KIP Draft: Making Idle Assets Productive

Proposal

As of October 1st, 2021, the KeeperDAO treasury has an AUM of just under 100 million USD. Most proposals in the early days of governance have plans on how to best spend these funds but few are on how to retain or grow the treasury. This proposal’s goal is to make the community agreement that yield farming with a portion of the treasury is in the protocol’s best interest. As it stands the treasury is currently being used to prevent liquidations using JITU and there are plans to use the treasury for flash loans. This proposal has an ambitious goal of staking approximately 37.5% of the treasury. The crux of this proposal is to see what percentage of the treasury is idle and make that portion productive to maximize earnings for the protocol.

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Specification

As you can see from the previous figure, roughly 50% of the treasury of composed of ETH, and 25% is stables, depending on the risk tolerance of the community. The best yields based on a risk to rewards ratio I could find on these 2 assets are on Ribbon finance where ETH apy is on avg. 20% and stable coin apy are on avg. 35%. Farming with 50% of these assets would net the protocol approximately 19 million USD of yearly returns assuming market conditions remain for a year. The yield earned from this use of the treasury could be used to do token buybacks and fund the acquisition of new talent for the protocol.

Limitations

The main risk of going through with this proposal in my mind is the risk of exploits being found in the staking causing the loss of funds, my counterargument for this is that the MasterChef staking contract has gone through exhaustive audits and the only real concern is the protocol that we chose to stake with as opposed to the exploit risk.

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Thank you - this is a rather interesting idea, and makes a lot of sense. Thanks for your thoughts and great insight with Ribbon :slight_smile:

Just want to add a couple notes as we explore this:

  • While I do like Ribbon, I think your notes about risk are quite important. If we were to take this action, It might be worth considering choosing a few protocols, collectively, to diversify risk.
  • Right now some of our eth, btc, and stables are put to use with our own LPs. This topic gets interesting when one considers collateralisation of ROOK as a substitute for existing LPs. It remains to be seen if this can be done in a low-risk (eg no-risk) manner, and again, ties into collective risk tolerance.

I 100% agree, the purpose of this was more akin to putting a KIP with plans to productivize idle portions of the treasury. Choosing protocols was going to be in future proposals because a more granular approach can be taken. The reason I mentioned Ribbon is that that is the highest single-sided staking apy I could find and I use it myself and like it from experience. Another cool thing is if the farming qualifies for airdrops those can be distributed to Rook holders

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@yungpeso

I do not know if it is best for me to add to this idea here or create a separate kip… but I had similar thoughts with some additions:
Make KeeperDAO multi-chain.
ROOK has created a lot of $$ through hiding game, coordination game, & Incentives game. Those revenues have been declining for various reasons, growth of layer 2 protocols being a main reason. What if we created a new game that would increase treasury revenues and increase the value of the rook token. The Farming Game. Farming yields on EVM compatible layer 2 projects with high APY opportunities with idle treasury funds. Rook continues to extract the MEV from ETH but then it will also put it to work in Defi. Cross chain platforms like Fantom for example, have major incentives $$ for high TVL projects. These incentive rewards alone could be upwards of $10-20+ million dollars. These chains have strong and loyal communities that get excited when new projects come over and it would attract their members to our protocol.

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I Highly recommend writing a KIP about this, I would fully support it!

I like this KIP. Had not used Ribbon yet, but looks solid.

For stablecoin based strategies, this is a good weekly guide: [Weekly] Market Return on StableCoin-based Strategies(1 Nov 2021) | by The Serenity Fund | Nov, 2021 | Medium

Hi yungpeso, with the ETH apy you are referring to their T-ETH-C (Ribbon Finance: Crypto structured products on Ethereum) I presume? This is a relatively low-risk covered call strategy. At 20% apy currently that is clearly outperforming alternatives, which are probably at 0-5%. Given the limited risk, this is a sound investment.
With the stable coin apy I presume you refer to their T-yvUSDC-P-ETH (Ribbon Finance: Crypto structured products on Ethereum). This is a strategy selling put options, which is significantly more risky. One really bad week can wipe out a whole year of profits. Currently 36% apy. Alternatives USDC returns are probably at 10-30% so the premium might also be less. Less or equal premium at higher risk, thus we might want to be careful with this stable-coin product. And I would advocate that we allocate relatively more to their ETH product.

I spoke to Julian (who will be speaking at the community call) from ribbon and he said they will be making a call selling vault as well which might be a better fit

Is it possible to have a call selling vault in a stable-coin? Interested to see how that works

This is all still up in the air, I think the community call will answer most of our questions and maybe raise some more pertinent ones

come to the community call on thursday and hear me ask Julian live.