Category: Treasury Management
Scope: Take the portion of USDC in treasury not operationally critical for the next 18-24 months and use it to farm no-or-low IL stable pools within three tranches of risk.
Status: Community feedback
Objective: Earn a basket of promising, upcoming, or saleable assets by using idle treasury assets; increase diversification, acquire utilities, further the decentralized stable asset market.
TLDR: Deposit a portion of Treasury assets into protocols like Aave, Compound, Yearn, Float, or some more risky. Earn tokens. Hold or sell.
Thanks to the Council for early feedback on this BIP!
Diversification so Far:
Before we dive in, quick overview of treasury and revenue holding diversity resulting from BIPS 23 and 31 which outlined one time and recurring diversification respectively. You can see the official Badger DAO Revenue Dashboard here: https://duneanalytics.com/summmason/badger-dao
Revenue (USDC revenue below accounts for diversified funds per recurring revenue diversification)
All Assets (as of the capture that produced the above results)
Badger DAO has roughly 21MM USDC from the strategic partnership diversification. I propose we put these assets to work farming for the DAO by 1) retain a multiplier of 18 month run rate (LTCC + misc) in a wallet for near term use and 2) send the remaining stable to a separate wallet to be split amongst three risk tranches.
Farmed assets will be held, staked, or sold at the discretion of Core with input from the Council.
Why: The DAO Treasury sits near 77.72% BADGER, 16.75% DIGG, and 5.53% USDC. Growing the USDC portion of DAO assets will offset expenses & increase diversification.
Using a 2X multiplier of our current USD expense schedule (LTCCs) we can arrive at a safe reserve of USD assets for the next 18 months: $4.5MM dollars, this will be kept separate from other assets and used to fund the ops multi-sig. (calculation non-inclusive of funds set for purchase of badger.com.)
The lower case accounts for one new LTCC / month for a year. The Base-Case (2X mult., $4.5MM reserve) on 18 months of retained runway is recommended. You can see the calculations here.
I propose the remaining $16.1MM be deployed productively in defi farming activities. You can vote below on Base - Lower - Upper reserve methodology.
To establish if a candidate farm has the right risk/reward the team may take the following into consideration: AUDITS, TVL, team, use case, APY, and correlation of farmed asset to basket.
The following shows the three tranches of risk under which our stable allocations can fall.
Tranches: (core/council have the right to add new farm allocations should they arise, additionally farms may be reclassified if their risk/reward parameters change greatly)
A (Low)- Established protocols: 5-40% APY
Aave, Compound, Yearn 3crv pool
Modelling a number of different allocation outcomes using an average APY for each tranche gives us the following results that you can play with here.
I recommend the first option. 60% in tranche A, 30% in tranche B, 10% in tranche C. You can see given the inputs this has an expected return around $7.2MM or roughly 44% ROI. The DAO can rest easily with 60% of assets in very low risk allocations. The returns on tranche A in this case also outweigh the initial assets deposited in tranche C (as shown highlighted green).
The first step of this process is this BIP, the community will decide what expense calculation we use (1), whether the assets and strategy presented above are fair (2), and the balance of allocations between tranches (3).
The second step of this will be more active. New assets can be brought into the mix either through core/council alignment or community proposal. Anyone may propose to rebalance risk allocations.
This is a call to Badgers! Know a good farm? Know an awesome asset providing liquidity incentives on stables? You’re in the next best zero IL pool for stables? Let’s hear about it and discuss it below!
Upon passing of this snapshot the 18 month runway will be separated from farming allocation. The farming allocation will go to it’s own wallet and 100% of tranche A will be immediately deployed between the three current allocations.
Tranche B assets will be deployed over the following weeks with an initial % being deposited to USDP pools, Float, Frax/USDC LP, and Fei protocols. During this time the DAO will look for other tranche B (and C level) investments, if we fail to find any that have the correct risk/reward then the DAO will deploy the remaining assets to tranche B and or tranche A.
Tranche C assets will be deployed slowly and with not more than 40% of total tranche allocation towards any given project at a given time, allowing us to spread risk.
- Base Case - 2X multiplier on 18 months of retained runway.
- Option One - 60% in tranche A, 30% in tranche B, 10% in tranche C.