Updates to the Blend (BLND) basket - Version 2

User @lukeknep has revised his previous proposal and is submitting the following proposal for Staker Governance.

Title: Strengthen STKR with a Better BLND: Perpetually Rebalance the Basket, Replenish the Liquidity, and Fund the STKR Treasury

Proposal Goals

  1. Make BLND more attractive to investors by adding Polkadot, by perpetually rebalancing, and by providing a long-term liquidity outlet
  2. Let the STKR community benefit from growth in BLND by imposing a 2% annual NAV fee that shall go into the STKR treasury

Proposal Actions and Key Benefits

  1. Accrue a 2% annual fee on total NAV, which shall be added to the Staker Treasury

a. Benefit 1: The larger BLND grows, the more the STKR community benefits. The rest of these benefits will focus on increasing investor demand in BLND.

  1. Set a target BLND basket of 25% Polkadot, 25% Cosmos, 20% Tezos, 20% Algorand, and 10% USDC (held in the Verified Exchange)

a. Benefit 2: Appeal to a large new crypto community (Polkadot), increasing investor demand
b. Benefit 3: Increase diversification, which lowers risk and increases investor demand

  1. When the USDC % falls below 5% or above 15% of NAV, trigger a rebalance.

a. Benefit 4: This automatically replenishes the Verified Exchange, thus providing for perpetual liquidity to reward BLND’s community, which increases investor demand
b. Benefit 5: Automatically rebalances the BLND basket, preventing any one cryptocurrency from dominating or fading away based on market cap. This sustains diversification, which increases investor demand

  1. Rename “Whitelist Exchange” to “Verified Exchange,” creating a more inclusive BLND

a. Benefit 6: Help all potential investors and community members feel included

  1. Cease monthly buybacks in favor of the Verified Exchange, which shall provide BLND’s long-term liquidity option

a. Benefit 7: Simplify the functionality of BLND and provide more value to BLND holders. The rewards generated to fund monthly buybacks shall now accumulate in the NAV.

Action 1: Accrue a 2% annual fee on total NAV, which shall be added to the Staker Treasury

Under the terms of the original sale of BLND, 20% of rewards has been held back to fund the Staker Treasury. We propose to replace this variable model with a simpler fixed 2% of NAV. Since BLND is a product of the StakerDAO Community, growth in BLND should benefit STKR. An annual fee on assets under management is a common practice in baskets of tokens. 2% is a reasonable fee for the value that BLND provides to investors.

This fee shall be assessed once per quarter. 0.5% of each asset under management shall be added to the STKR treasury (on March 1, June 1, September 1, and December 1 – so as to be quarterly but avoid holidays and end-of-quarter busyness). Holding the individual coins allows the STKR treasury to hold a diversified basket of tokens.

In prior versions of BLND, a fee on staking rewards was proposed. This shall be ended. There shall be not fee assessed on the staking rewards. The 2% annual fee shall be the only fee.

Action 2: Set a target BLND basket of 25% Polkadot, 25% Cosmos, 20% Tezos, 20% Algorand, and 10% USDC (held in the Verified Exchange)

Polkadot was selected by a recent poll in the Staker Discord channel. Even though the poll was informal, the support for Polkadot was overwhelming. And since Polkadot is a top-10 crypto, this could attract new BLND investors by appealing to a large crypto community. DOT will initially be held via a ledger controlled by the Staker Services operations team, and be delegated to a total of 16 validators operated by Hypersphere, Figment, Staked, and Stateless, who all have verified identities. A future proposal is suggested to decentralize the management of the Basket assets through community controlled multisigs or other decentralized processes.

USDC shall be formally added to the BLND basket as BLND’s on-ramp / off-ramp currency. The USDC shall be held in the Verified Exchange, which allows verified users to purchase BLND with USDC at the NAV, and to sell BLND for USDC at the NAV.

Action 3: When the USDC % falls below 5% or above 15% of NAV, trigger a rebalance.

The core value of BLND is that an investor can buy BLND at a NAV, BLND’s NAV can grow from staking rewards, and then the investor can sell BLND at a higher NAV because of the staking rewards. Today, BLND has an incomplete process for investors to take money out at the NAV: it has the Verified Exchange, but the exchange has run out of funds. BLND also lacks a process to rebalance the basket should changes in market price cause any token to take up too large or too small of a percentage. This action shall provide for both of those processes.

On a monthly basis, StakerDAO will review the current percentage of USDC in the basket. If that percentage is below 5% or above 15% then that will trigger a USDC rebalance. USDC will be adjusted back to a 10% level via swapping other basket assets. The percentages of assets in the basket shall generally float via market weight but overweight assets shall be drawn down to rebalance the USDC component. In the event that the USDC component of the basket falls to 0%, an emergency rebalance shall be triggered using the above framework.

A note on verification and liquidity: for the time being, only verified Coinlist purchasers are allowed to trade on the Verified Exchange. This proposal does not change the dynamics of the Verified Exchange. These users are able to provide liquidity to the BLND market at large by arbitraging any price differences between other markets and the Verified Exchange. Even though only a subset of users will be allowed to take advantage of this arbitrage, the increase in liquidity will benefit the BLND community at large.

Action 4: Rename “Whitelist Exchange” to “Verified Exchange,” creating a more inclusive BLND

From security firms to popular open source Apache projects to large tech companies, organizations are eliminating the terms “whitelist” and “blacklist.” They are being replaced by racially neutral and inclusive terms, like “allow list,” “block list,” “include list,” and “exclude list.” This change is happening across the board,. As one leader put it:

“While many people will rightly claim they never consciously associated such terms with racism, the reality is that words matter, and these words perpetuate the notion of ‘white’ as ‘good’ and ‘black’ as ‘bad,’” Michelle McLean, vice president of product marketing at security firm StackRox, told Dice.

Let’s follow their lead and move away from the term “whitelist.” The users who are allowed to trade on the exchange must be verified (today, they must have been verified on Coinlist), so the term “Verified Exchange” is clear to the nature of the exchange.

This rename will help BLND be inclusive to all, while providing increased clarity to new users.

Action 5: Cease monthly buybacks in favor of the Verified Exchange

BLND’s core proposition is for staking rewards to raise BLND’s NAV over time. Today, Staker sells the tokens earned from staking rewards, converts the funds to USDC, and uses the funds to buy back BLND tokens. This has three drawbacks:

  1. Fees are assessed when selling the tokens for USDC
  2. Operational burden to manage buy back is required
  3. The buyback process is sometimes confusing to BLND users and potential holders

With this proposal, the rewarded tokens accumulate directly to the BLND NAV. This will raise BLND’s NAV without the 3 drawbacks above. BLND users will have ample liquidity from the Verified Exchange, so the monthly buybacks are no longer needed.

In summary, BLND will have…

  • A balanced basket that includes Polkadot
  • A process for perpetual liquidity
  • A process for perpetual rebalancing
  • More inclusive language
  • A direct benefit to STKR holders and the StakerDAO community.

Timing and Funding

These actions shall be implemented as expediently as possible and without any particular ordering. @knep shall receive 1000 STKR for creating and submitting this proposal.