposal moves through governance we can then simply choose whether to add me as a co-TM if the community wanted it. Whilst having co-TMs does provide checks and balances I spoke about above and have two brains optimising yield instead of one, it also brings with it certain issues if there is a difference of opinion between us in terms of direction of what to farm. Whilst I don’t anticipate this being a big issue, perhaps Sifu or Dani can act as an arbitror.

We will also need to determine clear parameters as to how the performance fee is calculated given unrealised gains positions. I suggest the simplest way is segregate all of the wMemo, BSGG and respective LP positions out of any performance fees and value the Fund on the day Sky takes over with the remaining assets. That provides a benchmark and starting point for performance moving forward. I think we will also need community feedback on hurdle rates and timing of distributions for performance fees as this has been a hotly debated topic.

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