YIP Proposal: Treasury investment strategy and allocation - Updated 10/16
YAM’s treasury is currently the Most Valuable Piece MVP of YAM. Until there are new protocols developed like the Yam Crop Protection we need to take good care of the treasury.
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.
This is only the asset allocation portion of the portfolio, which I expect to be only a % of the treasury. We can still start brainstorming and parallel processing this piece without knowing the % yet.
Again this is only a % of the entire treasury that we will be allocating to an “investment strategy” there will be other allocations for the Yam protocol products / Operation costs / ect. That % hasn’t been decided yet but that doesn’t stop us from figuring out what is a good risk adjusted return that we can get from investing.
A relatively conservative portfolio of
75% reduced risk Yield Farming
20% investments into other DEFI projects or partnerships
5% downside risk Hedging.
Details as follows:
Quick quality check of a few known and established farms:
Yields from some of those farms with the highest highlighted yellow:
Sample Portfolio if we were to invest in those yields with a simple allocation:
|Sample Yield Farming Holdings|
|5%||Hedging using Options|
|20%||Left for partnership / DEFI project investments|
This is just an example of what we could do.
- With options we can partake in the upside with ETH but not the downside… Very important and good risk management.
- Upside ETH + 18% APY after covering the costs of options
- We still have 20% set aside for more aggressive investments / partnership.
- DPI and wBTC are not hedged with options but they are a small % of the portfolio
- Tail risk with farming contracts
- Farm APY fluctuates - I chose farms with more stable rates.
- OPYN put options might not have enough liquidity to cover 1000 ETH or whatever the final result is
- Options Pricing change regularly and also have an expiration date.
- Requires semi active management along with regularly re-balancing the portfolio and monitoring of yields from farms
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.
Structure is of extreme importance in decentralized governance, we can always change, but let’s get something together to start.
Poll to Measure Sentiment
- Sample Portfolio is approximately what we would like
- Portfolio needs a different strategy completely.