Treasury: CRETH2 Buyback - Request for Comment

Summary

As many of us know, C.R.E.A.M. Staked ETH (CRETH2) has been trading at a discount to 1 ETH of about 10-20% (at time of writing, the discount is ~13% on SushiSwap). More significantly, by sampling C.R.E.A.M validators, the vast majority have already accumulated between 1.9 - 2.2 ETH in rewards, implying a real value of 1.06-1.07eth per CRETH2. I am proposing a structured buyback of CRETH2 with up to 100 ETH from the C.R.E.A.M. treasury for as long as CRETH2 trades below 1 ETH.

Mechanics

C.R.E.A.M. has already proven to be very effective at managing its treasury at its own discretion, and I believe this could be handled in a similar fashion. This will benefit C.R.E.A.M. in an efficient and sustainable manner, and the protocol will be rewarded for providing a service beneficial to CRETH2 holders.

I offer two models for this buyback based on different assumptions about approach and how the market responds. Both scenarios represent approximately a 15% gain over simply staking idle ETH. Accounting for accrued staking rewards from holding CRETH2 over a year following this action, this strategy could outperform idle ETH by 15% + [Staking Reward APY], which would mean about 21% at current figures.

CRETH2 Naturally Trends Towards a Discount
This model consists of a number of purchases, with a slightly decreasing discount over time resulting from our purchases. It would outperform staking 100 ETH over 1 year by ~15.3%.

Market Sustainably Closes Gap
1 buyback of ~43 ETH. This scenario would represent a ~14.8% gain over staking 43 ETH.

Discord Feedback - Provide Liquidity

Upon sharing to Discord, I received many suggestions to model a plan where C.R.E.A.M. provides liquidity to a CRETH2/ETH Pool in addition to buying CRETH2. After review, my current take is that the following two options represent improvements from a profit standpoint, and are also much more effective at maintaining the peg: (1) adding liquidity to the CRETH2/ETH Pool on Sushi or (2) creating a pool on CRV similar to ankrETH/stETH.

(1) SushiSwap CRETH2/ETH
This involves buying a set amount of CRETH2 similar to the second buyback mechanism above, and then providing an equivalent amount of ETH to the already existing CRETH2/ETH pool. C.R.E.A.M. would profit from the initial purchase of tokens in the same manner as the second buyback mechanism, earn farming rewards on total LP deposit (~7% + swap fees), and by increasing the liquidity of the pool more effectively maintain the peg.

(2) CRV CRETH2/ETH
A more ambitious but higher upside plan would consist of the following steps:

  1. C.R.E.A.M. to create a CRV pool for the CRETH2/ETH pair
  2. C.R.E.A.M. to seed liquidity for that pool
  3. C.R.E.A.M. to purchase CVX → votes to incentivize more liquidity to pool to keep peg
  4. Bribe is net profitable if CVX retains value + CRV rewards from our pool.

Disclosure
I own CRETH2 and will continue to buy more as long as this discount to real value persists.

Just wanna add, the buyback proposal here seems like a no-brainer. I’m surprised I haven’t seen more discussion on this topic.

On the CRV pool, it should be possible to set up a CRV factory pool for this without too much trouble after the repurchasing. Factory pools are supported by CVX so the bribe mechanism would work fine.

Disclaimer, I own no CRETH2

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Agreed! I was somewhat surprised too since I did spend a good amount of time working on it. The good news is regardless of C.R.E.A.M. decision this opportunity is accessible to everyone in the community who reads it!

Hopefully, it gets some more discussion eventually.

One more thought. Another effective way to generate liquidity would be adding liquidity mining to a uniswap v3 concentrated liquidity pool. It should be quite popular as both assets are exposed to ETH. RAI does a similar thing with RAI/DAI. If we wanna get really creative we could create a gelato pool token and add it as collateral to CREAM, like Maker did with the DAI/USDC Uniswap V3 Gelato pool token. The later would probably generate significant liquidity without requiring liquidity mining

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Have not looked into gelato pools (thought I saw a tweet about the Maker one and all the benefits) but you are definitely right that there are increasingly good ways to accomplish this task.

Also wow the RAI/DAI v3 pool is at 122% APY in flx rewards