**Vote Type:** Token holder DAO Governor Bravo Proposal **DAO Elected Representative Sponsors:** Sap, Will **Overview:** tBTC has successfully launched on Solana, but with limited usage and in competition with existing efforts to bring native wBTC to Solana. There exists an opportunity now for a first mover advantage to establish tBTC as the new canonical BTC on Solana. To do that, the cold start problem for tBTC TVL and volume on Solana needs to be addressed immediately with new protocol integrations that increase the liquidity & utility of tBTC as collateral. This is a proposal for the Threshold DAO to engage in a partnership with Mango & Dual DAO to deliver products supported by CKS Systems liquidity to bootstrap TVL for tBTC across the Solana DeFi ecosystem. These protocols are better together and a more liquid BTC market on Solana via tBTC is collectively beneficial for T, MNGO, DUAL and even SOL. By making this benefit clear to the respective communities it’s possible to engage a positive feedback loop to grow tBTC. The proposed deal structure is designed with this in mind and includes treasury swaps in the form of on-chain call options to formalize the relationship of our mutual successes. **Milestones:** * Oracle Creation, Funding and Support * Mango Markets/Openbook tBTC listing & market making * Treasury Diversification switches to use tBTC instead of wBTC * Purchase and hold up to $3M of tBTC * tBTC option market & liquidity on Dual Finance * Add tBTC collateral weighting to Mango Markets * Primary liquid BTC market on Solana DEXs **Who Is Involved:** Mango DAO, Dual DAO, CKS Systems, Threshold Token Holder DAO, Threshold Treasury Guild [*Mango Markets*](https://mango.markets/) is the top derivatives DEX on Solana to trade, lend and borrow with a CEX-like orderbook experience. [*Dual Finance*](https://www.dual.finance/) is an options protocol focused on developing an incentive infrastructure that productizes market making. [*CKS Systems*](https://cks.systems/) is a DeFi native market maker born out of collaboration between Mango Markets & Dual Finance to bring back liquidity to Solana. **Summary:** Complete on-chain market making program to increase tBTC TVL, liquidity and volumes on Solana order book DEXs and unlock tBTC collateral on Mango Markets & Dual Finance. Liquidity and operational support are provided by CKS Systems. Per recommendation of DAO representatives and to better demonstrate the process, the treasury diversification has already switched to using tBTC. The result is Mango DAO now holds the majority, [*70% of tBTC*](https://solscan.io/token/6DNSN2BJsaPFdFFc1zP37kkeNe4Usc1Sqkzr9C9vPWcU#holders) TVL on Solana. This proposal is designed to be fully executed on Solana and does not require any OTC lending or custody operations. Following the T transfer to the Threshold Treasury Guild, they will bridge T and mint T options on Solana using the Dual Finance program - this can be done using SPL-Governance, Squads multi-sig or a standard wallet. The following table outlines the timeline of deliverables, expected results, incentives and rewards.  **Incentives in T options are distributed 10% to Mango DAO, 10% to Dual DAO, 80% to CKS Systems.* ***Rewards are issued from Mango & Dual DAO to the Threshold Treasury Guild. If and when TTG wants to exercise these, they can physically exercise on-chain or source a bid from CKS Systems for USDC on ethereum* **Goals:** * Make tBTC the canonical, dominant, trusted form of BTC on Solana, supported by a full suite of on-chain products. * Support a set of oracles to provide easier tBTC integrations * Increase Solana tBTC trading volume on spot CLOB DEXs * Target key potential holders for tBTC TVL, in addition to the Mango DAO treasury * Create value for tBTC collateral across the Solana ecosystem * Develop a liquid option market for tBTC * Spread tBTC awareness through a public dashboard tracking growth **Why these partners?** * Partnering with Mango & Dual will help integrate tBTC quickly to become entrenched in Solana DeFi * Liquidity is expensive & paramount for tBTC success - existing efforts will likely go to mercenary farmers * Provides compelling DeFi use cases which users need to underwrite the risk of using non-native assets * Uniquely experienced team in market making, options, cross-chain liquidity and creating DeFi products * Proven track record bridging new assets and liquidity for Solana tokens - CHAI * Tokenized options are a trustless solution with low overhead and aligned incentives * Collective interest in each project’s growth and success * Explore new DeFi primitives and opportunities only possible on Solana **Tx Details:** Transfer 20M T to the TTG. Subsequently, bridge to Solana & mint the T option tokens

## Vote Type Token holder DAO via Governor Bravo ## DAO-elected Sponsors John Packel, Ashley (@MrsNuBooty) ## Timeline * 3 days for comment / discussion on this proposal * 9 days for Governor Bravo vote (+ 4 days queue & timelock) ## tl;dr * If passed by the DAO, this proposal would see the Threshold protocol mint 470 million Threshold work tokens (T) for future staking rewards * The sum distributed, and therefore withdrawable, will depend on the average staking rate between August 1, 2023 and July 31, 2024 * Every stake associated with a functioning PRE and tBTCv2 node will grow by 15% APY based on the [DAO-approved Stable Yield Mechanism](https://forum.threshold.network/t/tip-003-threshold-network-reward-mechanisms-proposal-i-stable-yield-for-non-institutional-staker-welfare/82) (the target yield is 15% per year) * For the reward split schedule (between the two applications), see [Threshold Improvement Proposal (TIP)-32 ](https://forum.threshold.network/t/tip-032-council-decision-reward-allocation-between-tbtcv2-pre-overall-target-apy-15/393/4) ## Details For more details on the minting methodology and token distribution procedure, please see the two previous Threshold Improvement Proposals regarding minting of tokens for staker rewards: [TIP-030](https://forum.threshold.network/t/tip-030-mint-265m-t-tokens-for-the-council-to-distribute-following-the-stable-yield-model/370) and [TIP-038](https://forum.threshold.network/t/tip-038-mint-250m-t-tokens-for-the-council-to-distribute-following-the-stable-yield-model-oct22-jan23/437). Minting sum calculation: 1. This minting event will seek to cover the period of August 1, 2023 and July 31, 2024. This is equivalent to one year of staking. 2. The [DAO-approved Stable Yield Mechanism](https://forum.threshold.network/t/tip-003-threshold-network-reward-mechanisms-proposal-i-stable-yield-for-non-institutional-staker-welfare/82) has a target stake growth in this time period of 15%. 3. Based on the total T claimed up until now, the liquid circulating supply is 10.515 billion T. There is 3.115 billion T staked, which implies a current staking rate of 29.6%. This means the sum of tokens required to universally increase all stakes by 15% is: (15% * 10.515 billion) * 29.6% = 467.25 million T. 4. Rounding up, this proposal therefore suggests that the Threshold DAO mint 470 million T tokens, which will be directly deposited into the Future Rewards contract ([0xbe3e95Dc12C0aE3FAC264Bf63ef89Ec81139E3DF](https://etherscan.io/address/0xbe3e95Dc12C0aE3FAC264Bf63ef89Ec81139E3DF)). 5. While the total T supply after the minting will be 10.985 billion T, any minted tokens will remain locked in the Future Rewards contract until they are needed for distribution of staking rewards. These calculations are made with the assumption that the staking rate will remain constant. If the staking rate decreases, any excess tokens will remain in the Future Rewards contract. If the staking rate increases, the next proposal for minting a new batch of rewards may happen before July 2024. It's worth noting that initial supply of T was 10 billion and after this minting, which is projected to last through July 2024, the total supply will be 10.985 billion T, which works out to an overall inflation of 3.8% per year - a very reasonable amount given all the network development and community activity that Threshold has inspired.

# Summary I propose a **[buyback-and-make](https://www.placeholder.vc/blog/2020/9/17/stop-burning-tokens-buyback-and-make-instead)** model to link the successes of T and tBTC, as well as an updated tBTC v2 fee program to optimize for growth. * All tBTC fees should be used to buy into an 80/20 T/tBTC pool. * Minting fees should be reduced to 0.1%, maintaining the redemption fee rate of 0.2%. * Minting fees should be rebated in T, according to a volume-weighted schedule similar to those of popular exchanges. * Initial rebate budget of 13M T, which will be made up for in tBTC fees. * For users, the lower fees and rebates incentivize volume. * For the network, these mechanisms allow us to grow protocol-owned liquidity (POL) and accrue further value. # What’s the relationship between tBTC and T? Today, the answer is straightforward, even if it’s not very satisfying. On the T side, T stakers power the decentralized custody required for tBTC. Doing this yields around 15% of their staked principal every year, denominated in T. T holders pay for this service in inflation: thanks to our stable yield staking model, at today’s staking rates, this means [~3.82%](https://forum.threshold.network/t/tip-53-mint-470m-threshold-work-tokens-for-dao-to-distribute-per-the-stable-yield-model/632) inflation to the total T supply every year. On the tBTC side, users are charged a 0.2% fee every time BTC is deposited or redeemed. These fees go to the Threshold DAO, which is governed by T holders. The DAO can decide to do whatever they would like with these fees. With redemptions launching eminently, we need to clarify what tBTC can do for T, and how they can grow together. # When tBTC wins, T should win We’re growing, and as these deposit and redemption fees accrue in tBTC to the Threshold DAO, the question of what to do with the proceeds arises. Should the tBTC earned go to stakers? Or should it be used to buy back and burn T? Both, I believe, are short-sighted. The decision to decouple staking rewards from user fees has been a huge win for tBTC v2. In v1, the security of the system relied on the prices of BTC and ETH. Governance had little ability to stimulate either side of the user / staker market, making growth and security difficult to manage — and ultimately preventing tBTC v1 from growing beyond 2,000 BTC in TVL. In v2, the separation of staking rewards and user fees means the DAO can stimulate both sides of the market independently. If we need more stakers, we can raise yield. If we need more deposits or redemptions, we can lower fees or offer rebates from the treasury. I don’t think we should go back to the old, inflexible model. Instead, I think we should align the success of tBTC with the success of the Threshold Network. ## Buyback and Make I propose that all accrued tBTC fees be periodically single-side deposited into a T/tBTC pool, effectively buying back T. As tBTC fees grow, more and more T is bought back and locked in an DAO-owned LP position. These periodic buybacks will take T off the market, deepen T and tBTC liquidity, and further tie the successes of tBTC and T. The pros and cons of this model, called “buyback and make”, are well covered by [Joel Monegro at Placeholder](https://www.placeholder.vc/blog/2020/9/17/stop-burning-tokens-buyback-and-make-instead). Creating a deep T/tBTC pool doesn’t only create stronger liquidity for the pair… it also becomes another revenue stream for the DAO. The [Curve T/ETH pool](https://curve.fi/#/ethereum/pools/teth/deposit) is projected to earn 46% APR next epoch, while the [Balancer T/WETH](https://app.balancer.fi/#/ethereum/pool/0x8167a1117691f39e05e9131cfa88f0e3a620e96700020000000000000000038c) pool earns 9.7-15.75%. ### Venue & Implementation Details All else being equal, I believe an 80/20 T to tBTC pool on mainnet would best achieve this goal. In an 80/20 pool, each 1-sided tBTC deposit buys 0.8 tBTC worth of T, rather than 0.5 in a traditional 50/50 pool. That said, the details of our current treasury matter, including our accrued voting power in the Curve, Balancer, and other ecosystems, as well as integrations with major aggregators like 0x and 1inch. # Optimizing for growth Fee proceeds are exciting! They mean users genuinely want to use the protocol, and pay for the privilege. We are, however, in a unique position in the history of tBTC. As the redemptions upgrade launches on mainnet, we will have shipped the only decentralized, 2-way BTC bridge on Ethereum [0]. The market today is very different from tBTC v1’s launch in 2020. Most competing projects have died off, either quietly or loudly, in a DINO extinction event [1]. We haven’t — we’re still here, and we haven’t sacrificed our values. Now is our opportunity to flourish. As depositors have [tested the waters](https://dune.com/threshold/tbtc) with tBTC v2, we’ve consistently heard two things. * They want redemptions enabled, ASAP. * They want to deposit directly to other chains. * They want lower deposit fees. Redemptions [are launching eminently](https://twitter.com/mhluongo/status/1679893872288071680), and the cross-chain UX work is happening as we speak… now feels like a great time to address deposit fees. ## Should tBTC include a deposit fee? One way to make depositors happy is to remove deposit fees outright. I’ve not been quiet about my feelings here, but I’ll repeat them for anyone who hasn’t heard my rant on Discord or Telegram. I’m staunchly against 0-fee deposits. The reason is simple: once people get used to paying $0 for something, it’s hard to go back. You see this time and time again in the traditional economy. When a free service or perk is taken away, customers are outraged. The cognitive bias, called [loss aversion](https://thedecisionlab.com/biases/loss-aversion), is a well-known and documented part of human nature. When a company changes a pricing plan for a popular product, this is the effect they’re trying to avoid. Loss aversion can lead to outrage and even boycotts, giving competitors an opportunity to siphon customers. Our DAO isn’t a company, and the tBTC protocol isn’t your typical product. Nevertheless, we want to avoid such issues down the road. For me, that means never setting a user-facing fee switch to 0. Still, we need to be competitive with other solutions in the space like WBTC. And for that reason, I propose we introduce two changes to tBTC’s fee model today. ## Lower the deposit fee First, I propose we lower the deposit fee to 0.1%. I believe the opportunity for becoming the #2 BTC in DeFi is a closing window. We need to seriously grow and get loud to make sure tBTC is the permissionless choice for bridgers, and the rising star to replace WBTC — before the next bull market. In prior discussions, I’ve heard people suggest deposit fees of 0.03-0.07% as more appropriate. They might be right, but we won’t know until we have more data — and the only comparable we have now is [WBTC’s tiered fee structure](https://blog.coinlist.co/improving-our-wrapped-bitcoin-wbtc-and-wrapped-filecoin-efil-fee-schedule/). Starting with a more conservative 0.1% gives us a chance to find the right price point to maximize revenue and overall adoption, while still consistently undercutting WBTC. Note that this proposal leaves the default redemption fee of 0.2% intact. So far, user discussions have suggested that depositors and redeemers are distinct user segments, and that many redeemers are either seeking a particular kind of arbitrage, or just want to make sure the bridge works both ways before they deposit. Once redemptions are live, we’ll have more data for a further discussion. ## Fee rebates Second, I propose we launch a fee rebate program, enabling rebates on deposit and redemption fees. The basic idea is simple. As users pay fees in tBTC, they are eligible to receive a full or partial rebate in T every 30 days. This rebate can show up in the tBTC minting and redemption sections of the dApp, allowing users to better estimate the true cost of using the system. Rebates can be delivered via a published merkleroot and the dApp, and shown as accruing rewards through the month, similar to how T staking works today. Eligible claimants will have 30 days to claim their rebate. A fee rebate mechanism gives the DAO all the levers it needs to optimize tradeoffs between revenue and growth in real time, as well as a tool for various co-marketing initiatives with other projects in the space. In the future, this same mechanism could be used to make deposit or redemption fees net-negative to supplement other POL efforts, or to power on-chain giveaways to depositors. The initial rebate function I propose is simple, incentivizing deposits to grow TVL. |30-day volume (deposits + redemptions)|Deposit fee rebate|Redemption fee rebate| | --- | --- | --- | |Up to 1 BTC|0%|0%| |1 to 10 BTC|10%|0%| |10 to 100 BTC|25%|0%| |100 to 1000 BTC|50%|0%| |1000+ BTC|75%|0%| I propose an initial 13M T budget for the fee rebate program — enough T to cover deposit fees on up to 10k deposited BTC. ### An Analogy Another way to look at the rebate program is as an alternative to the existing bond program, as detailed in [TIP 47](https://forum.threshold.network/t/tip-47-liquidity-bootstrappening-part-2-pcv-governor-bravo/577). Charging fees and offering rebates ensures the DAO can further diversify the treasury and build protocol-owned liquidity (POL). Having separate fee and rebate levers means each can be adjusted up and down relative to market appetite. # The role of the Treasury Guild The Treasury Guild (TG) have shown themselves to be great stewards as well as liquidity specialists. I propose that they take over the implementation of the buyback-and-make program, with explicit goals to * Ensure periodic, automated purchases of T/tBTC with accrued tBTC fees to give other market participants confidence. * Minimize manual multisig interactions, lessening the impact of any censorship. The TG is also well-positioned to recommend tBTC fee changes or alternative rebate function as the market shifts. I propose that they recommend fee and parameters to the DAO on a roughly quarterly basis, as well as publishing fee rebate merkle roots each month. They should also be given the flexibility to change rebates more often as long as they stay within the proposed budget, allowing them to eg incentivize minting as part of launches and co-marketing campaigns. # Voting Putting this proposal together, one piece of feedback I received was that this sounded like two proposals. Fair enough. I decided to propose the two ideas as a package deal, since both are focused on tBTC fee streams into the treasury, and how those fees impact T. If we're concerned that the package deal is divisive, or otherwise a problem for governance, I believe both of these ideas would do fine as separate votes. I'll leave that decision to our governance coordinator. ## Footnotes [0] - since tBTC v1 in its heyday. [1] - Decentralized In Name Only, [coined by our very own MacLane Wilkison](https://twitter.com/MacLaneWilkison/status/1542909969384759297)