YIP Proposal: Treasury investment strategy and allocation - Updated

I’m very familiar with traditional market leveraged funds as I have had significant exposure to them for a long time. Assuming you pick the most liquid and predictable funds, you’ll be mostly fine.

I have been watching the leveraged bull/inverse tokens. On the surface it doesn’t seem that we would benefit much from this exposure of the bull/bear tokens. Liquidity is also poor.

The Hedge is primarily against downside risk. Since many of the farms will have some sort of volatile asset like ETH, we don’t want our portfolio going down 10% due to a drop in ETH. We’d like some protection against that just in case.

是不是应该在设置百分之五的基金,让团队发展好的项目进行私募?

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投票吧,我们不要浪费时间了,现在基本进入抄底区域了!逐步买入!

所以请不要讨论了,我们需要的是投票结果!

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Yes, more research has to be done, but I appreciate that you want to move forward (me too). Specifically I need to rework some of the numbers and produce a solid plan on yield / risk.

Hedging with options of leveraged shorts will need some work to figure out the optimal way to produce the desired results. We will be using some sort of on chain option like Opyn if needed.

Also some mining rewards are ending(UNI) and/or decreasing, so that must also be accounted for.

Overall great work @feddas!

这是个变化无常的市场,没有完美的时候。只要团队把项目进展好,比如保险和采矿设计好。
这就像底层基础,牢固!稳定的收益,国库是前进的,后期资金还需要跟进。
目前属于建仓时候,只要把比列调整好。如果百分之七十为股票,那对冲不要太复杂化,大部分应该都是以太坊。永续合约对冲就控制风险了,百分之一,每天的费率收益就不错。

说错了,应该是永续合约一倍就控制风险了,不是百分之一

没有完美的对冲方案,对冲是为了控制下跌风险。

@yuluzhang
I understand that you want to move quickly but this treasury isn’t just yours or mine, it’s a collective, and sometimes it’s better to move slow and smooth than fast and hard.
We are at a low right now and the team did a good thing by buying a stablecoin yUSD rather than recklessly investing in other things. Now is time to organize and plan to utilize what YAM hodlers have sacrificed.

I am putting together a list of farms to research.
Anyone have pros/cons/insights of these:
Sushiswap (audited)
DODO (audited)
Harvest.finance (not audited)
Pickle.finance (not audited)
IndexCoop.com (audit?)

I am familiar with these but wanted to reach out to the community for feedback.
Thanks in advance.

投资本身就是有序缓慢的进行,后期我们还可能要不停的投资。现在需要的是迈出第一步罢了,我们纸上谈兵太久,谁敢保证投资必须赚钱?

以太坊2.0步伐越来越近,比特币机构都在加仓,政策面资金持续放水,不在下跌和横盘区间建仓,难道我们的投资等着后面追高建仓?

没人知道高低点,但既然投资,为了投资负责,也应该把前面工作提前做好,然后缓慢有序建仓,这也是对持有yam的人负责吧

We have taken the first step, we are in the process of purchasing Defi Pulse Index on Tokensets.com. Should be available shortly.

Been working on the hedging with options or 3x leveraged short tokens. Let me know what you guys think:

TL/DR
Using options to hedge will cost approx 60% APY on the Hedged amount of ETH but it has upside potential ie. If the (price+farming yield) of the covered ETH goes above 60% APY it is all gains
Worse case senario is that the price does not move at all and it costs you 60% APY, so if we can get the total farm APY up to 60%, this cost is covered as well.
Using 3x leveraged tokens that rebalance daily (FTX ETHBEAR) will cost you ~11%APY but no upside if ETH goes up. There’s a possibility it costs more if ETH goes up and down and price stays the same (worse case secenario due to rebalancing daily)

Hedge https://opyn.co/#/buy Put Options Pricing Days from till exp Cost per Cost % Gain per day Cost
Expiry Strike Price Current WETH Price Protection Cost To Break Even 10/14/2020 Day Including Strike to Cover Cost APY
Oct 16th 2020 04:00 EDT 320 $375.06 0.813 $375.87 2 0.4065 27.9365 0.1083827% 39.560%
Oct 23rd 2020 04:00 EDT 330 $375.06 4.7974 $379.86 9 0.533044444 5.539711111 0.1421224% 51.875%
Oct 30th 2020 04:00 EDT 360 $375.06 15.09 $390.15 16 0.943125 1.884375 0.2514598% 91.783%
Oct 30th 2020 04:00 EDT 320 $375.06 8.5128 $383.57 16 0.53205 3.9733 0.1418573% 51.778%
Dec 25th 2020 03:00 EST 360 $375.06 42.9086 $417.97 73 0.587789041 0.794090411 0.1567187% 57.202%
If you can achieve 57%+ APY yield/gain on ETH you can cover the cost of the options, so no downside risk, only upside

Leveraged Short Tokens
Tokens also charge a daily management fee of 0.03% or 11%APY
ETHBear Tokens 3x Short
Leveraged tokens rebalance once per day and whenever they get 4x levered.
Because of the daily rebalancing, leveraged tokens will reduce risk when they lose and reinvest profits when they win.
BTC daily prices BTC 3x BTC BTCBULL
10k, 11k, 10k 0% 0% -5.45%
10k, 11k, 12.1k 21% 63% 69%
10k, 9.5k, 9k -10% -30% -28.40%

Let’s say we have full coverage on ETH, there is still a 11% APY management fee.
No upside potential on ETH

Sorry for the botched cut and paste job, I’ll throw this up on discord.

我只会按时间大概率来算,毕竟上涨周期短,对冲防备大幅度拉升,所以很多时候套期保值,赚的是手续费!,我是计算不了你这算法,您辛苦了!

I really appreciate you beginning this dialogue and the work you put in. This is a great base framework to go by. I have a differing opinion regarding the breakdown of how these funds should be allocated though.

Here is what my thesis is based off of. YAM can do well if crypto does well. YAM will not do well if crypto crashes. There is just no way around it. So I do not see the need for any kind of hedging or just being conservative in general. Just being an Ethereum project is a bet on crypto in itself. There is no reason to cap our upside by taking a conservative approach. I’ll give you a good example. In 2016, DigixDAO (DGD) raised 466,648 ETH, worth $7M at the time. Digix didn’t hedge or convert that ETH to cash. They held essentially all their reserves. At the peak of 2017, that 466,648 ETH was worth over $650M. Essentially, we might as well capitalize on the upside because on the downside we’re screwed anyways. And the upside is so asymmetrically huge that we want to maximize.

So here are my thoughts on allocation breakdown (using your terminology):

Equities 80%

Bonds & Fixed Income 20%

Cash 0%

Let me clarify a few things. I think we should have a stablecoin balance requirement (not included in this breakdown) that is used for day-to-day operations/salaries. Once over that amount, the excess gets invested. When under that amount, all new funds go towards that balance until it hits the threshold.

I think there is no reason to hold cash outside of what is necessary for expenses. You can hold stablecoins and deposit them in Curve to generate a low risk yield. There should be no cash just sitting when we can be generating a return on those stablecoins. Since this is considered “yield farming”, I put 0% for cash and factored that into the “Bonds & Fixed Income” category. So maybe something like 10% stablecoins earning a low risk yield, and 10% on farming strategies.

Then equities. We should be betting on the space. More specifically, the Ethereum ecosystem. One thing ETH enthusiasts will disagree on is the value of BTC. Some think it is valuable and others think it’s worth very little. To avoid unnecessary circular arguing, we should avoid investing in WBTC and stick to things we can all generally agree on: DeFi and other Ethereum projects. Yield-farming can be complex, high-risk, and even a losing endeavor in many circumstances. If you include the time and risk involved, it can actually be a more intensive way to generate inferior returns compared to betting on the right Ethereum projects. That is why I put such a high weight in equities versus yield farming.

I’d like to have a distributed, trusted team of multi-sig signers that control and invest these funds. We would need investment strategists who have a proven record of successful investing in the space. It is better to place trust in experts than to try to manage investing in a fully decentralized way with many people. This space also moves very fast, so not being able to make the necessary moves in time due to a lengthy process/large consensus seems like a disastrous way of managing funds. We can set investing rules/guidelines and have the ability to vote them out if we see fit.

I don’t think this should be how we allocate all the funds (as stated by the OP and Trent), because we would like to use some to seed policies for the insurance product and be able to utilize funds for other products. But for the fund portion of the treasury, these are my thoughts on how I think we should allocate it.

Good work so far guys. I’m very interested in furthering this discussion with all of you.

-AAA

是的,我也想到了这一点。

另外,在说一点,一倍的对冲空单是必须有的,毕竟上涨周期很短,每天的永续合约空单资金费率不少,前提看持有量,如果量少就没必要了!

This plan is only for the investing arm of the treasury, there will be funds set aside for daily operations in a “different” account.

But also a significant portion of the pairs for yield farming will be stablecoins to keep the account relatively low risk.

I will be posting an updated strategy based on the feedback from everyone!

Keep it up

I will be posting a new thread with updates.

Here’s an update with new research + a sample portfolio:

Please feedback and comments welcome