[Chateau Capital] LTIPP Application FINAL

Archive Long Term Incentives Pilot Program
1

SECTION 1: APPLICANT INFORMATION

Chateau-App

Applicant Name: Alex Valaitis

Project Name: Chateau Capital

Project Description: Chateau brings institutional-grade RWAs on chain for international investors, with freely tradable and composable ERC tokens that can be used across the Arbitrum DeFi ecosystem.

Team Members and Roles:

Project Links: [Enter Any Relevant Project Links (website, demo, github, twitter, etc.)]

Contact Information

Point of Contact (note: this should be an individual’s name, not the name of the protocol): Alex Valaitis

Point of Contact’s TG handle: @ SiliconCowboy

Twitter: @ alex_valaitis

Email: alex@chateau.capital

Do you acknowledge that your team will be subject to a KYC requirement?: Yes

SECTION 2a: Team and Product Information

Team experience (Any relevant experience that may be useful in evaluating ability to ship, or execution with grant incentives. Please provide references knowledgeable about past work, where relevant. If you wish to do so privately, indicate that. [Optional, but recommended]):

The Chateau team has deep experience across security offerings, deal origination and execution, product, operations, engineering, and legal realms.

Hao Jün Tan: Hao is a full-stack software engineer and multi-time crypto founder. He also graduated from the NYU Stern school of business, which has been crucial for driving deal flow with Wall Street institutions to bring their top RWA products to the Arbitrum ecosystem.

Alex Valaitis: Alex has deep product & operations experience from product leadership roles at silicon valley companies including LinkedIn and Intuit. He is the former COO of DeSo, a layer-1 blockchain that raised $200M and is currently listed on Coinbase. Alex has also built a strong cross-chain following from publishing numerous blockchain reports and Twitter threads (50K+ Crypto newsletter subs, 37K Twitter followers).

Zeev Kirsh: Zeev is a NY Bar attorney and opportunity strategist specializing in securities law, BSA/AML compliance, and token issuance. He graduated from Columbia Law, and worked on Bear Stearns Liquidation and Lehman Bankruptcy in 08’. He was the General Counsel at Brock Pierce’s DNA Fund and multiple other crypto offerings. Publications here.

Kaso Qian: Kaso is a full-time smart contract engineer with a focus on DeFi He is a frequent contributor to open source projects. He has published several solidity-related books, achieved excellent results in multiple hackathons, and received grants from the Ethereum Foundation. Prev: veSyncL2, NextmeOne, LX DAO, Buidler DAO.

What novelty or innovation does your product bring to Arbitrum?

Chateau issues freely tradable and composable RWA tokens built on ERC standards that represent private equities, debt and derivative products.

Chateau has exclusives with a number of Wall Street and Silicon Valley firms to offer institutional-grade debt and equity offerings on chain exclusively to the Arbitrum community.

Here is an overview of our first 2 offerings:

  1. Chateau Alternative Debt ($CHAD.D) - 15% APY

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CHAD.D is an ERC20 tokenized share in an offshore debt fund managed by Covenant Venture Capital.

Covenant’s U.S.-based Alternative Credit Opportunities fund has yielded 18-21% since 2011 with no drawdown on principle. The current syndicate is $500 Million in size, with 80% held by institutional investors.

This is a category leading product in the private credit market, and is normally only marketed to institutional and high-net worth individuals. Through Chateau, it’s now available to international investors on Arbitrum One for primary issuance and redemption.

Chateau will integrate CHAD.D with Gearbox to offer a fully composable, 10x levered version of CHAD.D yielding 150%. Pendle.fi integration will offer interest rate swaps.

  1. Chateau Reverse Repo Vault ($CRR.D) - 5.20% APY

Chateau’s Reverse Repo Vault is an ERC4626 Vault that offers overnight exposure to interbank lending rates. CRR.D has a same business day issuance time and T+2 redemption window. This product is much more liquid than TBills, and safer for investors due to the lack of interest rate risk which would cause volatility in TBills anytime rates are changed.

Chateau Reverse Repo Vault will be integrated with Gearbox to enable 10x leverage at 52%, and Pendle Finance for interest rate swaps.

Future Offerings

Chateau has a pipeline of RWA products, with future offerings that include Green energy Bonds and pre-IPO equity in companies like OpenAI and SpaceX.

Is your project composable with other projects on Arbitrum? If so, please explain:

Yes. Chateau offerings utilize ERC-20/4626/721 standards and can be used across DeFi applications.

Chateau.capital is a primary issuance/redemption venue, but the assets are immediately available for secondary trading if investors so choose. Chateau tokens will integrate with borrow/lend protocols such as Curvance/Omo to drive further distribution.

Chateau tokens will enjoy liquidity on Arbitrum DEXs as well as integration with 3rd party DeFi apps like Gearbox and Pendle to offer additional leverage, rehypothecation and more.

Do you have any comparable protocols within the Arbitrum ecosystem or other blockchains?

There are similar RWA protocols including Centrifuge, Ondo Finance, Maple Finance, etc.

The main differences between Chateau vs competitors are

i. Freely tradable and composable RWA tokens

RWA credit products on platforms like Centrifuge are subject to strict transfer restrictions for at least 6 months. Accredited Investor rules further block access by retail investors. These restrictions prevent other RWA platforms from unlocking the true power of DeFi for their users.

Chateau offerings are freely tradable and composable from day one.

ii. All asset classes with high quality offerings

Chateau has signed an exclusive with Wall Street firms to tokenize quality products. This is in stark contrast to existing debt products, many of which yield below 10%, or have obscure counterparty risks (lending to emerging markets counterparties) or are real estate buildings with no real appeal.

iii. Light touch legal framework

Chateau’s unique approach is enabled by a token model integrated with a novel legal framework engineered by Zeev Kirsh, cofounder and NY Securities Attorney.

Chateau’s fundamental value proposition is an issuance model that enables low cost, light touch DeFi native offerings to non-US investors with full legal recourse, like a Initial Public Offering on chain.

How do you measure and think about retention internally? (metrics, target KPIs)

The nature of private equity, debt and derivative products necessitates a longer holding window than more speculative crypto assets.

CHAD.D has a maturity of 12 months, while private equities like OpenAI may have multi-year windows before investors can realize the upside at IPO. (They can still trade secondary markets and buy/sell before conversion)

However, unlike traditional financial investors Chateau asset investors can enjoy liquidity through secondary markets or leverage through lending/borrowing on DeFi. This is one of our fundamental value propositions. We are confident investors will remain with Chateau as long as we continue to offer attractive products

In terms of specific metrics:

  • True North: TVL in CHAD.D, Trading volume of CHAD.D secondaries
  • Signpost: Total unique investors in CHAD.D
  • Signpost: Daily transactions
  • Signpost: Daily swap fees
  • Signpost: Integration with other DeFi projects

Do you agree to remove team-controlled wallets from all milestone metrics AND exclude team-controlled wallets from any incentives included in your plan:

Yes

Did you utilize a grants consultant or other third party not named as a grantee to draft this proposal? If so, please disclose the details of that arrangement here, including conflicts of interest (Note: this does NOT disqualify an applicant):

No

SECTION 2b: PROTOCOL DETAILS

Provide details about the Arbitrum protocol requirements relevant to the grant. This information ensures that the applicant is aligned with the technical specifications and commitments of the grant.

Is the protocol native to Arbitrum?: Yes.

On what other networks is the protocol deployed?: We are prioritizing Arbitrum to maximize distribution to the most DeFi users

What date did you deploy on Arbitrum mainnet?: February 28th, 2024

Do you have a native token?: Not yet.

But we are launching our points program soon.

Past Incentivization:

N/A

Current Incentivization: How are you currently incentivizing your protocol?

We have the best RWA products on the market from an APY/Sharpe ratio standpoint. All of our products are also exclusive with the issuing Wall St institutions. Our peers mostly have products yielding 4-10% while CHAD.D is at 15%.

Have you received a grant from the DAO, Foundation, or any Arbitrum ecosystem related program?

No

Protocol Performance:

While our contracts are live on Arbitrum One, we will not begin our public GTM push until this coming Tuesday.

Please refer to the CHAD.D offering page to see the latest TVL metrics at the time of application review.

Protocol Roadmap:

  • Offerings roadmap

    • Offering 1: Chateau Alternative Debt - 15% APY
    • Offering 2: Chateau Reverse Repo Vault - 5.20% APY
    • Offering 3: Green impact bonds
    • Offering 4: OpenAI, AnthropicAI and other AI private equities
    • Offering 5: Credit Default Swaps for banks going under

  • DeFi roadmap

    • LP pools on top exchanges on Arbitrum
    • Integrations with borrow/lend protocols on Arbitrum
    • Composability with liquid staking token vaults, with infinite re-staking and degeneracy potential

Audit History & Security Vendors:

We have passed 2 smart contract audits:

  1. The first with Zellic, which can be viewed here.
  2. The second with CD Security, which can be viewed here.

Security Incidents:

No.

Our hack risk is relatively lower than other protocols, since our protocol will not hold any value. Stablecoins are periodically converted to fiat and used to acquire Real world assets off chain.

If Chateau gets hacked, the only risks are to the staking contract and LP pools.

SECTION 3: GRANT INFORMATION

Detail the requested grant size, provide an overview of the budget breakdown, specify the funding and contract addresses, and describe any matching funds if relevant.

Requested Grant Size:

112,500 ARB

Justification for the size of the grant 37:

Chateau Private Debt has the capacity to issue $100M+ annually (30M monthly capacity). And with preferred returns for investors at 15%, it is one of the best credit products in all of DeFi.

Our goal with this grant is to incentivize secondary trading of CHAD.D on Arbitrum-native DEXs like Camelot.

Specifically, for the first $1.5M worth of CHAD.D staked in CHAD.D staking pools on Camelot, we would like to add an additional 15% yield (on top of the 15% returns from holding CHAD.D) for a total of 30% yield.

$1.5 million * 0.15 = $225,000 or 112,500 ARB at current prices.

NOTE: While this is our target allocation, the team wants to emphasis that we are open to accepting a smaller grant size if needed. Ultimately the signal that an LTIPP grant provides is the most important aspect to us.

Grant Matching:

We are working to source our own buy side deals with OTC desks, family offices, high net worth individuals and more.

Out of the first $50M in TVL that is driven into the Chateau Alternative Debt product, we expect to drive at least half of all TVL through our direct connections.

This is due to the nature of private debt products being an ideal portfolio addition for large institutions who have large amounts of funds earmarked for these types of products.

We will also match Arbitrum grants with our own platform token rewards which will be monitored in the short-to-medium term via our points program.

Grant Breakdown:

As mentioned above, we would like to double the yield (from 15% to 30%) for the first $1.5M worth of CHAD.D staked in CHAD.D staking pools on Camelot + other DEXs.

All funds will go directly to this reward yield and we will implement mechanisms to prevent farming and sybil attacks.

(Note: Since the maturation window for CHAD.D is 12 months, this will also create a natural filter against short term holders or farmers)

Funding Address: Arbitrum One: 0x974426Fe2F4C417F25F514B749804c23Be6FD696

Funding Address Characteristics: 3/4 multi-sig

Treasury Address:

N/A

Contract Address:

We assume this will just be the same as the funding address? Please let us know if we are misunderstanding the question.

SECTION 4: GRANT OBJECTIVES, EXECUTION AND MILESTONES

Objectives:

Our goal is to become the leading RWA platform for the Arbitrum ecosystem. We have the necessary network and domain expertise to bring in better products than any of our competitors.

However, since RWAs are still a relatively new category of DeFi, it would be extremely helpful to have the Arbitrum DAO co-sign our products with its credibility and token incentives to reward initial early adopters.

Execution Strategy:

We want to keep our execution strategy as simple/straightforward as possible by using it as an additional form of yield to encourage participation in secondary markets for our first offerings CHAD.D.

(We are also open to allocating rewards to CRR.D if the Arbitrum DAO feels it is better split between our 2 offerings).

At a high level, this is how we plan to execute:

  • We have multi 7 figures in demand already built up for CHAD.D issuance, and plan to drive more demand through our points program.

  • The goal is then to build a robust secondary market on Camelot and other leading Arbitrum DEXs, with the additional reward from this LTIPP grant bringing yield to 30%.

  • We then plan to further integrate CHAD.D (and other offerings) across the Arbitrum ecosystem.

By keeping our execution strategy straightforward, the DAO can ensure that all funds are being used to maximize RWA adoption on Arbitrum.

What mechanisms within the incentive design will you implement to incentivize “stickiness” whether it be users, liquidity or some other targeted metric?

One benefit of CHAD.D is that it has a maturation window of 12 months. This built in mechanism will help attract investors with a long-term mindset.

We also plan to fast-follow with additional debt and equity offerings that will allow users to build a holistic portfolio of RWA assets on Arbitrum.

Specify the KPIs that will be used to measure success in achieving the grant objectives and designate a source of truth for governance to use to verify accuracy.

  1. TVL in CHAD.D secondary pools on Arbitrum: This true north metric ensures that the extra reward incentive worked in attracting liquidity to our debt product.

  2. Total unique investors in CHAD.D: This is a signpost metric ensures that the rewards are distributed to many Arbitrum DeFi investors and not just a few whales.

  3. Trading fees on Camelot: This is a signpost metric that ensures we are generating demand for CHAD.D token.

Grant Timeline and Milestones:

We would like to start incentivizing liquidity from day one. Our contracts are already live on Arbitrum One:

name Address
shareCoin 0x2A5923Fe418a49B186021C5eA32790ad59a868b8
usdtCoin 0xFd086bC7CD5C481DCC9C85ebE478A1C0b69FCbb9
stakingPool 0x3b03610B92f56d76A3C759A6102170007BFF1648
vaultPool 0x6C35f0D51FE45d82a92665A1C95c01C688625f36
factory 0xa1bA56D0722f6b3A64DABF4b62FBb9C68d2BB631

We are open to the continuing of the grant being predicated on:

  1. Increasing TVL/User milestones hit
  2. Additional RWA products offered eg Treasuries, Private Equities, Credit Default Swaps

How will receiving a grant enable you to foster growth or innovation within the Arbitrum ecosystem?

Investors chase yield, this grant enables Chateau to offer more attractive returns to investors.

Since Chateau’s model is fundamentally a two sided marketplace between on-chain investors and off chain institutions, the grant’s boost to our demand will also translate into more institutional recognition of Arbitrum as a leading RWA L2 and be more eager to work with Chateau to deploy more assets on chain.

Do you accept the funding of your grant streamed linearly for the duration of your grant proposal, and that the multisig holds the power to halt your stream? [Yes/No]

Yes. Being rewarded in a manner that scales with our metrics is in line with our expectations.

SECTION 5: Data and Reporting

Is your team prepared to comply with OBL’s data requirements for the entire life of the program and three months following and then handoff to the Arbitrum DAO? Are there any special requests/considerations that should be considered?

Yes.

Does your team agree to provide bi-weekly program updates on the Arbitrum Forum thread that reference your OBL dashboard?

Yes. We are happy to build a Dune analytics dashboard or something similar for tracking.

Does your team agree to provide a final closeout report not later than two weeks from the ending date of your program?

Yes.

Does your team acknowledge that failure to comply with any of the above requests can result in the halting of the program’s funding stream?: [Y/N]

Yes.

2

Haha, yeah, it’s quite ambitious to ask for such a large amount without a track record.

3

Hello @alex_valaitis ,

Thank you for your application! Your advisor will be @JoJo.

Please join the LTIPP discord and ping your advisor in the general chat so they can create a new channel and start communicating with you.

4

Hey Guru,

Thanks for the response. It’s a totally fair point.

A few quick points to consider:

  • Our team does have a very strong track record across Crypto and Big tech, and have stewarded large sums of funds in the past. For instance, I helped raised $200M for DeSo as COO and oversaw our $50M ecosystem fund. While I was there, we made contingent grants/investments of this size or more. The key was to properly vet the background of the team and have clearly defined milestones.

  • The funds are being allocated as additional reward on the baseline 15% CHAD.D preferred returns, and it will stay within the Arbitrum ecosystem given the current nature of the reward emission. A lot of other projects are currently cross-chain and will immediately begin leaking liquidity into other ecosystems from day 1.

  • We actually prefer a performance-based structure for this incentive. I.e. If we don’t drive the investors/liquidity en masse, then we can cut off or scale down the incentive. But if this helps boost Arbitrum to the largest RWA position by TVL then it is a no-brainer.

Ultimately we have the best private credit product in the entire RWA space. If you can find me a better product from a Yield/Sharpe ratio standpoint happy to learn more.

But most of the other products are either low-yielding, on chain T-Bills OR sketchy credit products in emerging markets. This is a debt fund managed by Wall Street veterans who have ran a $500 private credit syndicate since 2011 and never performed below 18-21%.

5

It sounds like fundraising, where team performance counts. But the grant is for protocols, not for individuals. i meant your protocol doesn’t have track record.

6

Yeah that’s a fair point, but I think part of the purpose of a program like LTIPP is to help protocols grow with the Arbitrum ecosystem. If we only select established players, it limits the potential upside.

That being said, this is something that is out of our control so it’s more productive to focus on the information we do have available.

Do you have any feedback on our RWA offerings, legal offering structure, etc?

7

@Matt_StableLab confirming that we have finished our internal review & finished reviewing with our advisor.

Please let us know if anything else is missing.

We look forward to the feedback from the council!