We appreciate the kind words and constructive feedback in this discussion. Since the very beginning, karpatkey has always committed to acting in our DAOs’ best interests. This involves exposing our execution to the public, listening to the critics, and adjusting according to the fact-based arguments to ensure we keep evolving our practice, i.e. treasury management and the industry as a whole.
Growth is a double-edged sword: it expands your reach and potential to leverage synergies to increase your impact, but it also opens up the way for scrutiny and all sorts of questioning. For this matter—the conflict of interest’s topic naturally surfaces as a consequence of the positive-sum game scenarios in play—something we accept, take seriously, and prefer to deal with using an objective approach rather than emotional rhetoric.
For the record, we acknowledge the importance of decentralisation to ensure Ethereum’s resilience and credible neutrality. We’ve inherited that value from our early days at Gnosis—and will always factor it into our decision-making progress—so long as it doesn’t compromise our mandate’s main goals as GnosisDAO’s treasury managers.
We are also cognisant of Lido’s potential centralisation vectors—and so is Lido—so much that most of the protocol’s tech investment has been on the launch of the Staking Router. This upgrade will move the operator registry to a modular architecture, which will act as a platform for stakers, developers, and node operators to collaborate and advance the future of decentralised staking.
Now, the facts. When assessing portfolio allocation on LSDs, we factor in the following objectives ordered by level of priority:
1. Protect the integrity of the treasury through an extensive risk management practice.
Beyond protocol soundness (of which Lido’s would necessarily come first given its battle-tested infrastructure), risk is mostly a factor of market liquidity. The ability to exit a position with minimum slippage is paramount to us, especially given the magnitude of our order execution. For that matter, let’s consider the scenario offered in this proposal: moving 50% of the current stETH holdings to rETH, which accounts for ~35,000 rETH. Using DefiLlama’s liquidity tool, which sources price quotes on ten different DEX Aggregators at different levels and displays the results over a chart, the slippage for a ~35,000 rETH trade would be ~19%.
For comparison, the slippage for a ~55,000 stETH trade would be 0.24%.
2. Grow the Gnosis Chain ecosystem through finance.
For this matter, we explore ways to leverage the LSD’s network effects created through volume and expanded integration in DeFi protocols to push for the expansion of the Gnosis Chain. This is performed either by fostering the Gnosis Chain traffic through added use cases but also by improving the long-term value of GNO as the native network security’s guarantor. Examples:
- We’ve just launched the wstETH/WETH balancer pool on GC, and are in the process of balancing it and increasing its liquidity; and
- The treasury’s large position in stETH’s Maker vault was a valuable contribution to prove our commitment to the protocol and push for the onboard of GNO as collateral.
We’ve also held positions in Stakewise’s sETH2 in the past to support Gnosis Chain’s only Liquid Staking protocol, and we plan to add new ones as soon as the protocol upgrades to V3 on the Gnosis Chain (which should happen after Shapella):
3. Generate non-income revenues to support the DAO.
When possible, we look for ways to optimise the returns on our LP positions by increasing capital efficiency. This comes mostly down to an active search for the best APRs, incentives, or composability through protocol integrations e.g. LP Boosted Rewards; Leveraged Positions; etc.
Source: https://defillama.com/lsd
From a capital efficiency and yield optimisation perspective, there have been some slight, while significant, differences that make stETH stand out as a better investment so far.
Source: LSD performance | Dune
We also monitor the market for arbitrage opportunities, as was the case with Ankr’s aETHc (now ankrETH), for which we were able to capitalise on the market conditions by swapping for ETH in order to optimise yield and diversify the portfolio. This opportunity is creating a ~15% return whether by swapping or eventually claiming the staked ETH.
As stated in our previous reply—portfolio allocation at karpatkey is an active process and revised on a weekly basis—so we’ll continue to monitor rETH and other LSD protocols in ways that maximise the objective function described above.