Honey DAO Report: August 2022
August has seen major changes within the DAO, as we continue to secure our protocol through increased decentralisation and liquidity.
New NFT Liquidations
After its redesign in July, the NFT liquidation engine has been implemented on Solana, and can already be tested in our development build.
The new and improved liquidation engine is meant to allow the protocol to issue significantly more debt, all while increasing the protection and solvency of the collateral.
We’ve already discussed this liquidation engine at length in our previous articles, so we’ll let you explore our blog if you’d like to learn more.
Audit
Wrapping up liquidations means we are finally ready to audit the new and improved code.
Starting today, OtterSec will be reviewing our protocol programs to find any and all security exploits. The OtterSec audit will last 3 weeks, during which we will launch the protocol in a closed beta within our DAO.
The purpose of the closed beta is to allow the team to gather information on loans, defaults, liquidations and test risk parameters.
Reminder: during this beta period, the code will be unaudited ! Make sure to invest funds at your own risk, and to not play around with more than you are willing to lose.
Ethereum
The NFT x DeFi lending scene on ETH has been going through some turbulent times after the recent BendDAO incident. This presents a unique gap in the market which we aim to time perfectly, as our competitive advantage (loan solvency at scale) now becomes more sought after than ever on Ethereum.
Honey Development Association has completed almost all the smart contracts for NFT lending and has now entered discussions with different auditing firms. To accompany the launch of our Ethereum code, we will also be unveiling the details of a bug bounty program, offering open source developers an opportunity to be rewarded for discovering vulnerabilities in our protocol.
Our business development team has also been hard at work securing important partnerships with major DeFi protocols on Ethereum, partnerships which we plan to announce in September as we approach launch.
User interface
While Solana and Ethereum protocols are launching on mainnet in the coming days and weeks, the user interfaces will be temporary. What you will see is the bare minimum UI to interact with our on-chain programs, nothing more.
The actual user experience and full-fledged dapp will be unveiled in September, with the launch of a revamped UI, new graphics, features, and branding. We’ve put an immense amount of research and development into this new UI, to position ourselves as the FinTech user interface of NFT lending.
HIP#4
As we look further out into Honey’s roadmap, the next major milestone will be Honey Improvement Proposal #4, which outlines a plan to align incentives between token holders and NFT holders within the protocol.
Since originally being announced, the team has worked on many improvements for HIP#4. The details of HIP#4 will be unveiled in 3 weeks, announcing a new direction for the NFTs, one we hope can bring immense value to the DAO.
In short, rewards from the NFTs will help stabilise the protocol, and the bees will become deflationary. More on this in the coming weeks…
Alpha Launch of Honey P2P
August also saw our first product launch on mainnet of Honey P2P.
Honey P2P is not meant to be a standalone product, so the alpha launch is more for testing than anything else, but so far it has worked out better than the team could’ve hoped for.
For those unfamiliar with Honey P2P, it is a layer 2 protocol meant to exist on top of Honey’s lending pools, allowing refinancing of debt and increased capital efficiency.
The small but effective P2P team has been hard at work in August, making several improvements since the alpha launch:
- counter offers
- TPS warnings and banners for UX
- Adding support for USDC
- Adding support for P2P options
- Interest rate graphs
- Adding annualised APRs
- Support for permissionless collections
Honey Resources
We’ve recently announced the new Honey Resources, a central location to find all documentation, research, and financials related to the project.
Honey Resources was built to decentralise information within the DAO, so that governance can be more effective, and the result of data driven analysis. To this extent, we’ve included the Honey Research Center, which is a publication hub for all internal memos and reports written by our research team.
The full Notion page can be found here, and will be updated every week as more products, tutorials, and reports come out.
Financial Transparency
Glossary
- Intro
- Expenditures
- Runway
- Hedging
- Multisig
Intro
As we have begun launching our products in the alpha stage for the DAO, and as we approach a live product, we now get to look back, enjoy and see all the hard work that we have done. Many thanks to our amazing builders and community members for pushing us forward and creating what is soon to be an amazing product and tool for DeFi in its entirety.
A lot has been going on behind the scenes however, this can be seen through the further decentralisation of our DAO, the information available, and the open sourcing of our code.
An important part of our monthly reports include keeping the DAO updated on our past, present, and future plans with its capital, a financial update so everyone remains on the same page. If you feel there is any information missing from this document please reach out to the team and we will try and add it in next month’s report, or add an addendum if it’s an important piece of information.
Expenditures
This month of August Honey labs brought on a few new hires on both the development side as well as a couple people who took up different roles to better aid the DAO in launching the lending markets protocol. More to be discussed in a later part of this report.
To begin, our weekly expenditures are denoted below:
As seen, we were maintaining a sub 25,000USDC per week rhythm, yet as we moved closer to launch our expenses rose but we were able to stabilize it at around 27,000USDC per week. Another increase of expenses resulted from hiring on communications front, to better aid our marketing campaign and to boost activity at launch.
Some of our long term developers also took a more senior role in the organisation, which allowed for us to hire newer devs to increase our rate of production.
As tensions with regulators continue to grow with privacy focused and decentralised apps, we also hired a firm to help facilitate our fund Operational Security (included in the “Core” metric seen below). All this resulted in our output increasing from the usual sub 25k per week to just hovering over 27k.
We expect spending to increase in the next month substantially as we begin to audit our code, including smart contract security consultants and auditors . This will be covered in depth in next month’s report.
The breakdown of the costs per role for this month can be seen here:
Runway
Next we are going to discuss the DAO’s holdings and our projected runway.
The DAO holdings can be seen on these wallets; with a private wallet holding the DAOs short position(to discuss later) and handling the weekly payments:
The DAO’s total holdings are denoted here:
With this we are able to calculate the total runway, as well as project runway depending on our weekly costs. It is important to note that costs change depending on what stage the protocol is in. This can be, for example, a development stage, growth stage, etc. Runway constantly evolves, this is especially the case as the protocol begins to bring in revenue. Our runway will continue to lower of course, until the protocol breaks even in terms of weekly fees generated. Current predictions for this are Q1-Q2 of 2023.
Hedging
In turbulent times, the DAO’s priority is to protect runway, so hedging becomes increasingly important. To better understand our situation, the DAO held a lot of SOL from the mint(even though the vast majority was immediately converted to USDC); for deploying smart contracts, fees, and even paying some developers in SOL. It was for this reason that we opened a “manual short” position on Solend. This manual short consisted of supplying SOL, then borrowing SOL (at 50%LTV), and swapping the borrowed SOL for USDC. This, in essence, allowed us to create a short position with no worry of hitting our liquidation threshold, while still maintaining SOL(the collateral) in the event of us needing it to deploy contracts or pay fees. The “short” worked by us being able to repay our loan (unlocking the underlying SOL) for a cheaper amount, as SOL crashed against the value of USDC .
However, we have now decided to begin to transfer our treasury onto the Ethereum network. This is due to its deeper liquidity, safer multisig options, and integration with open source contribution software. We are therefore dollar cost averaging out of this short position.
Here is the current short position on Solend:
A lot will change over these coming weeks…
We are going to be bridging the funds from the SOL network to the ETH network. To do this we are going to be using the deepest liquidity possible, which is CEX’s. We have hired a logistics firm (Perkins Solutions LLC) to facilitate this change and bridge our assets from SOL to our ETH multisig. For more information on the Multisig please visit the multisig page, on our Notion.
Conclusion
August was an incredibly busy month of preparation for the launch of all our major products. As the audits begin to take place, the month of august represents an important turning point for the project. We are leaving the R&D heavy preparation stage, and quickly approaching the growth stage of the protocol.
The time we’ve taken to thoughtfully develop the protocol over the summer will allow us to blitz the market with a product unprecedented in both its sophistication and incentives. The team is more excited than ever to be launching our v1, and we hope you’ll join us in scaling the product over the coming months.
-Co-authored by our CFO Sailor and our Founder Tom Pandolfi
