Treasuries’ Lending and Revenue Diversification Plan

Ruler Protocol
5 min readAug 27, 2021


Providing rewards or emissions to source liquidity has been a long-standing problem for a majority of protocols, including Ruler Protocol. No solution has been clearly identified until now:

A protocols’ treasury can lend $DAI at a fixed interest rate of their choosing, to be borrowed against their own governance token.

Holders of the governance token can borrow $DAI against this protocols’ token at a fixed rate APR, with no concern for liquidation. This can be done on @RulerProtocol’s order books, located at

Important: Any lender, including protocol treasuries in this example, keep their $DAI in their OWN wallet the entire time their lend order is on order books. Gas is only used to approve the lending order and sign permission, no other transaction fees.

When a borrower executes the order, the BORROWER pays the gas/transaction fee, and then and ONLY then, does the $DAI leave the lender’s/treasuries wallet and go directly to the borrower’s wallet. I will repeat: NO cost to lenders to place orders besides the approval transaction and DAI stays in LENDER’s own wallet the entire time until the borrower executes the order.

If the lender wants to fill a borrower’s order and initiates the transaction, then the lender becomes the taker and does pay both the tx fee & gas.

What are the benefits?

  1. Because the treasury is lending to their own community and does not need to source liquidity from 3rd party lenders, rewards/emissions are not necessary to incentivize lenders and borrowers.
  2. Meanwhile, the treasury is earning yield (from lending at a fixed rate) and generating revenue for the protocol, while providing massive benefit to their community by offering a safe, consistent, and reliable borrowing option.
  3. If the token used as collateral (to borrow against) is a staked yield-earning governance token, the protocol could decide/vote to use the revenue generated for buy-backs which are then issued to the staked yield-earning governance token pool on their own platform.

What are the costs?

Ruler Protocol will collect a 0.2% fee at the time of the loan expiry, paid for by lenders. As an example, $100,000 lent would cost $200 in fees. The fee charged is one-fifth of one percent, currently.

What are the risks?

1. IF at expiry, the strike/mint ratio was lower, borrowers would likely default (not repay) the loan, as the $DAI they received would be worth more than their deposited collateral.

However, this would mean Treasury would receive any $DAI that was repaid, along with the defaulted collateral, which would mean the Treasury is simply buying back their own token at a considerable discount than they would have at the beginning of the loan term.

This risk can be easily mitigated by setting a reasonable mint ratio at the onset.

For example, if the collateral token has a value of $100 DAI, Treasury can decide to set the mint ratio at $50 DAI per deposited collateral token.

This means, for every token a borrower deposits, they would receive the mint ratio equivalent to $DAI. This is a 50% loan-to-value (LTV) ratio. For the risk described above to become real, the token would need to drop MORE than 50% at expiration.

Another benefit

4. Additionally, the treasury may earn more revenue than just the fixed rate. If any borrowers default on the loan and the collateral token is ABOVE the mint ratio, the Treasury profits, sometimes significantly.

If the collateral token is worth $100 DAI per token and Treasury sets mint ratio at $50 DAI per token, a borrower can borrow $1,000 DAI against 20 collateral tokens (which again, are the governance tokens of the protocol).

In this example, the Treasury is entitled to those 20 collateral tokens IF the borrower does not repay the $1000 DAI by loan expiry. At the onset of the loan term, we said each collateral token was worth $100 DAI. If at loan expiry the borrower defaults (does not repay the $1,000 DAI) and the collateral token is worth any amount ABOVE $50, the Treasury is profiting.

Here is the math:

1. Treasury lends $1,000 DAI.

2. Borrower defaults on loan and does not repay $1,000 DAI

3. Treasury loses $1,000 DAI

4. Treasury collects 20-collateral tokens (governance tokens) each valued at $100 DAI = $2000 DAI worth of tokens.

The treasury has ended up with 100% profit and purchased their own governance tokens at a 50% discount, by losing $1,000 DAI but assuming $2,000 DAI worth of tokens.

Discussion :

  • The Treasury is always profiting at expiry if a borrower defaults when the token is above mint ratio.
  • IF the token were worth $80 DAI or $150 DAI at expiry and a borrower or multiple borrowers defaulted, the Treasury’s profit would increase accordingly. This profit can be substantial. If no borrowers default and the token is above mint ratio, the Treasury has still profited by earning the interest rate revenue it lent DAI out at.
  • IF borrowers default at expiry and the token value is below mint ratio, the treasury has simply purchased their own governance tokens at a discount than if they would have at the beginning of the loan term, however, the correlated value in DAI at expiry would be less than the value originally lent out.
  • Community borrowers are happy to have the ability to borrow against their token at a reasonable and fixed-rate APR with no concern for liquidation.
  • The protocol does not have to spend rewards/emissions to source lender liquidity. Community holders are not devalued as they would be if rewards/emissions were used.
  • The protocol is generating revenue.
  • If the DAO opts to use revenue generated to distribute to token holders, a flywheel is created, increasing the value for the token holders, some of which may be borrowers.

Next steps

Our order books are and have been live on Ethereum. You can find them here:

We are expanding our order books to BSC and Polygon very soon. This will help reduce gas/transaction fees for takers executing/filling orders.

If you are interested in this program, have any questions, or if you’d prefer to list your token with rewards to source 3rd party liquidity, please reach out to us via Discord:

Thanks for reading!

Ruler Protocol

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