Invest 10% of DAO treasury fund into yield-generating stablecoin USD+ pegged to USDC

Dear all,
We suggest

Summary

We propose to allocate part of funds into in USD+ (apprx. 10%). USD+ is a yield generating stablecoin pegged to USDC. That would generate additional revenue (apprx 11%) at no additional risk.

Abstract

Currently DAO Treasury funds are allocated in stablecoins and do not bring daily yield. We suggest allocating part of funds in conservative risk yield generating stablecoin pegged to USDC (which means it will be immediately converted 1:1).

USD+ is pegged to/instantly redeemable in USDC. It is 100+% backed by low-risk, highly liquid, yield-generating DeFi assets. USD+ airdrops yield to your wallet daily, no staking required. USD+ is your ‘go-to’ stablecoin, the stablecoin you go to when you are not invested nor yield-farming.One buys and holds USD+ in order to receive yield on its temporarily available stablecoin cash without exposing to risk nor sacrificing liquidity. The project recently received funding from reputable investors.

USD+ is converted into USDC on demand, which allows to hold the exchange ratio.We recently passed audit by Hacken (Audits - Hacken).

Historically, USD+ yield exceeded 10-11% APY. You can evaluate historical APY and risk distribution on Overnight.fi.

We suggest making a small pilot with us to evaluate benefits of our protocol: eg. 10% can be allocated and then the community could decide about keeping assets in USD+.

Benefits of USD+
Liquid. Pegged to USDC. Instantly redeemable.
Low-risk. Designed to minimize volatility, targeting no losses on a daily basis.
Asset-backed. 100% + collateralized with DeFi assets.
Yield generating. 1-5 bps airdropped daily profit
Decentralized. On-chain portfolio management. Voting on portfolio structure.
Transparent. Full disclosure of positions, transactions, M2M and liquidation values.

USD+ Portfolio strategy
The portfolio deployed by Overnight is constructed to minimize risk, maximize liquidity and currently includes:

  • Cash positions in 3 mainstream stablecoins: USDC, DAI, USDT; potentially, MAI, mUSD, PUSD
  • Stablecoin deposits, including AAVE, potentially, Poliquity, mStable, Mai Finance
  • Stable-to-stable liquidity provision, including Curve’s tri-pool, potentially, stable-to-stable liquidity pools on Quickswap, Balancer etc.

Motivation

If we invested Gnosis safe currently in USD+ (current amount is USDC 6mn), on average the protocol would earn USDC1 800 per day (11% APY). If 10% allocates (USDC 600 000), that would result in USD 180 daily extra revenue (or 1260 per week or apprx. 5000 per month).

We believe that would bring value to your system.

Specification

Several steps required to launch allocation of funds:

  1. Create new Gnosis safe on Polygon and allocate part of funds.
  2. Make a pilot allocation e.g. 10% of funds into USD+.
  3. Receive daily yield

Benefits

Benefits of keeping funds in USD+

  • brings daily yield
  • low risk (conservative)
  • immediate 1:1 conversion into USDC
  • adding Polygon increases diversification

Drawback

Depositing funds in USD+ requires opening new Gnosis safe on Polygon.

4 Likes

Welcome to the 1inch Network governance forum, thanks for posting!

I think the treasury certainly needs to start investing its funds so that we can at least keep pace with inflation (looks like the yields offered by USD+ would outpace inflation, so that is awesome).

To put some dollar amounts on the proposal, the Treasury currently holds about $6.4M in USDC, so this proposal would allocate ~$640,000 to this yield-generating strategy.


Regarding the Specification – we’ll need to really flesh out the mechanics of this to get it right. Currently, we use SafeSnap to execute the DAO’s Snapshot votes – this minimizes trust while also maintaining a high level of security.

I believe we can probably still maintain a high degree of security, and trustlessness, if we use Gnosis Guild’s Zodiac Bridge Module (which should allow the Ethereum mainnet Treasury control the actions of the Polygon Investment Treasury).

The part that requires further research is finding out if this Polygon Investment Treasury can be controlled in the same way (Snapshot + SafeSnap on Ethereum mainnet). One issue with this approach is that all transactions would have to be voted on first, so it’ll be slower than the more centralized multi-sig approach. This isn’t that big of a deal because it seems that USD+ is a totally passive way to accrue yield, but if the DAO wanted to rapidly exit the position it would take at least a week.

Since it is only 10% of the Treasury (risk is limited), it might make sense to do a combination of multi-sig + SafeSnap. Normally, transactions would go through the Snapshot vote, but then we’d have multi-sig backup functionality to use in the case of emergencies. With that in mind, I’d be curious to hear the other 1inch DAO member’s thoughts on how this should be structured.


For the Phase-2 formalization post, we need to make sure that it conforms to the 1IP template – feel free to reach out to me directly when that time comes and I can offer some 1IP editing assistance. No rush on this task, we’d still need to wait on community feedback and the feasibility of using Zodiac Bridge.

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@avzharkov I wanna draw out the security norms of this stablecoin. Ofcourse A single Audit is just not enough in defi space . I wanna see possibilities with more security on this .

Should we not use a pool of other yield generating stable coins like ust which does like 19% apy or origin dollar ousd etc instead of allocating the funds to a single entity .

I think there should be some conditions in place with the participating protocol in order to ensure safety . Maybe be an Auction System where protocol bids for the treasury allocation

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Dear Roxan

I agree with your overarching point that risk and liquidity criteria should prevail over APY criteria when selecting how to optimize return on the DAO’s treasury cash.

In this respect, when you are mentioning UST (or rather referring to the possibility to get 19%+ APY by staking UST in Anchor on Cosmos), let me point out that (1) UST is an algorithmic stablecoin with no real assets behind it and many scenarios how it can depeg (2) Anchor is running out of reserves to maintain the 19% return as it is lending cheaper than it borrows (https://www.coindesk.com/markets/2022/01/28/anchor-protocol-reserves-slide-as-money-markets-founder-talks-down-concerns/). These would be extremely dangerous investments despite high APY and multiple audits available.

The best assets to optimize return on DAO’s temporarily available cash, imho, should meet the following criteria:

  • be at least 100% collaterized by real DeFI assets
  • to be liquid enough to convert into cash ‘on demand’ (USDT, USDC, DAI)
  • generate sustainable yield from the collateral
  • have minimum risk appetite (there could be no losses even on a 1 day horizon)

The assets that meet these criteria are AAVE (aUSDC, aUSDT, aDAI), Compound (cUSDC, cUSDT, cDAI) and Overnight (USD+) as all 3 are fully collaterized by conservative assets, convert into cash on demand, the source of yield is transparent and sustainable. Of these 3 USD+ offers much higher yield (PoLybor Overnight « Polygon) as by design it has more low risk investment strategies at its disposal than others with AAVE’s representing just a subset of its collateral

Second tier stablecoins to be considered could be PWRD by Gro and OUSD by Origin dollar. Those, however, despite meeting risk criteria, have 2 major issues: yield in line with AAVE/Compound (significantly lower than that of USD+) and most importantly 0,5% fee for converting into cash on demand. 0,5% fee for converting back into cash makes it essentially unfit for liquidity management purposes.

My proposal for the sake of this discussion would be to allocate 90% of the treasury to AAVE/Compound and USD+. Actually, the only reason to maintain any cash balance at all vs. keeping money in AAVE/Compound are the gas costs for depositing/withdrawing to/from those protocols. Once USD+ gets 2nd audit and wider adoption, it would be appropriate to have equal allocation b/w the 3 (30-30-30). In the meantime, 40-40-10 would make more sense.

Disclosure: I’m affiliated with Overnight and quite passionate about yield generating stablecoins. the proposal written is written with the best of the community intentions in mind: even if USD+ is eventually not voted, I am honestly convinced that the only other protocols worth investing DAO’s cash into are AAVE and Compound

4 Likes

Sorry if my understanding is wrong, but allocating 90% of the national treasury to just two places?
Isn’t that too much concentration and too little preparation for unforeseen circumstances?

Also, I personally don’t trust the USDT. I don’t think there is any possibility of creating confusion in the future.
Although nothing may happen as a result, I don’t trust Tether’s behavior of not disclosing information and I want the treasury of 1inch to stay out of USDT as much as possible.

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I think putting treasury funds out of the reach of 1inch and investing it any other protocol seems to be risky . Whether it’s an index , curve pools , multi stable coin strategy . All of these stablecoin strategy have some risk assosciated with them . Whether it inflation or contract bugs .

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This is a very good suggestion and there are plenty of opportunities to farm stable coins safely on Polygon. Here are a few suggestions to allocate the ~$640,000 of DAO treasury to safely earn > 10% APR in low risk protocols.

Here are my recommendations of extremely safe farms:
**1. Curve Finance Polygon **
1.A. MAI-am3CRV Pool 16% APY
1.B. am3CRV Pool 6% APY

  1. mSTABLE Polygon
    2.A. mSAVE 3.5% APY

  2. Balancer Polygon
    3.A. MAI Stable Pool (MAI,USDT,USDC,DAI) 13%
    3.B. TUSD Stable (TUSD,USDT,USDC,DAI) 5%

  3. Overnight
    4.A. USD+ 5%

As always, the final call is with the DAO and community who can decide the protocols as well as the allocation to each farm.

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This question is purely based on my lack of financial knowledge.
Would it be an option for 1inch to use the treasury to build the system itself to earn APY from such asset management?

I think that if 1inch, the organization that has the closest relationship with the treasury than any other organization, could create a system to generate APY using the treasury, I would feel much more comfortable leaving it to them as a provider to the treasury than using the services of other companies.
I believe that 1inch’s development team has a high level of security awareness, so I think so even more.

(This is assuming that the people involved in 1inch, including the DAO, have the skills and knowledge to create such a system, which of course is impossible if this assumption is not met. I also understand that it would be more practical to use another company’s service if there is a development project that should be prioritized over the creation of such a system, but in reality, what do you think?)

This topic is very interesting to me personally.
I hope you can see it as my own overarching opinion on this topic.

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Agreed . This is the problem & why only 10% is being allocated for this because we know the risk . If one 1inch team can create own method whether in form of lending , bonds , options etc. treasury can earn itself i think instead of 10% we can even allocate 100% to 70% funds too keeping security at mind

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Anything that goes out of the reach of 1inch ecosytem seems a bit dangerous

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image

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Amazing overview. Do we know each other?))

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@Roxan could you kindly comment please

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I’m still looking into this 1IP to check the general sentiment of the DAO towards allocation . As the proposal is extensive , I think some dao members also commented to wait for all members to vote .

If you have doubT or thinking to vote then please check it -

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BTW we can also invite USD+ team member for next DAO community call for their pitch . @RoundElephant can arrange that too

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Thx. We would be glad to pitch USD+. It has shown great resilience through this UST debacle, held the peg abd actually grew yield for users.

When I asked for comment, I had referred to our exchange on the merits of UST, hoping to score some “reputation points” for the quality of USD+ risk management

Our exchange was here Invest 10% of DAO treasury fund into yield-generating stablecoin USD+ pegged to USDC - #11 by Roxan

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That would be very interesting seeing as the entire financial world (not just the crypto space) seems to be talking about DeFi and stablecoins right now. Could be quite topical.

We were exploring some other guests for the next 1inch Community Call, but absolutely nothing has been set in stone yet.

I really like the idea of the 1inch Community giving input on who they want to see at the next call (like you just did). Let me see if the scheduling and logistics can be worked out on my end then I’ll update this thread.

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That would be very interesting seeing as the entire financial world (not just the crypto space)