Treasury Friction and a Proposed Solution

Hi all. I am wearing my Treasurer cap right now. We have some friction related to the way that SourceCred currently receives our Dai funding from Protocol Labs. To be clear, this does not mean our funding is in jeopardy, nor does it imply any real changes to our current state of people requesting the amount they want and receiving it within the week.

The friction is that the amount of treasury liquidity is capped at the amount of Grain that SourceCred has gotten from its own protocol. Currently, Grain redemptions work as follows:

  1. A contributor sells Grain to the SourceCred treasury, in exchange for DAI
  2. The SourceCred treasury sells Grain to a sponsor (usually Protocol Labs), in exchange for DAI

The result is that the SC treasury is continually facilitating liquidity in Grain, by matching the sellers (contributors) to the buy (Protocol Labs).

And that’s the issue–the amount you’re able to redeem is limited by the total amount of Grain/DAI that the SourceCred treasury has. For example, if SourceCred has only 40,000 Grain+DAI, and two contributors each want to sell 25,000 worth of Grain, then SourceCred can’t process both transactions at once. Instead, we need to redeem one contributor, then sell the Grain to Protocol Labs, and then redeem the second contributor. PL Grain sales take a few days, so this means that we aren’t able to promptly provide liquidity to contributors.

December saw a lot of high-value Grain redemptions (Hooray for all of you cashing out!). This wasn’t an issue for all of you that redeemed your Grain, but it’s become clear that we need to maintain higher amounts of Dai on-hand in order to be certain that you can withdraw an arbitrary amount of your Dai at a moment’s notice.

@decentralion has floated what seems like a pretty easy fix to this technical problem. We mint Grain from thin air for the SourceCred treasury. We make SourceCred’s Grain account have a bigger number.

This will allow us to request much larger amounts of Dai from Protocol Labs, and keep a much larger buffer of, say, 100,000 Dai on-hand for everyone’s Grain redemptions. Given that we will be minting Grain out of thin air, @decentralion has created this PR to stop giving SourceCred a portion of its own Cred. Any feedback is encouraged. Can anyone think of any problems with this?

Rather than go off of SourceCred’s existing Grain account this time, @decentralion has already requested 200,000 Dai from PL last week. We could always return this if any serious concerns are raised, otherwise, the plan is to make 200,000 Grain appear in SourceCred’s account in order to transfer it to PL upon receipt of our 200,000 Dai.

Again, any and all feedback is encouraged :slight_smile:


I’m still not 100% sure I understand the exact reasons SourceCred gives itself Cred, so ceasing that function seems fine with me, but that may simply be because it makes the system more intuitive to me.

I favor the idea of having a larger Grain/DAI balance in the SourceCred account so that larger payouts can happen. I didn’t know that wasn’t the case already; thought it was. :slight_smile:

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The reason we gave ourselves Cred in the past was specifically so that SC could get a fraction of the Grain in each issuance, and thus have a way of paying for things and running the treasury. However, I think simply minting the Grain we need (under supervision of the TBD) is a much more direct way and effective way of doing this.

In the medium term, we need to come up with governance to decide how much Grain gets minted to the treasury, and how those funds are governed. For now, it’s at my discretion #TBDlyfe

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TL;DR if Grain-holders have confidence in Grain with this policy, and the amount of reserves “backing” Grain is deemed responsible, this seems fine to me :+1:

Agreed here :]

Arbitrarily giving Cred just for Grain liquidity seems more like a quirk than a choice to have direct Grain inflation for the sake of the Treasury.

SC’s Grain from the start had a fractional reserve notion, based on unlikeliness of 100% redemption. Likewise minting like this is just some inflation that shifts the reserve ratio.

So ultimately I believe this comes back to being a matter of sentiment and managing risk. Do (potential) sponsors feel like Grain represents real value, and do contributors feel comfortable holding Grain without fear of bank-run / solvency types of issues, or being denied access. Sentiment aside the risk still needs to be evaluated, because actual solvency issues occuring can quickly damage trust and trigger more issues.

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This definitely seems like a reasonable solution. I am curious if there are other options though. Given @decentralion 's comments on the Community Call yesterday my idea may be rejected entirely as it certainly looks like “shareholder capitalism,” but what about opening Grain up to be bought by other parties?

The main issue I see with this counter-proposal is that there could still very well be a redemption problem if those new buyers are not intending to hold their Grain. However, with the idea for Boosting being so exciting, opening up the selling of Grain could very well encourage those with extra cash to secure some more Grain, with the prospect of using it at a future date to support ideas within the space.

Either way, switching from “peeling” Grain to minting it seems pretty wise for project use. I just know I would definitely be interested in swapping some DAI for Grain since I spend most of my time at Maker. Thus my earning potential for Grain is pretty capped, even though I really love and support the project. I imagine there are more like me out there, and such an arrangement might offer my security for funding SourceCred in the future.


This sounds like an okay hotfix, but a weird mid to long-term solution. I’m totally okay with it, especially because I don’t have all the context on the SC side, and what context I have on the Protocol Labs side makes me think this is definitely the path of least resistance to a lot of impact. However, it seems like it’d be more intuitive if…

  • PL were to buy grain directly from contributors, thus making the treasury unnecessary, or
  • PL were to buy something like grain-options, where 1 grain-options is issued to the treasury for each grain minted, thus making the purpose of the treasury clear.

(Of course, if the DAI<>Grain conversion rate floats, that’s also fix this, but that sounds BAD for various reasons.)

I imagine there are other reasonable options as well, and I think it’d be good to land on those sooner rather than later.

All that said, I’m totally okay with the above proposed solution.


Perhaps there could be a ‘risk explanation’ where SourceCred is transparent about the risks in holding Grain, and the risks SourceCred as a community is choosing to take that could affect its members. Listing the risks and why we (the SC community) feel they are worth taking would increase literacy among SC members.


The long term solution I’d like to see is an automated treasury, where anyone can freely mint more Grain (by depositing DAI or other collateral) and redeem Grain (by depositing Grain to retrieve DAI or other collateral). Then, all of the collateral in the treasury pool acts as legible proof that Grain has value, and that contributors can safely take their earnings out.

By minting Grain to give to PL in exchange for PL depositing DAI, we are basically approximating the future behavior of this automated treasury pool.


I vaguely remember that we were thinking of pegging the Grain/DAI ratio? If that’s wrong, just correct me and ignore the rest. If that’s right, then we’re essentially creating a fractional reserve currency with a pegged exchange rate, since Grain would be minted on deposit as well as based on Cred. I think this ends up being susceptible to the “bank run” problem?

You can view Grain either as debt backed by a smaller position of cash reserves (susceptible to default) or as a fractional reserve currency (susceptible to bank runs). Either way, there is a fundamental risk that Grain won’t have the value we promised it would. This is intrinsic to any asset of course, but with equity there’s more volatility and with debt there’s a binary of solvent / not solvent.

I want us to do a lot of economic design around making this system robust, e.g. have the %-reserve backing be an input into the grain issuance policy (if reserves are dropping, issuance slows), and create incentives to burn grain, thus increasing the reserve ratio. As the reserve backing drops, the incentive to burn Grain should increase.

With all these changes being made to our finances, would this be a good time to make a transition from DAI to USDC?

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