Use Treasury Funds to buy Convex ($CVX)
Protocol Liquidity Incentivization
Summary:
Convex Finance is the synergistic flywheel of Curve Finance. It is composed of 3 anonymous developers, at least several of which are closely aligned with CRV.
CVX is the native token of Convex Finance, a yield aggregating & boosting service protocol which allowed for treasury diversification, payment of yield in non-native tokens and liquidity incentivization.
Only locked CVX can vote for a gauge pool and carries a ratio of voting rights commiserate with the amount of CRV locked into the convex platform. Prior to an unlock of all 37m previously locked CVX, 1 CVX was equivalent to the voting power of 5.66 veCRV.
Reference: https://dune.xyz/Marcov/Convex-Finance
Convex Finance controls >50% of the locked veCRV for a majority vote in Curve Finance governance by virtue of perpetually locking 187m million veCRV as cvxCRV into its platform. Because of this, 1 CVX controls 5.66 veCRV at present. TVL on CVX is 14.3Billion as of today, 3/4/21. Recently, CVX has announced its intention to expand its boosting service off chain with both CVX and CRV rewards able to incentivize off chain pools via the gauge vote.
Notably, an exact date for this implementation has not been set.
Participation in gauge voting supports the belief that CRV is the backbone of defi and likely to continue to outperform other, similar protocols.
By virtue of it’s flywheel, Convex finance is making a > 1million per day in protocol fees since its inception. Vote locked CVX is eligible for income from the Curve.Fi platform, from the convex platform and (soon) from frax finance revenue (a second flywheel partner). This would provide the treasury with a source of income from its investment as well as a guaranteed biweekly vote for a SILO:ETH or SILO:FRAX related gauge (which will need to be requested).
Return on Investment:
Using the pre-unlock rate of 37m cvx locked, ROI on CVX with all incentives (protocol revenue + bribes) was 56% APR.
Reference: https://llama.airforce/#/convex/flyer
At present, due to the large number of unlocks, current ROI is 71% for vlCVX…but this number is likely to normalize closer to the prior value of 56% as more convex token holders re-lock their CVX back into the new smart contract.
Notably, that APR is mostly generated as a result of bribe revenue. If Silo chose to incentivize their own LP, bribes would not be garnered and the APY would be lower because revenue would solely accrue from protocol earnings (5+1% of convex protocol revenue).
Convex Finance gauge voting power is derived from the power of its perma-locked veCRV. Every CVX that is locked gets a proportional amount of voting power commiserate to the amount of CRV locked in the platform.
At present, this is equal to 1CVX controlling the voting power of 5.66 veCRV. This would translate to approximately an 8% vote weight if $5m CVX were bought….which would point CRV/CVX emissions to a SILO LP for incentivization of liquidity without native protocol emissions. Notably, gauge weight will change if more CVX is locked than these estimates were built upon (the assumption CVX locks will re-reach 37m vlCVX at pre-unlock levels).
Proposal:
I propose that the SILO treasury allocate $5m in funds to CVX purchase and vote lock these tokens for guaranteed protocol yield in nonnative tokens and for boosting services to a SILO v2 LP which would incentivize liquidity without emissions of our native token.
At an aggregate price of $16, the purchase of $5m CVX would yield 319.3k CVX if market bought. This would result in 7% slippage.
If the $5m was DCA’ed in at $1M buys, slippage is reduced to 2.86%
As such, CVX liquidity is highest on the Curve.Fi platform. Purchase of $5m via DCA on Curve.Fi would give SILO the smallest slippage and most accurate price per CVX. Notably, all major aggregators except paraswap route thru the CVX:ETH pool. Paraswap routes thru the sushi CVX LP pool on Sushi with significantly lower liquidity and higher prices per CVX than Curve.Fi.