Treasury Diversification

Why do we want to diversify our treasury?

  • We currently hold almost 92% of our Treasury in PNG
  • Holding such a major percentage of our Treasury in one token puts us at risk of volatility in the markets
  • If a crypto winter occurs, we want to be able to continue to be able to build and survive through the winter

If you look at Pangolin’s total treasury, you can see it summarized below:

How do we plan to diversify our treasury?

Pangolin’s core business is not to be an investment firm but rather to build great decentralized applications. As such, we believe the best way forward is to partner with a highly respected firm in order to manage our treasury portfolio.

For this purpose, we propose to partner with Muhabbit Capital https://muhabbit.capital/ Muhabbit Capital is one of the most respected VC’s in the Avalanche ecosystem and are a key pillar of the ecosystem. This proposal is to transfer 2 million PNG to Muhabbit in order for them to invest on our behalf.

This will then reduce our Treasury to approximately 82% in Pangolin as seen by the below:

Muhabbit Capital will provide bi-weekly updates and their performance will be based upon the USD value change of the Treasury.

The initial contract will be for a three month trial period. Upon successful completion of the trial period, we may exersize an option to extend it for an additional 9 months, with the potential for further treasury diversification to occur.

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This is an excellent and logical idea.

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This is an interesting proposal, one that I don’t agree with though.

Potential issues with this proposal:
1-) Firstly, this proposal is a problem in and of itself. Pangolin, a decentralized exchange, is going to entrust some of its treasury to a centralized organization through a voting mechanism. This is an example of a relationship based on trust and perfect scenario for sybil attack. (e.g. Uniswap “backed” DeFi Education Fund.)

2-) Muhabbit Capital should be 100% transparent regarding their investments if they are to invest on Pangolin’s behalf. That means every transaction and “necessary” information should be publicly available. Will they do that? 2 million PNG being sold and potentially going off-chain and/or getting into a black box is not ideal.

3-) MC’s performance fee is a value getting out of PNG’s treasury. How are you going to decide on fair value of this performance fee? What happens if MC underperforms?

I think these issues should be openly discussed beforehand whether it is Muhabbit Capital or X VC.

Good idea :star_struck: I will support this idea.

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Thanks for the reasoned response. Please find my thoughts below:

This is a great point. For me there are degree’s of centralisation. My personal preference is actually to use Gnosis Safe and then have everyone vote on the decisions. Currently Gnosis Safe isn’t supported on Avalanche. This is why Pangolin published our own multisig, to provide transparency and oversight into all these aspects. This will continue with this proposal. There will be a new Multisig wallet set up with Muhabbit Capital and Pangolin. This will publicly viewable by anyone. Just as all our other multisig’s are publicly viewable as per the below:

Pangolin Multisig 0xA4cB6e1971Ed8A1F76d9e8d50A5FC56DFA5cc1e6
Pangolin Swap Fees Multisig 0x7491158583ccb44a4678b3D1eCCC1f41aeD10a1F
Pangolin Working Capital Multisig 0x8d2e504087f081A41727A10e193F0d656BBF51F2
Pangolin Governance Multisig 0x6cdD4B54562019902C03e5BE4BB4C5800A379185

It’s also important to note that just because something is transparent, doesn’t mean it can’t be obfuscated. So having community members keep the multisigs accountable is key. A community also needs to be responsible for their role in ensuring accountability is maintained.

I agree. So the current thought process is that 60% of the 2 million PNG will be dollar averaged into Stablecoins via our market maker Acheron. This will be done over 60 days so as not to have any major market disruptions. This is not fully transparent and does reek of centralization. I’m not sure if there’s any other option. We could setup a bot that does this automatically, but that is also centralized. So I think for this one, my thoughts, are that pragmatism trumps decentralization.

Muhabbit Capital requests 15% performance fee and a 2% annual management fee. Their performance fee is rather on the lower end of the spectrum. This is based on multiple discussions with other parties, although I’d be interested in hearing if you feel this is fair within the context of the work they’re performing.

With the bi-weekly reports, it will also be very transparent on how they’re performing and if we need to switch then it would be fairly standard for a community member to issue a Snapshot to move to another supplier.

I hope this has addressed your concerns and I welcome any further discussion as I do think this is a very key decision.

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Can`t we as Pangolin DAO to create an investment portfolio and invest ? Is it legally possible ?

Yup, it’s possible and something I personally think makes a lot of sense.

However we will need buy in from the community.

I have no idea how investment VC’s function. That is why I will support the final decision of the community. :raised_hands:

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Thank you for your response.

I agree that every DeFi protocol or DAO has to be ready for any kind of bear market and solely keeping your native token is not ideal. (I recommend Uncommon Core’s article on the issue) However there are number of fundamental issues with this proposal that is conflicting with the idea of decentralization. This proposal is going to bring additional elements to consider in PNG’s token valuation which is somewhat relevant as PNG yield farming continues.

Of course Muhabbit Capital is a good choice. But COLONY may be a better choice, fully dedicated on this mission, supporting Avalanche projects is the priority…
It would be wonderfull if we could have a seed investment on them, it is worth to check if there is a possibility for it, what do you think ??

The fact that several people above have already raised the concern of fears of lack of decentralisation should send alarm bells ringing across this community since this is questioning one of the most fundamental pillars a DAO.

Muhabbit Capital may be a good choice, but so could dozens of others

I definitely agree that diversification is of value. However, is there a reason that other approaches to diversification aren’t discussed here?. I mean why not simply get stablecoins and leverage different lending services to bring in income. For example, wink wink, Snowball could be used to maximize returns on Stables from BankerJoe, Aave and Benqi. Or a balanced index approach pursued. T

Also, in the pursuit of refining process why not have a bidding process? Pangolin is moving large enough funds that it could probably be a competitive bid.

I worry about the space given for generation of new approaches and insight from the community. Pangolin has a very large community to tap into and I think it would be beneficial to engage with it on items like this. I am def not against leveraging an entity for this diversification, but would love more insight into the process/decision-making to get here as a solution vs other option.

Also, as an exchange, I would expect Pangolin to have a better handle on the financial status of the ecosystem than most. Thus, I don’t completely agree on Pangolin not being actively involved in the process of its treasury diversification. Why wouldn’t it make more sense to get consultation on strategies?

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It’s a community DEX. Anything can be discussed. However time is limited and we don’t have endless resources.

If anyone would like to implement a bidding process, I’d welcome anyone from the community stepping up and doing it.

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Is the routemap we announced before being implemented as planned?