The health and security of the YAM Treasury is a reflection of how well it is managed. The treasury is a key part of achieving our goals. It is used to pay for the work the contributors do and used to bootstrap our products and is invested into projects the community thinks are valuable.
As it stands, the treasury is still somewhat unstructured and consists of pieces that have been voted on and implemented intermittently in the past. While most of these previous decisions were beneficial to the DAO, they may not be ideal to achieve our long term goals, or may no longer be adding the value that they once did. Like any garden, the treasury has become a little overgrown, and it needs to be managed and pruned back to grow optimally.
I have written a much more in-depth analysis of the YAM treasury and how it is structured here: Treasury Analysis
I encourage anyone interested to read the analysis above, but below I will give the TL:DR of the conclusions that I have come to.
- Our treasury is complex and has many different moving pieces that all support a part of YAM’s mission. Without a framework to make decisions about it, we risk becoming paralyzed in our ability to adjust it to take advantage of market conditions or new opportunities.
- There are a few distinct buckets that most treasury assets fall into. Those are Operating Funds, Productive Assets, and Reserves.
- We want to maintain a overall risk level for the treasury that protects from downside and still has exposure to the upside of the crypto markets.
- The success of YAM is going to come not only from our ability to invest the treasury, but from the collective work we do and our ability to build products and generate revenues. This means that treasury protection should be prioritized over treasury investment growth, unless that growth comes from product revenues.
We should re-balance the Treasury now and pick the parameters for how we will keep the treasury balanced in the future.
Pick a Treasury Risk Profile based on @krugman25’s previous work:
Document describing the Metrics can be found here DAO House Portfolio Models v2 (StdDev Ratio Added)
This post describes the initial parameters for the YamDAOSet and the chosen allocation was a “3 - Moderate risk profile” with a Beta of roughly 0.75 and a correlation of 0.5.
This metric was not defined for the overall treasury, but right now our overall Treasury beta and correlation are significantly above this level, with a beta closer to ~0.85 and a correlation of ~0.7.
We can still achieve the goals we need in bootstrapping our own projects and growing the treasury with a less risky treasury balance. This will also insulate the Treasury from some of the volatility of the market.
I propose we set the overall treasury risk level to the same level as the we decided for the YDS. This is a “3 - moderate risk” level with targets for Beta, Correlation, and Std. Deviation at 0.7, 0.6, and 1 respectively.
Lets review the asset breakdown and we can choose another risk level if the community deems this overly risky or not aggressive enough.
There are many different ways that we can allocate assets to meet our risk parameters. A Treasury composition of 34% ETH, 33% DeFi Tokens, 33% stablecoins would put us within the “medium” risk factor that we discussed above. This breakdown would include all our existing treasury assets.
Set Max percentages of strategic assets in the treasury based on the above weighting and general liquidity in the market for said assets. Proposed max levels are:
- Sushi - 6% (Currently ~9.3%)
- UMA - 5% (Currently ~2.7%)
- INDEX - 3% (Currently ~7%)
- Gitcoin - 1% (currently 0.6%)
Rebalance the treasury by selling some of our ETH, DPI, sushi, and Index for stablecoins to bring these assets down to their target percentages. We would not buy any of the Strategic assets that are underweight, but let them accrue over time as we earn them. We may not be able to rebalance some of the less liquid assets (Index) all at once so this will need to happen over a longer period of time. DPI can be used as an “all-purpose” DEFI asset to fill in as needed. See more details in this spreadsheet: 21.07.19 treasury reblance analysis
Here is a sankey Diagram showing the proposed re-balance flow.
Beyond this first rebalancing, we should be doing monthly rebalancings of the treasury based on the risk metrics and percentage caps for different assets in the treasury. This would be done by using Krugman’s monthly risk analyses and adjusting our different asset weightings accordingly.
The process will be as follows:
- @krugman25 will product monthly Treasury Analysis reports and present them to the community Mid-month.
- Using this report, a public forum post will be made with a recommendation for rebalancing if the risk factors have moved out of the governance approved range. Quantities of different assets to rebalance should be listed. Discussion will be open for 1 week.
- Snapshot vote to confirm rebalance. 3 days
- If Approved, the rebalance will be included in the omnibus on-chain vote that occurs monthly.
Enshrining this process and completing these steps would go a long way in making our treasury management process more transparent and digestible by the community. This then allows us to make more informed decisions about how to allocate revenues and profits.
If you answers to the above are no, please explain why in a post below.