Formalize a treasury investing strategy and allocation

Formalize a treasury investing strategy and allocation.

Basic Summary
Instead of a piecemeal approach to allocating and investing the treasury we should formalize some guidelines / strategy / allocation on how we will put the treasury to good use. Similar to an investment portfolio when you work with a financial advisor.

Abstract
From a regular investment portfolio there are 3 basic asset classes that we can invest in: Equities / Bond & Fixed Income / Cash & Equivalents. In our crypto world, we have thru defi developed a comparable equivalent to these three asset classes! (As a financial advisor I am ecstatic about Yam and the whole defi ecosystem)

Equities == Ethereum / Bitcoin / Uniswap ect. Anything coin or token that has no stability function and is adjusted to supply and demand.
Bonds & Fixed Income == Yield Farming (If possible use a low risk low volatility asset ie. stable coins)
Cash & Equivalents == Stablecoins

My proposal is to allocate a percentage of the treasury towards investing in other assets by following the agreed upon strategy. A few things that this does not discuss:

  1. We need to reserve a % of treasury towards development of the Yam protocol and ecosystem (this should be discussed on another proposal)
  2. How the ragequit() function will effect the treasury. ie. if someone rage quits where does the money come from? We don’t want it to sell off a % of all the assets because it is inefficient and likely going to cost a ton of gas to unwind positions. IMO a stablecoin payout would be best.
  3. How often we should re-balance the portfolio and allow for additions and removals. I suggest a lock in time in order to allow results to be effective. Normally in the finance world it is a minimum of 3-5 years but in crypto, I suggest 3+ months.

On to this proposal:
We should select a portfolio allocation commonly accepted by the investment community:

A Conservative Portfolio == 70% Yield Farming / 15% Stable Coins / 15% Equities
Moderately Conservative Portfolio == 55% Yield Farming / 10% Stable Coins / 35% Equities
Moderately Aggressive Portfolio == 35% Yield Farming / 10% Stable Coins / 55% Equities
An Aggressive Portfolio == 25% Yield Farming / 10% Stable Coins / 65% Equities
A Very Aggressive Portfolio == 10% Yield Farming / 10% Stable Coins / 80% Equities
No Portfolio

Motivation
Part of Yam’s beauty is the fact that there is a community governance of a treasury for the benefit of the whole. If we can manage this properly the value of the treasury will increase and along with it the value of Yams. We need a smart strategy to make sure we get good risk adjusted returns.
Also remember this treasury is for everyone, not just your individual preferences for risk. I’d recommend a lower risk tolerance for the group, think of this as your pension fund.

Specifications
Steps to get this done:

  1. Community decided on if and what kind of portfolio is appropriate.
  2. Another YIP for % allocation of what to allocate for YAM ecosystem development vs Investment side.
  3. Another YIP to decide the actual assets to invest in.
  4. Another YIP to decide if we would like to timelock the investment assets.

Poll to Measure Sentiment
I would like Yam’s investment allocation to be:
A Conservative Portfolio == 70% Yield Farming / 15% Stable Coins / 15% Equities

Moderately Conservative Portfolio == 55% Yield Farming / 10% Stable Coins / 35% Equities

Moderately Aggressive Portfolio == 35% Yield Farming / 10% Stable Coins / 55% Equities

An Aggressive Portfolio == 25% Yield Farming / 10% Stable Coins / 65% Equities

A Very Aggressive Portfolio == 10% Yield Farming / 10% Stable Coins / 80% Equities

No Portfolio

5 Likes

@feddas thanks for writing this up. This is a great start and I think you would agree with me that what you are proposing is a subset of the whole treasury allocation. The larger meta-issue, as you mention, is how much of the treasury goes to ecosystem development and or investments that individual YAM holders would be able to make themselves. This goes back to larger questions of what YAM is conceptually and how does it use it’s treasury to reinforce that.

Personally, I hold the view that in order for the YAMs treasury to grow and provide benefits to YAM holders over the long term, we need to be more aggressive in our ecosystem investments. Anyone can hold the DPI set or yUSD and get that exposure. And given that I expect there will soon be a preponderance of industrial yield farming protocols coming out (like yEarn), unless we have some edge in yield farming, this will not differentiate YAMs.

So the value that I see for YAMs is that there is expertise and a treasury to fund projects that either want to be a part of the YAMs ecosystem, or independent projects with the promise of equity. Essentially a decentralized VC fund. A step down from this would be to invest treasury funds directly into one of the other new investment DAOs like the the LAO or MetaCartel Ventures. (I have no idea how this would work from a regulatory standpoint.)

TLDR: Just investing a large portion of the treasury into assets that users could invest in otherwise does not add much value to YAM holders unless the book value and treasury value of YAMs are almost identical.

1 Like

I agree! I’d prefer investment into ecosystem but I have seen lots of requests/proposals for different asset investments. It would be best to organize these and put them to bed via a good allocation and strategy then use the rest of the money for ecosystem development.

good thinking :+1: :+1:

1 Like

Thanks for conceptualizing this initiative to formalize the YAM Treasury porfolio, @feddas!

I concur with @rossgalloway that this should be a subset only of the entirety of YAM Treasury allocation. Another top-priority subset should be the ecosystem funds/developments (perhaps the ragequit() will be in this subset). Yam community should also make another subset that goes to the core and contributing teams, future employees, etc., of the YAM Protocol.

I personally believe allocating a % from YAM Treasury that goes to these hard-working individuals (because we all know we all got bills to pay), could be paid bi-weekly or monthly, rather than paying lump-sum, would strengthen their commitments to best forward the future of YAM Protocol. Just my 2 yammies.

At the moment, there is an on-going off-chain proposal to buy $250k DPI and this can be considered blue-chip DeFi crypto equity. If this is ratified off-chain, yam community should then start establishing the treasury subsets and its % allocation thru intensive brainstorming, which imo will take some time, that is best suited for the future of YAM Protocol. This should be assessed well enough that we are not over allocating one subset or another, and that it benches the greatest benefits of yam holders. 'Coz once this is implemented, it would be hard to amend this in the future, esp. if some whales will be compromised for re-allocating the YAM Treasury. Just a conspiracy yammy.

Imho, yield farming is not yet over. DeFi bubble is still here and yam community should leverage this to generate revenue for the YAM Treasury as another investment strategy. There is an on-going yam community talks regarding farming $UNI, so we will see how the yam community perceive this. For now, let the treasury generate revenue and in the future yam community can decide what % goes to different subsets.

TL;DR: Determine the subsets of YAM Treasury and its % allocation that are needed for the sustainability of YAM Protocol; these include ecosystem funds/developments, investment strategies, core and contributing teams, future employees, etc. If these subsets are defined, yam community can then start formalizing/establishing, thru intensive brainstorming, what type of portfolio is best fitted for YAM Treasury subsets. For now, let the YAM Treasury generate revenues and the yam community can cross this bridge of proposal when the time is ready.

3 Likes

While the narrative of owning a piece of yam’s treasury through purchasing yam might be interesting , at this point of time it wouldn’t appeal to most long term investors as they could do the same by just buying yUSD & DPI and avoid being wrapped by an additional layer of contract risk.

I agree with @rossgalloway that YAM needs to be more aggressive in their fund usage, just holding funds in the treasury might not be the optimal strategy. We should take advantage of the current defi ecosystem. For example now the yUSD is just sitting in the treasury not being utilized. we could have deposited them to a lending platform like Cream FInance earning another additional 2% interest rate and consistently rotating them to various lending platform when a better interest rate appears.

In regards to buying DPI , i think is a step in the right direction of diversifying into defi. But are we able to decouple the assets when a yield farming/ lending opportunity of a specific coin occurs , or is it better to hold the individual coins instead to be more versatile to be able to keep rotating among different lending platforms to earn interest?

Most importantly to attract long term investors to buy-in yam, the strategies that the treasury employ must be something that a normal investor cannot do on his own easily.

2 Likes

I agree but what concerns me is that we’ve already voted to buy $250k DPI. If I was looking into Yam right now, I would see very disorganized treasury management. One of the beauties of Yam should be it’s decentralized governance of the treasury and the potential growth and utilization of it.

Right now we are not doing that. We do really need to get the team paid and figure out what we want to allocate to the ecosystem and what to an asset portfolio. Also from a financial planner standpoint, buying DPI very high risk due because Yam is considered DEFI, if DEFI takes a hit, like now, everything goes down with it. It would be better to asset allocate in a different-ish field. Stablecoins for the time being is very easily understood and low risk.

这个方案很完美,国库应该分散投资,只需要投资比列调整来个投票就行了。
该到了给国库发挥作用提案的时候了。

1 Like

I will be creating a new thread with updates.

Archiving this thread, please see update here: YIP Proposal: Treasury investment strategy and allocation - Updated