HourGlass app went live on hourglass.wtf on 10/31/22. Congratulations to the HourGlass team on achieving this milestone with the launch. Conservative bonds configured with 10% APR + 30/70 Tranche ratio and 5% APR + 20/80 Tranche ratio over a 12-month horizon have been issued.
I am proposing the issuance of new bonds with more aggressive profiles to attract high volumes of lending demand, so that the ensuing liquidity can be paired with SPOT to catalyze the AMPL-SPOT system.
A 3-month bond configured with 20/80 Tranche Ratio paying out a 25% interest rate to the lender is likely to be attractive for participants in this bear market. A 5% penalty is proposed to further incentivize lending demand.
The Treasury presently holds approximately $16M of $FORTH:
The Forth DAO community votes to deposit $FORTH from the treasury wallet into an Escrow Account. This is the Initial Bond Offering (IBO) box, and it is zero-commitment. Commitment begins when the DAO creates an “IssueOrder” to deposit $FORTH into the IBO box.
Of note, the price of the $FORTH to be bonded is locked in at this step.
$FORTH is subsequently sliced into Senior A-Tranches and Junior Z-Tranches:
For simplicity, we will work with an initial bond offering of $800,000 $FORTH. The A-Tranches represent 20% of the total $FORTH value at time of lending = $160,000. Sold for $0.80 per Senior A-Tranche, the DAO will create $128,000 (160,000 x .8) worth of stablecoin liquidity to pair with $SPOT. When the Active Period ends in 3 months, the Forth DAO will repay its $128,000 USD loan with 25% interest = $160,000 USD.
The bonds mature linearly through the Active Period, much like an HourGlass fills with sand.
Because these bonds are convertible and callable, Forth DAO can repay the loan early at a lower interest rate. If the DAO is unable to pay this loan, then the lender will cash in on Senior A-Tranches at $1 each - this will also yield a 25% interest on the loan. There may be a 5% penalty on any value retained by the Junior Z-Tranches.
A-Tranches represent claims on Debt, while Z-Tranches represent Equity claims. Debt is paid out before Equity in a waterfall fashion.
In this case, there are no B-Tranches. The value of the $FORTH Z-Tranches would need to drop by 80% for the lender’s 25% interest to be compromised.
This is a win-win situation for both parties, and is a feature unlock of Double Token Debts.
Hedging the Risk
With the $128,000 USD of stablecoins, Forth DAO could seed liquidity with $SPOT on Elastic Swap where the risk of Impermanent Loss has been contained. However, a portion of this liquidity – 25% of $128,000, for instance - could be directed to catalyze the AMPL-SPOT system.
Brandon, Evan, Nithin, and Manny have designed a system that can indeed output an Inflation-Resistant Store of Value.
All else held constant, SPOT is likely to perpetually sell for a spot price of $1 so long as fresh Senior A-Tranches are dynamically rotated in for mature Senior A-Tranches.
Well done gentlemen. Pure brilliance.
My model of the system based on current understanding:
The DAO can obtain AMPL with 25% of this liquidity - $32,000 USD – to tranche it and create instantaneous liquidity in the form of $32,000 SPOT. This can be used to again mint SPOT for further deepening liquidity. Cascading liquidations and massive unwindings are unlikely.
The Senior A-Tranches can lose no more than 8% of their Value per 24 hours. This motivates the consideration of 7- or 10-day bond durations, in addition to longer bond durations (monthly, quarterly, bi-annual, etc. rotations) for deeper consolidation within the system. The Senior A-Tranches will not lose value until 80% of AMPL supply contracts, which cannot happen before 10 days have passed. This holds true even if the Price of AMPL drops to $0.
Redeeming the Z-Tranches for their claims is likely to further catalyze these feedback loops and potentiate AMPL’s expansion.
This is all to say that Forth DAO, ShapeShift DAO, and other value-aligned communities (Public Good oriented communities at large) can symbiotically coordinate. The purest form of Money should be used for Regenerative Finance and Positive-Sum Outcomes. This can qualitatively shift AMPL’s demand curve and initiate a long-term expansionary cycle.
|Interest Rate||25%||Lender will collect this interest with high degree of certainty. Even if the DAO is unable to repay the loan + interest, the lender can redeem A-Tranches that were initially purchased at $0.80 for $1 (+25%).|
|Tranche Ratio||20/80 or 40/60||Lender is guaranteed interest on loan so long as value of $FORTH does not drop by 80% or 60%, respectively, over maturity term. 20/80 ratio = $128,000 USD loan; 40/60 ratio = $256,000 USD loan.|
|Penalty %||5%||Lender has 5% claim on Z-Tranches if the loan is not repaid. This incentivizes lending demand.|
|Maturity Term||90 days||Some lenders may find shorter duration loans to be more attractive.|
|Stablecoin||DAI||Form of the loan.|
In summary, if the above measures are exercised, the Forth DAO can minimize risk of “default” on the loan. This is my humble opinion. The Forth DAO demonstrates skin-in-the-game and signals trust in the HourGlass app - one less factor to dissuade market participants.
$800,000 USD worth of $FORTH is proposed to be bonded. Please signal your preferences for bond profiles:
25% interest over 3 months w. 20/80 Tranche Ratio = $128,000 to be repaid as $160,000.
25% interest over 3 months w. 40/60 Tranche Ratio = $256,000 to be repaid as $320,000.
50-50 Split of the above options