Optimizing asset management in the GoodReserve contract

Token & Economics
#1

:bulb: This post aims to promote a Community Discussion about selecting the assets and distribution to include in our upcoming Multi-Asset reserve contract.

GoodDollar’s 2022 Roadmap is out there, and the Multi-Asset reserve feature is finally included.

Currently, our GoodReserve contract admits only one asset in its reserve, cDAI, a token that represents the lending or supply DAI balance together with the interest added. cDAI was chosen by GoodDollarV1 protocol designer in order to guarantee low volatility in G$'s price, while projecting a continuous raise in G$s value according to the expected increasing demand through time. As a result, we have seen the following price behavior:

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Why to go Multi-asset?

cDAI has proven itself to be a good reserve token to guarantee low volatility regarding the USD, and still give G$ a better performance than any fiat currency out there (~2x in 18 months). But anyone within the crypto space understand that given a proper positioning in the right token could impulse the Gooddollar economy to growth more impactfully in benefit of all our community. For example, in august 2020 price of ETH was 400USD. If we would have chosen ETH as the reserve asset, at today’s ETH price (2.800 USD ergo, 7x growth).

Now G$ price would be 14x it’s original price rather than just 2x. But we didn´t have the cristal ball back then like to guess such a raise could happen, there was also the implicit risk that ETH could also drop in value, so the G$ token wouldn’t have the performance it guaranteed by having a reserve currency pegged to USD like DAI. Therefore, a need for portfolio diversification is coming.

According to Investopedia:

Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. A diversified portfolio contains a mix of distinct asset types and investment vehicles in an attempt at limiting exposure to any single asset or risk. The rationale behind this technique is that a portfolio constructed of different kinds of assets will, on average, yield higher long-term returns and lower the risk of any individual holding or security.

A well selected portfolio distribution for our Multi-Asset reserve contract will offer, greater long-term growth for G$ value while lowering the risks in losing value or becoming stagnant.

How to select the assets and distribution that goes into the Reserve?

Well, this is the (close to be literal) million dollar question and there’s no one answer to this, although there should be one “final” decision.

We need to discuss and agree what do we optimize for, for example:

  • Price stability.
  • Growth projection.
  • Building Strong partnerships.
  • other (???)

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We are confident that diversifying our reserve will bring more benefits than risks to the value of our protocol. In order to improve our growth chances while keeping us safe from big risks, we make an open call to our community to participate in this blog discussion this in order to start gathering feels about what are the preferred assets to select to include in our reserve, and how would we distribute it. Please note that since our Reserve Contract resides over the Ethereum network, we might be able to include only erc20 tokens.

example:

In an market scenario like the one we are facing today (aka bear market), my personal assumption is that there’s so much growth opportunities in infrastructure tokens (such as ETH, BTC, FUSE, CELO) I’d propose to keep no more than 40% in stablecoins and the rest 60% in trustworthy assets:

  • 30% in ETH
  • 10% in WBTC
  • 10% in FUSE
  • 10% in CELO
  • 20% in cDAI
  • 20% in RSV

My reasons for the first two is that there’s enough market consensus about ETH and BTC being Store-of-Value deflationary assets, with high probabilities in raising in demand in the future years, therefore in value.

FUSE and CELO are there as example of infrastructure tokens over blockchains where G$ is transacted or we are looking for partnerships. DAI is still the safest decentralized stablecoin, and Reserve (RSV) is the diversified stablecurrency of a value aligned project.

Want to see other examples of diversified portfolio projects for inspiration?

Here some examples of many others:

6 Likes
#2

Thanks for taking the time to involve the community in the conversation - truly helpful

I think we should add assets that are nature based (stealing a little bit of the Celo vision here) like Carbon credits and others so the more G$ grows double the impact - Happy to expend about it

I would do
25% fully stable coin - try to have both euro USD and maybe another type of currency there
25% nature based assets which are also pretty stable, but un correlated to crypto
50% volatile crypto assets (Bitcoin and as such)

I think we should have barriers to entry of all assets based on

  1. Market cap - I would say a minimum of half a billion, could be lower but stay with in the hundreds of millions (now I understand it totally kills all nature backed assets out there today…)

  2. Liquidity on Ethereum (because that’s where the reserve is) - a minim of few hundreds of thousands in TVL for rebalancing of the portfolio

  3. Have :unicorn: and :butterfly: as a key asset

I believe that more then everything this would be a game changer in the climates life.
Today the distance between someone without a bank account to have some wealth growth based in crypto assets is insane
Being able to claim everyday a small portion of combination between BTC Carbon Celo Eth and the demand for G$ could be a real life changing

8 Likes
#3

I love the diversification aspect provided it doesn’t affect the stability of GoodDollar.

2 Likes
#4

Yes diversion is good. But please NO proof of work crypto like BTC. It uses/wastes a lot of (clean) energy.
I would strongly prefer value aligned projects like you mention Celo and RSV. Though I must say, I don’t now anything about RSV.

3 Likes
#5

Hi,
I agree with the rest of the participants in this thread that the diversification of the cryto to back the G$ is a good step forward. My first view, always from a regular user not an specialist, goes to two items already pointed by @Tomerba (add assets that are nature based) and @senryu (not PoW).
Almost copying @Tomerba , Ill do
Looking for a strong stability: 50% fully stable coin - try to have both euro USD and maybe another type of currency there
Looking for purpose alignment: 25% nature based assets which are also pretty stable, but un correlated to crypto.
Looking to use the future of the big blockchians development to keep some of the wealth that is going to be created: 25% volatile crypto assets (Bitcoin and as such).
It is the first time I heard about RSV too but it seems interesting.
I would be too pretentious on my part to provide a list of tokens here but it sounds great to me to see Celo and Fuse in this mix.
I am in the reasearch of the Sequestering carbon initiatives and I think we should stude some token from this ReFi ecosystem.

3 Likes
#6

Interesting idea. Maximising reserve value is important. A few questions:

How is interest generated from holding non-stables? Will they be in lending protocols?

To function, G$ needs price stability. How do we achieve that with a volatile reserve?

Will GD fix a yearly growth % in value and manage the minting of G$ accordingly (i.e. G$ minting becomes dis-associated with the daily value of the reserve?) Who would manage this?

What happens if the reserve loses 80% of it’s value.

Will it cause issues with regulation and acceptance moving forward?

G$ as always been positioned as “quasi-stable” - will this change mean G$ is a speculative asset?

3 Likes
#7

it’s actually pretty similar, it’s about choosing a lending (or stalking) protocol that handles such an asset. e.g. if we want to assign part of the budget to ETH, we could instead go with stETH (staked ETH at lido finance earning ~3.9% APR) ir cETH (token representing ETH borrowed in Compound).

My suggestion would be on fist deciding on which assets we want to position our reserve, and then we choose protocols con gain further interests.

G$ does not need pice stability, it does need growth and low-volatility. The goal here is to project a proper diversification of the assets that would project G$ to growth in the less volatile way as possible.

Yearly inflation is set by the current expansion rate which is diminishing the reserve ratio 20% per year. This process agnostic but not dis-associated from the value in the reserve, it’s just the way the protocol works automatically. The expansion rate can be changed as we please, we just need the GoodDAO to agree on it.

also G$ would loses 80% of its value, the correlation is proportional. We need to build a proper diversification that optimizes to avoid this kind of scenarios while also looking for value growth.

as long we don choose SEC banned assets for our reserve, I don´t believe there will be any issue with regulation.

we prefer to position G$ as a “better-than-any-fiat” currency. You’ve seen it so far as a “quasi-stable” just because we’ve been following a very conservative approach due to the experimentation nature of the fist year of such an economic project. If we want our claimers to receive more UBI value we need to de-attach from the “quasi-stable” positioning

2 Likes
#8

Thanks for the reply.

Just understanding this fully, and referencing this graphic: Architecture & Value Flow - GoodDocs

  1. Supporter Staking (SS) remains as DAI/USDC.
  2. Interest earnt from SS goes to Reserve.
  3. Buyer can buy G$ from the Reserve with cDAI (currently) and directly with ETH + other tokens (proposed)

Questions:

  1. I’m assuming staking will remain as current - USDC / DAI?
  2. Does the Reserve generate interest that is used to mint G$, or does it just get used to increase the value of the reserve?
  3. If ETH is held in the reserve, it will be automatically staked (as stETH for example) and generate interest. Will this interest mint G$?
  4. Will it be possible to sell G$ back to the reserve for any token in the Reserve?
  5. If so, and as the Reserve works on a bonding curve, the value of G$ will be different for each token based on their liquidity?
  6. What price feeds/oracles will be used to calculate the global/aggregate value of G$?

Given what could be quite a complex change, would it be beneficial to open Staking to other tokens first (ETH / WBTC staking)?

#9

That’s a good graph! Let me add it here as well :slight_smile:

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this assumption is not really relevant as we can add whatever asset to it! We’d just need to decide what incentives to give to these new pools through GoodDAO governance.

increase the value. The Trust Fund is the one in charge to collect interest that will be used to mint G$ for UBI.

nope, we would have to hold (so decide thorough governance) stETH instead of ETH.

that’s the idea, yes!

the price of G$ will follow the same function:

Let:
P = the price of one 1G$ in Supported Currency;
R = the value in the reserve;
S = total G$ supply coins in circulation.
r = the reserve ratio (value in reserve divided by G$ marketCap)

So
P = R/(r x S)​

G$ price will behave in the same way as usual, the only difference is that instead of calculating the reserve value with a single token, we will be calculating it with a diversified portfolio in such a reserve.

good question!! hope @sirpy can enlight us here about the oracle options we might have.

1 Like
#10

Truly enlightening and helpful to hear the community’s thoughts on this important idea. My general intuition is aligned to @Tomerba @voroperez
50% Stability: Variety of decentralized stable coins linked to USD, EUR: examples are DAI / USDC or native-blockchain stable coins.
20% Mission / Purpose: nature or resource-backed assets, that demonstrate market adoption, utility and are uncorrelated to the volatility of the crypto markets. Ideally good candidates here would be near stable or relatively stable (per the GoodDollar approach) and would introduce minimal volatility.
30% “Blue Chip” Crypto: Top 100 MarketCap cryptos nominated by the community. I too am partial to PoS and mission-aligned tokens here. Accepting “blue chip” DeFi tokens in the reserve will also make it easy for other protocols and their users to support the project in a wider variety of currencies. Examples would be ETH, COMP, AAVE, UNI, LINK, MKR, BNT, LDO, CELO FUSE)

In general I think conceptually the right ratio is that of 70% stability, 30% volatility.

2 Likes
#11

@Fuseprime
I’m not sure an oracle is required, as the global price is mostly for display and not used in any calculations.

1 Like
#12

WBTC ITS NOT BITCOIN!!!
Dangerous to deal with it I wouldn’t take any chances. It’s dangerous to deal with it I wouldn’t take any chances.