[RFC] Stablecoin treasury proposals wanted

We are looking to deploy our stablecoin treasury and start earning yield. Right now there is ~$10m of USDC that is sitting idle in the Gro DAO treasury. Even with low risk and passive management this could earn $500k to $1m per year, which would help fund operational costs such as ETH and AVAX for deployments, bots and strategies.

Currently we have kept all DAO funds within GRO protocol but however much faith we have in our code, it would be prudent to diversify and reduce any single point of failure.

Treasury proposals should ideally be:

  • Low risk
  • Diversified from current exposures
  • Low effort to manage

NOTE: extra value should be given to proposals where there is a mutual benefit to Gro DAO i.e. via a mutual deposit of stablecoins into PWRD or Vault.

Please let us know what you think and join the discussion :purple_heart:

4 Likes

Some ideas that have been suggested in various forums:

  • mStable
  • Maple
  • Rari
  • Element
  • Notional

The final two are interesting as Fixed yield could work well for treasury because of a longer term horizon than some investors, meaning funds can be left untouched with no need to withdraw.

In general, my suggestion would be to start small (e.g. $100k each way) and take it from there. We have found with community treasury proposals that it’s much harder to go from zero to one, whereas much easier to then increase from $100k to $XXm. This is what we did with Olympus.

Hey ! Personnaly, I would recommenf apy
.finance in order to diversify. They are also audited and give a good yield. This is also robo advisor. Maybe it could be the opportunity to make partnership, and they could add your protocol to their strategies.
They are relatively young however, but backed by nice vc such alameda.

1 Like

TL;DR
Split risk into 4 main categories: idiosyncratic risk, blockchain protocol inflation risk, opportunity cost risk, protocol growth risk. Different risks require different strategies, some may be considered risky out-of-context. We not only want to preserve capital, but grow it but also diversify it in terms of both financial exposure and hedging for future conditions

To facilitate discussion, I think it helps to think of the risk in several quadrants. These are the risks we’d likely want to hedge against as much as possible (not excluding other risks I missed):

  1. Smart contract/idiosyncratic risk. Being concentrated into one protocol/stablecoin is not ideal
  2. Blockchain protocol inflation risk (ETH/AVAX etc. increasing in price making operations more expensive). Important until there is a well adopted scaling solution that decreases in operational cost as more activity happen i.e rollups
  3. Opportunity cost risk (as mentioned by @charliem216)
  4. Protocol growth risk, particularly on growing less than desired. Growing more than desired is a more palatable risk to take

Thinking about the various risks my thoughts are as follow:

  1. Diversifying into different treasury strategy beyond our own protocol is good to ensure protection against total meltdown . That said it is important to remember that increasing the number of protocols we interact with increases the probability that SOME failure will happen, one day. But the point was to always to try and minimize the impact as much as possible, not completely avoid it. Perhaps we can consider insurance if needed (whether for our own protocol, or other protocol we invest in) as @mjohanm4 has suggested before
  2. Blockchain protocols that have seen and continue to see activity proliferation are likely going to be getting more expensive in the long run. The best way to fight against protocol layer inflation is to be invested into the asset itself. The asset may fluctuate in $ price, but the point here is not principal protection nor growth, but merely making sure a portion of our treasury as high/little as the appreciation of the blockchain protocol asset. Not knowing the future, this is the most rational thing to do
  3. Not doing anything with our treasury asset is safe, but also not growth efficient. In a growth phase it is reasonable to maximize for growth as much as possible. That said we can’t just chase the highest advertised yield out there due to volatility, risk (systematic/idiosyncratic), complexity so a balance is due on trying to grow as much as possible while also reasonably leaving “alpha” on the table. I love the idea of trying to use fixed income protocols to create an opportunity cost floor and create a predictable spending trajectory for the protocol. And while fixed income protocols are often subject to "lockup"s with a secondary market to exit the position, there are protocols being built out that are trying to allow people to borrow against their fixed income assets for greater liquidity. One such protocol is FiatDAO. But even if without such protocols I am on fixed income protocols
  4. Part of the reason for having a protocol treasury is to fund for growth KPIs/missions for the protocol. While Gro’s product value isn’t tied to the treasury protocol, having a larger protocol treasury can give a boost to the product when deemed needed. A simple example would be through incentives of higher yield funded by the protocol treasury (Anchor protocol for example does this). But a more interesting, indirect and yet sustainable incentive mechanism is by using the treasury protocol to boost returns without necessarily losing the treasury protocol capital. An example I have in mind is to accumulate CRV/CVX tokens which can be used to vote in CRV emission gauge weights. And through the Votium app, we can even accumulate other tokens through bribes. CVX can also be used to gain more CRV by staking it if desired, and getting cvxCRV. FXS with their Frax gauge system also runs a

So after gathering my thoughts, here are some interesting investment possibilities accounting the various risks I mentioned above:

  • Fixed income yield from Notional. Simple stablecoin deposit interface earning fixed yield at 7 - 10% over the deposit period (affected by size of deposit). Element is also possible, but requires buying the principal tokens to get the fixed yield. Other potential platforms: Pendle, 88mph. Helps manage opportunity cost risk
  • Trade USDC for ETH to gain direct ETH exposure. Can do ETH staking through platforms like Lido or Rocket Pool. Hedges against inflation risk
  • Use StakeDAO Frax-ETH put selling strategy to gain yield on USDC/FRAX. Hedges against inflation risk , possibly buy ETH at a discount if we continue to believe in Ethereum (which I think we are). StakeDAO token can be staked in Frax finance to gain FXS. FXS exposure can help hedge against protocol growth risk . Can also help create relationship
  • Deposit 3CRV (can be FRAX3CRV, MIM3CRV, LUSDC3CRV etc.) into Convex to gain CRV/CVX. Hedges against protocol growth risk . We ca be confident in the idiosyncratic risk we take on Curve due to it being such an integral part of DeFi. If Convex exposure (platform wise) is a concern, we can also just stake the 3CRV token into Curve itself. Will be missing the Convex emission but will still get CRV emission likely possibly at a lower rate due to no/lower boost. Also higher management complexity directly using Curve
  • Deposit stables to Orion.money. Diversify stable exposure to UST and Terra as a blockchain protocol. Hedges against main stablecoin risk and Ethereum protocol risk
  • As @charliem216 mentioned, deposit into mStable and grow relationship. Hedges against protocol growth risk through future collaboration/partnership and hedges against concentration of idiosyncratic risk
  • Spool finance may be an interesting platform in the upcoming future to explore to create more risk-reward tailored strategies. Also I heard from @joyce that they’re gromies too! Hedges against idiosyncratic risk and potential partnership

Hey @Frod thanks for posting!

Looks pretty epic at ~30% APY on Ethereum mainnet :exploding_head:

Any idea why their TVL hasn’t grown faster?

Honestly this is a mystery considering they offer security, transparency and very competitive rates. They are also publicly audited and backed by big investment funds, so I think the safety side is assured. Please note, “only” 16% of the 30% is returned in stablecoin, the other part is issued as an APY token as an incentive.
They are in my opinion more reliable than mStable in the long term given the flexibility of the protocol, which allows new farms to be integrated in less than a week.

1 Like

I just looked at Angle protocol: https://angle.money. They basically create different kinds of stablecoins backed by collateral, which currently are primarily other stablecoins.

Their USDC liquidity pool give around 18% estimated APY currently which is composed of transaction fees and underlying yield farming strategy. The receipt token from the liquidity pool can also be staked to get their Angle token which is planned to eventually have a similar mechanic to veCRV (locking and gauge voting)

There is also the option if desired to open a leveraged position (they frame it as perpetual futures) in their platform

For more info: https://docs.angle.money/

Similar to the Curve/Convex play, this will help us hedge against protocol growth risk and considering their recent status (they just launched November 3rd), it’s a great opportunity to create relationship

1 Like

I will love to use this opportunity to partner with an index protocol. We can propose a partnership where we will invest in their index pool and in return they include GRO products in 1 of their strategy. This can help in long term demand for GRO products.

2 Likes

@charliem216 just reposting here what I said in discord about Tokemak single-sided USDC deposit: tokemak.xyz

Also… https://twitter.com/element_fi/status/1482067161199910918 :eyes: ENS using Element as part of their treasury solution

1 Like

Possible to go more risk on with tricrypto?

My vote would be for hard assets and crv/cvx

  1. BTC (wbtc, renbtc)
  2. ETH
  3. tricrypt
  4. cvxFXS
  5. cvxCRV
  6. newer: onering multichain stable coin yield optimizer (great strategy coming for LABS if you can find a way to lever into their yield.
1 Like

Interesting! We have ETH and AVAX exposure because these are a core part of protocol utility (i.e. we need them to deploy and run functions that make the protocol work).

Also CVX an interesting play as it has utility in the Curve wars.

BTC/tricrypto is more of a speculative investment. Not saying it’s not the right call, but would be interesting to hear what the community thinks on this :purple_heart:

Suggestion to create a Gro Treasury Committee and whitelist certain ‘blue chip’ protocols to stop funds sitting idle

Following the discussions above the core team has realised that votes for individual smaller protocols take time for discussion and due diligence. Also, if we want to extract maximum value for Gro protocol by securing mutual deposits into Gro in return for a deposit into their protocol, this also takes time for negotiations and discussions with other protocols.

As such we propose that a Gro Treasury Committee is set up to handle the Gro DAO treasury finances. They would spend the time needed on due diligence and negotiations, submit proposals to the DAO for voting, and instruct the DAO multi-sig to act on their instructions.

There could be certain whitelisted ‘blue chip’ protocols (e.g. Aave, Compound, Gro) to allow the Committee to move quickly into uncontroversial assets and make sure funds are being deployed well (right now $10m is sitting idle in the treasury).

Then for smaller, newer protocols there would be a community discussion and a separate DAO vote.

We will post proposed vote wording in a separate community forum post. If you are interested in being part of the committe please let us know :purple_heart:

1 Like