Create a framework for consistent evaluation and rebalancing of Yam’s treasury to ensure long term support of Yam’s DAO and its mission. Framework will have a step by step guide that will allow anyone with basic computer and excel skills to create a proposal to rebalance the treasury.
Yam’s treasury supports multiple critical functions for Yam DAO. It pays for all expenses including contributor compensation and is also an investment vehicle for the DAO. YAM currently does not have any revenue/income generating products therefor is currently solely relying on the performance of the Treasury to maintain all critical functions. Creating a framework that can accommodate the needs of the DAO and also rebalance the assets to maintain a proper risk profile will help ensure long term success of Yam DAO.
In specific terms:
- Treasury is currently out of balance, stable coins account for 49% of the treasury when based on the current allocation it suppose to be at 30%.
- Current strategy uses beta and correlation to determine risk, these numbers have not been checked since 2021.
- There has been a significant changes to Yam’s organizational structure and expenses but the current strategy does not account for this.
- Current rebalancing strategy created by YIP-80 requires that Krugman to “crunch the numbers”. Unfortunately he is no longer able to do this for Yam, so no one does it now.
What are the different elements that need to be built or designed to complete this project?
- Understanding current and future potential needs of the DAO from the treasury perspective.
- Evaluate current investment strategy of a moderately portfolio targeting < 0.75 Beta and < 0.5 Correlation and most recent rebalancing: YIP-80 YAM Treasury Rebalancing
a. Things have changed now that we are no longer in the middle of a bull market, in addition there have been significant changes to Yam DAO and its expenses. Taking these considerations into account to evaluate for long term success of Yam DAO is now more prudent than ever.
b. Also there are significant limitations for a DAO managed Treasury that personal investment portfolios do not have. Due to my previous work with Yam, I’ve worked thru many of these issues and will be able to give a better comprehensive portfolio. For example, Yam currently only has access to Uniswap V2 to make simple swaps. Without a new contract to access other liquidity pools, some of the tail assets in the treasury need to be managed differently.
- Make recommendations based on results from #1.
a. Should we change strategy targets? Maybe move to a % allocation model since crypto in general is highly correlated and there are not any good counter balances to crypto within the guidelines of a DAO Treasury.
b. What and why are the recommendations appropriate for Yam DAO and the long term future.
- Create a framework for rebalancing and maintenance of the treasury.
a. Successful treasury management requires maintenance of the assets.
b. Framework will be a step by step guide with necessary tools to signal for the need to rebalance the treasury and then provide the way to do it.
c. Framework will need to be adjusted if there are significant changes to the types of assets or expenses of the DAO but general guidelines will be provided.
- Steward recommendations thru Yam governance, adjust if needed and assist in applying changes to Yam Treasury.
- The scope of this project is purely to define and create a treasury maintenance system that will allow assets to be used to support Yam DAO.
- This treasury maintenance system will be as simple as possible so that it won’t require a specific person in order to use. Reliance on a specific person has limited the use of previous treasury management sytems.
Are there other potential ways to solve this problem? Why choose this one?
This project will explore potential alternatives to solve the problem. Given the limitations of an On-chain governed treasury, alternatives are limited.
Describe what characteristics the project
When complete these people
MUSTbe able to do X
–Any user MUST be able to initiate process to update treasury using framework.
–Any user MUST be able to use guidelines to submit to governance a proposal to rebalance the treasury to maintain investment strategy.
–Any user MUST be able to use guidelines to submit to governance a proposal to change treasury investment strategy.
When complete, the project
– The project MUST be able to accept relevant data and produce a result that can be submitted to governance.
– The project MUST provide the necessary tools to be used by anyone.
– The project MUST come to consensus on what assets to hold in the treasury and how to handle assets that might not fit directly into the model.
– The project MUST come to consensus on what to do where the treasury is needed to finance Yam DAO projects/silos.
When complete, the project
WILL NOTallow Y.
– The project WILL NOT provide the solidity code to submit the on-chain governance.
– The project WILL NOT be able to determine changes in the type of assets in the treasury during the regular rebalancing or investment strategy changes.
COULDallow users to do XY.
– The project could contain a framework that is not specific to Yam’s Treasury and can be applied to other treasuries potentially useful to reinvigorate Yam’s DAO house as a service.
List the participants who are expected to use and interact with the project in its expected completed form. Describe what their role is and what skills they need to perform this role.
Role: Any user
Necessary Skills: Basic excel skills. **Subject to change
How they interact with the project: User will start the process of evaluating if treasury needs to be adjusted by following guide. Guide will be step by step and only require excel skills. Guide should lead user all the way up to the process of submitting a governance proposal to update treasury.
What is the full user flow for this project. Is this all part of the scope?
Every month a user will initiate a check of the treasury using the guide.
The guide will lead the user step by step thru the process of checking if the treasury is out of balance according to the allocation and risk profile.
If treasury is out of balance, the guide will lead the user thru an excel spreadsheet to calculate the changes to bring the treasury back into balance.
The guide will then instruct the user on how to submit rebalancing plan and or a plan to change investment strategy.
If governance decides to change investment strategy, the guide can lead user thru excel spreadsheet to create new allocation numbers.
Are there other projects or contracts that the project will interact with? How will they do so? What are the security risks from these interactions?
The framework is self contained and can be operated by a single user. The user will have to interact with Yam governance and Yam on-chain governance developer. Yam governance is in the hands of the token holder, if any changes are not approved then rebalancing stops until the next time the treasury is checked using framework. Any smart contract work that is needed by this framework will be included in Yam’s monthly on-chain transaction as a simple swap of assets.
What security assumptions need to be made for this project to be successful?
For the project to work, the user must follow the guide and make recommendations based on calculated numbers and not personal opinions.
Are there financial risks to either the DAO or to users of the project?
This project’s purpose is to minimize financial risk of the treasury by primarily using rebalancing. All assets in the treasury are at risk assets even the stablecoins are subject to smart contract risk.
Are there similar examples to the proposal that token holders can use to compare or understand the scope?
Asset rebalancing is a tried and true method to maintain risk levels according to investing strategy. There are different crypto native products that will rebalance the portfolio depending on its specifications. They could be a good addition to the assets contained in the treasury and will be evaluating them along with this framework. Some comparable projects: indexcoop.com / enzyme.finance / tokensets.com
Please provide a rough estimate of the time expected to fulfill different parts of the scope, as well as full completion of the project. This does not need to detail all parts, but should provide a general overview of how long the project may take. More detailed information should live in grant applications
Multiple parts of this proposal will be published publicly with request for feedback. I anticipate the need to work 25 hours a week due to the time it takes for public feedback and Yam governance timing.
- 2 Weeks – Requirements Doc
a. Publish / Feedback / Snapshot Approval
- 4 Weeks - Evaluate current investment strategy of a moderately portfolio targeting < 0.75 Beta and < 0.5 Correlation. Incorporate ideas around protocol owned liquidity and long term governance adjustments. Make recommendations.
a. Publish / Feedback
- 8 Weeks - Create a framework for rebalancing and maintenance of the treasury.
a. Publish / Feedback
- 4 Weeks - Steward recommendations thru Yam governance, adjust if needed and assist in applying changes to Yam Treasury.
a. Publish / Feedback / Snapshot Approval / On-Chain Approval
Please add any additional information here that doesn’t have a place to go above and you think is important to fully specify this project.
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