[TFIP-39]: Legacy Blockwater BUSD preservation and conversion proposal

Proposals
1

Summary (TL;DR)

This proposal seeks approval to preserve lender recovery value by authorizing the conversion of 645,405.81 BUSD currently held in the Blockwater Loan smart contract into USDC or USDT, in light of the announced deprecation of BUSD.

The conversion is expected to incur an approximate 1% execution cost, resulting in an estimated 638,951.76 USDC/USDT, and is intended solely to mitigate the risk of BUSD becoming illiquid or valueless over time.

Background

Following the historical default of Blockwater in the legacy tfBUSD pool, a partial repayment equivalent to approximately 19% of outstanding principal was repaid and remains held today in the Blockwater Loan smart contract, denominated in BUSD.

These assets represent one of the remaining recovery paths available to lenders affected by the Blockwater default. They are not held in SAFU and are not part of the active DAO treasury, but they remain economically relevant to the resolution of legacy defaults.

BUSD Deprecation Risk

Paxos, the issuer of BUSD, has publicly announced the halt of minting new BUSD tokens and the progressive wind-down of the asset. While BUSD remains usable today, it is broadly understood that:

  • BUSD liquidity is expected to decline over time;

  • long-term usability and market support are uncertain;

  • the probability of BUSD becoming illiquid or effectively valueless increases if no action is taken.

In this context, continuing to hold recovery assets denominated in BUSD exposes lenders to asymmetric downside risk with no compensating upside.

Problem Statement

Absent action by governance:

  • lenders risk recovering 645,405.81 BUSD that may eventually have negligible or zero value;

  • the DAO would knowingly allow a recoverable legacy asset to deteriorate;

  • the opportunity to preserve meaningful recovery value may be lost permanently.

This proposal does not attempt to modify historical defaults, restructure liabilities, or accelerate distributions. Its sole purpose is asset preservation.

Proposed Action

The DAO is asked to approve the following high-level mandate:

  1. Authorize the conversion of 645,405.81 BUSD currently held in the Blockwater Loan smart contract into USDC or USDT.

  2. Accept an estimated ~1% execution cost, resulting in approximately 638,951.76 USDC/USDT.

  3. Ensure that the converted stablecoins remain designated for Blockwater-related lender recoveries.

Implementation Steps (to be finalized)

At the time of posting this proposal, the Foundation does not yet have a finalized technical execution path for the conversion of BUSD held in the Blockwater Loan smart contract.

The underlying contracts were not designed to support direct asset swaps, and certain standard lifecycle functions (e.g. redemption mechanisms) may trigger undesired side effects, including the burning of LOAN and/or DEF tokens, which the Foundation explicitly seeks to avoid.

Governance Intent

The intent of this proposal is to obtain community approval for the objective and outcome, namely:

  • extracting the BUSD recovery assets from the Blockwater Loan smart contract;

  • converting them into USDC or USDT to preserve value;

  • preserving all existing LOAN and DEF token balances, without triggering burns or lifecycle finalization mechanics.

Execution Approach

Following forum discussion and prior to the final Tally vote, the core contributors and technical teams will:

  • analyze the Blockwater Loan and related smart contracts;

  • identify a technically sound execution path that achieves the above objectives;

  • ensure the solution operates within existing contract constraints and governance controls.

The finalized implementation plan, including:

  • the exact transaction flow,

  • the executing address(es),

  • and the governance execution mechanism (e.g. Timelock execution via Tally),

will be shared with the community via Tally and will be carried out only after successful governance approval.

Conclusion

TFIP-39 is a narrowly scoped, risk-mitigating proposal intended to prevent the avoidable impairment of lender recovery assets. By authorizing the conversion of BUSD into a more durable stablecoin, the DAO acts prudently in the face of known asset deprecation risk while preserving full flexibility for future legacy resolutions.

Next Governance Steps

As the proposals does not fall under the simplified governance exemptions, the proposal will require the following steps:

1. Forum Posting: A 72-hour posting period on the forum to allow the community to provide feedback.

2. Snapshot Vote: A 48-hour Snapshot vote will be conducted with the options: “OK to vote on Tally,” “Not OK to vote on Tally,” and “Abstain.” At least 5% of staked TRU must participate in this Snapshot vote to meet the quorum.

3. Amendment Period: If the 5% quorum is met, with a majority negative vote, a 72-hour period will follow to allow for any amendments or discussions before the proposal is posted to Tally.

4. Tally Vote: Otherwise, the proposal will be posted to Tally for the final vote.

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