PGP-31 | Update Insurance Fund Strategy

Governance Proposal (PGP)
1

Summary:

This proposal aims to update the Parallel Insurance Fund Strategy in line with ongoing protocol updates.

Rationale:

Ratified in MIP-28┃Ratify the Parallel Insurance Fund, the Parallel Insurance Fund is a fund used to cover potential losses of the Parallel Protocol, in case of shortfall events. Below are the current approved events:

  • Smart contract risk: Risk of a bug, design flaw or potential attack surfaces on the smart contract layer.
  • Liquidation risk: Risk of failure of an asset that is being used as collateral on Parallel; risk of liquidators not capturing liquidation opportunities in a timely manner, or low market liquidity of the principal asset to be repaid.
  • Oracle failure risk: Risk of the oracle system not properly updating the prices in case of extreme market downturn and network congestion; risk of the Oracle system not properly submitting prices, causing improper liquidations.

The fund is following a comprehensive and clear framework. Below are the current voted rules:

  • The DAO must decide, via governance votes, which deployment (PAR and/or paUSD and/or USDp) is covered, which chain is covered, or not, by the insurance fund, and at which % or $ value of the insurance fund the deployment & chain are covered.
  • Assets held in the insurance fund must be liquid under a 16 weeks period.
  • At least 10k PAR for PAR deployments and 10k paUSD for paUSD deployments must stay in the vaultsCore to cover very short term potential bad debts.
  • DAO Multisig signers will have the right to rebalance assets from the deployed insurance fund to vaultsCore contracts in order to always have enough assets to cover very short term bad debts.

Currently the fund is covering Parallel V2, including PAR & paUSD deployments on Ethereum & Polygon PoS. We propose to extend the coverage to Parallel V3 with USDp deployment on Ethereum, Base, Sonic & HyperEVM. We also propose to extend the coverage to the PRL token on Ethereum, Arbitrum, Optimism, Base, Sonic & Polygon PoS.

Below are the current holdings of the Parallel Insurance Fund (at time of writing):

  • Ethereum:
    • PAR VaultsCore contract: 10,000.00 PAR
    • paUSD VaultsCore contract: 10,000.00 paUSD
    • USDC: 313,905.55
    • paUSD: 59.04
    • vlAURA: 1,113,709.10
    • Aura-ECLP-PAR-EURA: 50k PAR
    • Aura-ECLP-paUSD-GYD: 50k paUSD
  • Polygon PoS:
    • PAR VaultsCore contract: 10,000.00 PAR
    • paUSD VaultsCore contract: 10,000.00 paUSD
    • PAR: 1,947.35
    • paUSD: 46.97
    • Aura-ECLP-PAR-EURe: 50k PAR
    • Aura-ECLP-paUSD-stataUSDCn: 50k paUSD

Below is the current Insurance Fund strategy:

  • 214k USD (+ potential remaining PAR/paUSD accumulated in the meantime) → swapped for AURA, then locked in vlAURA for 16 weeks on Aura
  • 50k PAR → PAR/EURA (Ethereum) → on Balancer (then staked on Aura)
  • 50k USD ->paUSD/GYD (Ethereum) → on Balancer (then staked on Aura)
  • 50k PAR → PAR/EURe (Polygon PoS) → on Balancer (then staked on Aura)
  • 50k USD → paUSD/stataUSDCn (Polygon PoS) → on Balancer (then staked on Aura)
  • 10k PAR → Ethereum PAR VaultsCore contract
  • 10k PAR → Polygon PoS PAR VaultsCore contract
  • 10k paUSD → Ethereum paUSD VaultsCore contract
  • 10k paUSD → Polygon PoS paUSD VaultsCore contract

We propose to update the strategy in this way:

  • General:
    • Accumulated PAR/paUSD/USDp/USDC: Swapped to USDp and deposited into liquidity pools (DEX/Lending protocols), decided by DAO Multisig Signers with advice from Cooper Labs & Mimo Labs
  • Ethereum:
    • PAR VaultsCore contract: 10,000.00 PAR
    • paUSD VaultsCore contract: 1,000.00 paUSD
    • vlAURA: 1,113,709.10
    • Aura-ECLP-PAR-EURA: 25,000.00 PAR
    • Aura-ECLP-paUSD-GYD: 25,000.00 paUSD
  • Polygon PoS:
    • PAR VaultsCore contract: 10,000.00 PAR
    • paUSD VaultsCore contract: 1,000.00 paUSD
    • Aura-ECLP-PAR-EURe: 25,000.00 PAR
    • Aura-ECLP-paUSD-stataUSDCn: 25,000.00 paUSD

Accumulated rewards from Aura & Balancer deposits would be swapped every 16 weeks for AURA tokens then locked as vlAURA for 16 weeks on Aura. vlAURA voting power will continue to be delegated to Mimo Labs, as voted previously.

Accumulated rewards from other potential deposits in DEX/Lending protocols will be swapped for USDp.

Means:

  • Human Resources: DAO multisigners will need to sign and execute transactions to execute the proposal.
  • Treasury Resources: Described in the rationale.

Technical implementation:

  • Update the Insurance Fund as described above in the proposal.

Voting options:

  • For the Insurance Fund Strategy Update
  • Against / Rework the Proposal
  • Abstain

Author(s): Jean Brasse from Mimo Labs

Community poll:

  • For the Insurance Fund Strategy Update
  • Against / Rework the Proposal
  • Abstain
0 voters
2 Likes
2

thnks Jean Brasse.
can you explain ones more why it is logical to delegate vlaura voting power to Mimo Labs? Why not delegate to DAO or a member of DAO. I have no opionion, just curious.

2 Likes
3

Thnx jb. What about the risk of whales buying all PAR and USDp, so users cannot repay or refinance their debts without recollateralizing their position? Does this effect the safety of the protocol and if yes, does this need any safeguards? It’s like a parallel to a shortage of dollars with quantitative tightening during bear markets.

2 Likes
4

thanks for the question @arjpet

At the very beginning (in 2022 if i remember well), tokens werer delegated to the DAO directly. Multisig DAO Signers were responsible for the during voting at gauges weights proposals every 2 weeks. However, there were several failures, mainly due to the way Snapshot works with multisigs (votes were not counted). We therefore proposed delegating voting power to an EOA wallet under the control of Mimo Labs (a trusted entity) to guarantee that votes are counted. Technically, voting power is delegated to my public address (jeanbrasse.eth). You can find all my previous votes here: https://snapshot.box/#/profile/0xBabB038737A7Ae0DcA02075E79ed5B7704C29827

2 Likes
5

thanks for the feedbacks @NL.1

The risk exists, we saw it in the past. This is mainly due to the inability of PAR/paUSD holders to redeem their stablecoin for user collateral at the oracle price. That’s why we propose to keep 25k PAR / paUSD on each chain in LPs to ensure a minimal liquidity for users, although we cannot guarantee that there will be tokens available to be bought in LPs.

Yes, this could affect the protocol in case of available liquidations of users positions. However there are always 10k PAR / paUSD in VaultsCore contracts to cover potential bad debts (which is refilled by DAO Multisig signers from the Insurance Fund if needed).

2 Likes
7

Haahhahahahahaaha yeah jean brasse we need you ! Eat healthy ! :wink:

1 Like
9

The proposal is now live on Snapshot from June 27th at 2pm CET until July 4th at 2pm CET: https://snapshot.box/#/s:mimo.eth/proposal/0x850c7011ef665bc6b9a883ebb9771fb6a1561625356fd69f54f350c2cd0df799

1 Like