Introduction
The opening of the Spice Bazaar draws near and with it the ascension of TempleDAO beyond its stable yield-farming roots into a dynamic marketplace of value. The key to the Spice Bazaar is Temple Gold (TGLD) which can be earned by staking TEMPLE or bidding DAI. This article is a deep dive into how Temple Gold will transform the management of volatile tokens in the Temple Treasury.
The Scaling Problem of Volatile Tokens
Historically, TempleDAO has acquired volatile tokens in 3 ways. First, Treasury capital was deployed at scale to earn and sell liquidity pool rewards. Second, a private liquidity bootstrapping agreement was reached with a Partner in exchange for guaranteed boosted yield partly or entirely in the form of Partner tokens. Third, the Partner tokens may come directly from an incubation or seed development deal e.g. Origami Finance.
The stable value in the Temple Treasury is currently reflected in the Temple Price Index (TPI) which provides the reference oracle value utilised by Random Automated Market Operations (RAMOS) for price floor defence and the Temple Line of Credit (TLC) for loan origination. The TPI oracle is manually and periodically updated in accordance with the available cash value.
When the Treasury has large holding of volatile tokens, abruptly unwinding them at scale in the market may trigger major fluctuations in the stable holdings. The resultant TPI spikes could be front-run by buying TEMPLE ahead of the update and selling after the update. Even an anticipated Treasury action to realise stable value before a manual TPI update may cause temporary depeg of the underlying holding, or at the very least lead to a worse sell price. Using a Time-weighted Average Price order (TWAP) provides some relief from price impact, but this is not always feasible due to vesting terms or holding requirements.
Directly dumping Partner tokens puts counterproductive pressure on price and strains Partner relations. Even a relatively small 1% allocation for a $100M Treasury means 7 figures of selling pressure. On the other hand, having too much volatile value in the Treasury in a vesting or lock-up state either by explicit or implicit agreement will prevent the redirection of free capital to create new Products and support new Partners. A Treasury “blackhole” creates capital inefficiency and high likelihood of becoming exit liquidity for other sellers because most project tokens peak in value early and fall over time. What is needed is a turnover mechanism to allow the DAO Treasury to access short- and medium-term liquidity for speculative long-term rewards while minimising large swings in its stable holdings.
Spice Bazaar is an Oracle-Free Secondary Market for Volatile Tokens
Spice Bazaar is a new TempleDAO institution with Temple Gold (TGLD) as its native currency. Its primary mission is to serve as a secondary market where the Treasury can sell the rights to future considerations with speculative value even if it doesn’t yet own those assets. The Spice Bazaar has 3 major pillars: 1) Gold Auctions; 2) Spice Auctions; and 3) TEMPLE Staking. All 3 are connected by the flow of TGLD within TempleDAO. Users who are interested in what Temple is farming or building will be able to transact in the Spice Bazaar even if they never hold any TEMPLE tokens.
Gold Auctions will be held on Ethereum mainnet on a bi-weekly basis in which a Temple Gold lot of a certain size will be put up for bidding. The amount of Gold that will be made available for bidding is determined by a fixed emission schedule and is minted directly into the Gold Auction contract–the DAO cannot simply mint billions of TGLD tokens out of thin air. Users–including non-TEMPLE holders–will be able to bid DAI to acquire TGLD which will be distributed to Bidders at the end of the Gold Auction.
Gold Auction Bidders will receive TGLD proportional to the amount of DAI they submitted for that Auction. There is no reserve or starting price for TGLD and the unit price will be determined solely by the total DAI submitted from all Bids before the end of each Gold Auction. TGLD tokens are non-transferrable and will not be paired in a DEX liquidity pool. Outside of the Gold Auction, the only way to acquire TGLD is to stake TEMPLE.
Earn Temple Gold to Acquire Volatile Tokens from Spice Auctions
Spice Auction constitutes the second type of Auction in the Spice Bazaar. Notably, Spice Auctions will exclusively use TGLD as the Bid token. No other token besides TGLD will be accepted as Spice Auction Bids. Spice Auctions will be held more infrequently and will have volatile tokens made available for bidding from TGLD holders. Governance will determine which tokens are put up for TGLD bidding as well as the timing and cadence of the Spice Auctions.
We expect that over time, most if not all of the volatile tokens in the Treasury will be put up for bids in the Spice Auctions. These volatiles will be rotated out for new ones stemming from Partnership and incubation activities funded by the Treasury. For instance, KAMI tokens from the Origami incubation will eventually be put up in a Spice Auction. A tentative schedule of what volatile tokens will be listed in the Spice Auctions will be updated on the Spice Bazaar dApp.
Initially there may be volatility in the Auction pricing due to its oracle-free nature, but price discovery will gradually occur. We expect to see reduced price variability between successive Gold auctions, or between Spice Auctions of the same volatile token. The winning price from the last Gold Auction will become a barometer of the overall consensus on the Treasury volatile outlook without the scale constraints and distortion of buying and selling TEMPLE tokens in a shallow DEX liquidity pool.
TEMPLE token holders can earn TGLD emissions for not borrowing against TEMPLE and simply staking it to claim the TGLD for use in any future Spice Auction. TGLD can thus be viewed as an implicit staking yield for TEMPLE holders who will continue to enjoy stable long-term stable value realisation through TPI increases plus the new extrinsic value component of TGLD even though it isn’t traded outside of the Spice Bazaar.
What Happens to the DAI from Gold Auctions?
Users who bid DAI for TGLD are effectively Long on what TempleDAO is building and farming–the future volatile schedule of the Treasury. The new capital injection from Gold Auctions should sustain the ongoing efforts of the DAO to create and maximise future value without causing a predictable TPI spike.A new and automated TPI oracle will be introduced to mitigate any arbitrage arising from actual or pending TPI updates.
To solve Treasury scaling problems discussed above, the TPI will be set as a future target e.g. 1.42 DAI to be reached by a certain date and linearly “dripped” automatically every second until the target TPI is reached. Temple Logicians will propose: 1) Target TPI and 2) Target Date and obtain DAO governance approval for the new parameters. The new TPI oracle will also allow the TPI value to be slowly reduced to a lower value to allow TLC borrowers to exit their position gracefully and avoid TLC liquidation should there be an unexpected Treasury write-down.
Similar to the status quo, the DAI received from Temple Gold auctions will go directly to the Treasury where it can be utilised for any suitable purpose including yield farming and supporting Partners. The only change is that the new stables will not necessarily trigger an immediate TPI spike at the next Treasury update. The periodic Treasury current holdings update will still be provided, but the TPI guidance is set in a forward-looking manner that may reflect some combination of anticipated stable and realised volatile value.
By disintermediating the actual TPI from up-to-the-minute stable holdings, we gain additional flexibility on the timing for when volatile assets are rotated into or out of the Treasury. Eventually, we expect that the TPI target could be set far into the future, or automated entirely.
To the extent that the capital influx from Gold Auctions and other Treasury activities exceed or lag previous TPI projections, the DAO may increase or lower the future TPI target. Alternatively, the Treasury may ramp up activities where the returns are more speculative. These bullish TPI (Risk-Off and Short volatiles) and bearish TPI (Risk-On and Long volatile) cycles will likely coincide with the global market cycle. Thus the Temple Treasury can expand or contract its risk appetite to achieve harmonic synchrony with the market outlook.
Summary
The unveiling of Spice Bazaar Auctions is prelude to the coming Gold rush and the unlocking of volatile value in the Temple Treasury. Even if you’re a TEMPLE no-coiner, you may still join the bidding fun in the Gold Auctions on Ethereum mainnet to gain exposure to potentially lucrative future volatile tokens from Temple. Temple Enjoyooors who are extra bullish on Temple’s volatile tokens can go mega long by borrowing DAI from the TLC to acquire more TGLD. Unleveraged TEMPLE holders who are not borrowing from the TLC can enjoy new TGLD staking rewards. All holders will enjoy better UX via the automation of the “up-only” TPI mechanic which enhances overall Protocol capital efficiency and scalability. Truly, a Golden Age awaits Templars who have waited patiently for the vision of the Grand Temple to come to fruition.
