RGP-27: Ribbon Lend Insurance Pool

Proposals
2

Initial thoughts on this proposal:

  1. $1M is a lot if you consider we only have around 2.1M - 2.8M [1] of non-RBN assets in the treasury. It is +35% of our non-RBN assets and 98% of our stablecoin assets. Putting this into one insurance pool is not sustainable treasury management.
    This is a big problem and enough for an immediate “No, this is not the way” vote.

Other remarks:

decreases the risk of providing capital on Ribbon Lend because of the additional 1M USDC in first-loss capital.

  1. It can be argued that providing free (partial) risk coverage is basically subsidizing lenders. We already have liquidity incentives on Ribbon Lend and have seen a good organic growth of Ribbon Lend deposits at the start. [Dune]
    Further incentivizing Ribbon Lend deposits by providing risk coverage is not necessary.

using the protocol treasury funds as first-loss capital up to 1M tightly aligns the team with the lenders and avoids moral hazard by increasing protocol exposure to Ribbon Lend’s credit risk.

  1. I don’t agree here that the incentives are getting aligned properly.
    a) The team (Ribbon Finance) is the party that currently decides which Lenders are onboarded to Ribbon Lend. RBN holders only had a (quite meaningless) vote on the order at which specific lenders would be onboarded
    b) The team (Ribbon Finance) is the only party that has access to the full due diligence information through Credora.
    c) The team (Ribbon Finance) is the only one that can “mitigate impact as best as possible if a default does happen.”
    d) The DAO (RBN holders) is from my understanding nothing more than an observer here and is only impacted by the market perception of the Ribbon ecosystem (and thus RBN value) on a default.

Conclusion

With the current treasury state this isn’t an acceptable proposal.
I encourage RBN holders to vote NO.

Ask yourself, if a default happened last week and a proposal was launched to use all of the treasury stablecoin assets to cover some of the bad debt (of which the counterparty default risk had been clear upfront). Would you be supporting such a proposal or not?

I hope to hear some other’s opinion on this important vote.

Suggestions

I’ll throw some suggestions out there that we could consider.

  1. Do nothing, Ribbon Lend is doing fine on its own. Improve communications to lenders to clearly state the implied risks.
  2. Improve the health of our treasury by raising the non-RBN and stablecoin allocation.
  3. Put treasury assets in Ribbon Lend to align incentives instead. (should be max 25% of our stablecoin assets imo).
  4. Reduce the amount of the insurance pool (although it becomes ineffective at some point)
  5. Use the 5% insurance rake to buy Credit Default Swaps (CDS) for the borrower instead of building up an insurance pool

Footnotes:

  1. The accurate non-RBN treasury at current prices:
    $1.07M ETH (native, staked, wrapped, ribbon)
    $1.02M USD
    $36k BTC
    We also have: $1.36M RBN/ETH LP (UNI V2), so at current price an extra $680k in ETH
    → BUT this is not risk free and is tied to RBN price.
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