Summary
ParagonsDAO can position itself to significantly increase its yield on idle NFTs by securing governance stake in Guzzolene to direct liquidity to Paragons’ Spot Pools on Abacus in order to take advantage of loan, insurance and capital efficiency opportunities.
Abstract
Guzzolene looks to position itself as a liquidity bootstrapping tool in Abacus Spot Pools for protocols, collections, or communities in control of a substantial NFT possession. By doing this, Guzzolene will be able to effectively absorb (and vote with) many ABC tokens (Abacus’ native token), boost ABC discounts for chosen collections and aggregate Abacus governance.
Paragons’ strategy is to become a major player in Guzzolene’s governance to optimize our value from Abacus Spot’s NFT appraisal solution and maximize our yield from providing liquidity in their Spot pools.
Motivation
Building on Abacus’ ecosystem
To understand the benefits of Guzzolene requires basic understanding of the Abacus ecosystem. In short, Abacus provides a solution for appraising NFTs, which is extremely valuable for ParagonsDAO as our treasury holds many unique NFTs that are difficult to value without selling. By ensuring our NFTs are accurately appraised, we can have a more precise valuation of our treasury and unlock greater value to lend against our high-value NFTs to generate further yield on borrowed liquid assets (through solutions like Gradient Finance, who we’re also seed funding).
NFTs appraised using Abacus Spot require appraisers to lock up ETH in a “Spot pool” (basically, a liquidity pool) specific to the NFT being appraised. Once the lock-up period is complete, the ETH is bonded (sold) to Abacus in return for ABC tokens (Abacus’ native token), which are more heavily discounted the longer an appraiser locks their ETH in a given pool.
Those who participate in Abacus’ governance can vote on which NFT collections and spot pools provide extra boosted ABC rewards (aka “gauge weighting”). Any user can participate in Abacus’ governance by locking up their ABC tokens in exchange for vote-escrowed ABC tokens (veABC).
There’s much more to the ecosystem that you can review in Abacus Spot’s articles here and here.
Guzzolene will fuel Abacus Spot pools
Guzzolene’s premise is liquidity as-a-service. Their treasury will be primarily backed by ETH and veABC (Abacus’ governance token), which they’ll collect through bonding, the ETH/ABC rewards they accumulate through funding Spot pools, and mutually beneficial agreements with those protocols, collections or communities in control of a substantial NFT collection.
Through a significant holding of veABC, they’ll play a key role in the governance of Abacus, which includes voting on which NFT collections and spot pools provide boosted ABC rewards to appraisers (aka “gauge-weighting”)
Through their ETH holdings, they’ll be able to direct significant liquidity into preferred/boosted Spot pools.
And through tight-knit participation in the Abacus ecosystem, they’ll be among the first to know about the best opportunities and therefore take advantage of early positions in Spot pools (which are very preferential in Abacus Spot’s model, given the first-in-first-out (FIFO) approach to funding Spot pools and rewarding liquidity providers).
Review Guzzolene’s litepaper here.
How funding Guzzolene benefits ParagonsDAO
From a practical perspective, the Abacus ecosystem will be a game changer for our ability to unlock liquidity in our NFT-heavy Treasury while still reaping the rewards of the NFTs. Abacus will be the most rewarding to those who are able to use it (and supply liquidity) at scale.
Our grant to Guzzolene would allow us to better scale our participation in the Abacus ecosystem(and reap the rewards) without a direct investment or governance stake in Abacus.
The benefits of our grant to Guzzolene include:
Increasing our ability to encourage Abacus Spot liquidity directed towards the NFTs we want to borrow against.
With such a significant influence in Guzzolene’s governance, we’d have a much greater say in which NFT collections/assets receive greater ABC emissions (“gauge-weighting”), which is the mechanism that will encourage liquidity providers to stake their ETH in a given NFT’s Abacus Spot pool (thereby providing liquidity against it).
Advantageous positioning for supplying risk-free liquidity towards Abacus Spot pools on our own NFTs
Through Abacus Spot, early liquidity providers have the most advantageous positioning due to the first-in-first-out (FIFO) method of funding the pools. We will know which NFTs we want to borrow against well before the market, and therefore can also capture these advantageous positions for providing liquidity against our own NFTs (and allow Guzzolene to do the same) to maximize our combined risk-free rewards.
Specification
As part of this PDIP, we’re proposing to:
- Bootstrap Guzzolene with ABC tokens at launch by bonding them in return for GDN tokens (Guzzolene’s native token), which we’d lock (collecting various staking rewards) and use to participate in Guzzolene’s governance.
- We’d secure the ABC tokens by using our liquidity with 250-500k USD worth of ETH (at council discretion once ABC launches) for ABC at a 50% discount through Abacus’ Initial Bonding Event (this discount will be offered to participants who bond at least 30 ETH). This is a yielding operation on liquidity.
- Provide a 50k USDC grant for operational expenses (giving us a seed allocation for tokens), which will be used for the following purposes:
- Front end development costs
- Audit
- Miscellaneous costs
Rationale
Potential areas for future collaboration:
- Providing tokens to incentivize LPs to participate for strategies
- Bundling bunches of Parallel NFTs into an Abacus Spot Pool Bundle and leveraging Guzzolene together with Gradient to securitize this meta NFT and potentially developing a retail oriented savings product
- Generating yield from the secondary liquidity created from leveraging Guzzolene
- Obtaining insurance on ParagonsDAO NFT assets
- Increasing Paragons’ capital efficiency in the MetaFi ecosystem
Pros:
- Greater enabling increased yield with low risk for the idle NFTs within ParagonsDAO’s treasury
- Increase the scale at which we can operate in the Abacus ecosystem, which opens significant possibilities for ParagonsDAO
- Increase utilization of Abacus to support solutions at the intersection of NFTs and DeFi and operate in tandem with other solutions we’re invested in and benefit from, such as Gradient FInance.
Cons:
- Smart Contract Risk with Guzzolene (mitigated by audits)
Test cases
This example shows how ParagonsDAO could leverage Guzzolene in line with our priorities:
- We decide to lend against our Parallel Eye of Galli Masterpiece NFT.
- We provide liquidity in the first (most advantageous) position of the Abacus Spot pool for that NFT, funding a fraction of the amount we want to borrow later. Guzzolene may also decide to also take an advantageous early position in the Spot pool and bootstrap liquidity towards the NFT.
- We activate ABC emissions on our Eye of Galli Masterpiece through Abacus, which encourages other liquidity providers to lock up ETH in the Spot pool.
- We use our governance stake in Guzzolene to have them vote for our Eye of Galli Masterpiece to be a gauge-weighted spot pool (i.e. a pool that emits additional ABC to further incentivize liquidity providers/appraisers)
- Other liquidity providers will stop providing liquidity onces the Spot pool approaches a value the market thinks the Eye of Galli Masterpiece is worth (as that’s when it becomes riskier to provide liquidity to the Abacus Spot pool).
- Once appraised, we use Gradient Finance to lend ETH against our Eye of Galli Masterpiece at an attractive loan-to-value ratio against its appraised market value.
- We use the borrowed ETH in another productive investment vehicle , allowing us to capture additional yield on the value of our Eye of Galli Masterpiece. In the meantime, we’re also:
- Collecting ABC rewards directly for providing liquidity against our own NFT (which we could use to increase our Guzzolene stake)
- Capturing value from the ABC rewards Guzzolene collects for providing liquidity (due to our stake in Guzzolene)
- Continuing to collect Parallel-related benefits associated with the Eye of Galli Masterpiece such as $PRIME rewards, ETH yield and free Parallel packs (as the NFT doesn’t actually leave our wallet)
Copyright
Copyright and related rights waived via CC0.
