KIP Draft: Treasury Yield Management for USDC via USV
UPDATED 12/16 with new APY
title: treasury yield management for USDC via USV
author: @Charles | Phuture (charles@phuture.finance)
date: 2022-12-15
category: treasury investment
replaces: N/A
dependencies: N/A
Proposal
Invest 20% ($1,906,526) of the Rook DAO Treasury USDC holdings in Phuture’s USDC savings vault (USV) over a period of time.
References
Background
As of December 15, 2022 the Rook DAO treasury has $9,532,634 USDC [1]. This capital should be put to work, in a safe, low risk environment. Starting with a select percentage then growing the exposure from there.
Phuture is a decentralised protocol that gives users passive exposure to crypto assets [2]. We create on-chain index funds and structured products so you can get exposure without the complexity.
We’ve created a low-risk USDC savings vault (USV) built upon Notional Finance’s fixed rate market [3]. This product has been built as a treasury management solution for the likes of the Rook DAO treasury.
USV offers an optimised interest rate by investing into a blend of Notional Finance three and six-month fixed-rate bonds. USV then dynamically allocates capital to whichever maturity has the highest interest rate at the time.
Key Points
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USV is able to produce higher yields than Aave, Compound and other like providers because it benefits from the premium that fixed rates can obtain.
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USDC is deposited for USV, this USV will be held by the DAO. USV has no lock-ups and will be redeemable at any given time.
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Due to the fixed nature of USV’s lending, the interest earned at maturity on its underlying bonds are insulated from immediate changes in the market rate.
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The Rook DAO treasury will be able to fully verify the on-chain process and where the yield is generated. They custody the yielding bearing assets and can take comfort in knowing the safety of the yield generated.
Investment amount and type
This is a yield generating investment with a proposed amount of 20% of Rook DAO Treasury USDC holdings ($1,906,526 as of 12/15/22).
Expected benefits for Rook
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Removes the cost, complexity and time needed to manage different maturities.
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Access your capital at any time.
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Higher yields than other providers like Yearn, AAVE or Compound
Why Generate Yield?
The Rook DAO community could use the additional funds to grow the treasury, fund token buybacks, deploy more capital into new projects, increase marketing spend, fund philanthropic activities. The possibilities are endless. The Rook DAO treasury is in a strong position and one where taking advantage of USV will bring great upside with little to no risk downside risk.
Why Phuture?
Phuture is a decentralised protocol that gives users passive exposure to crypto assets. We create on-chain index funds and structured products so you can get exposure without the complexity.
Our savings vault product range, starting with USDC has been purpose built as a treasury management tool. We benefit from the premium fixed rate yields which means the high yields are not variable, but dependable for users.
USV requires zero management from the Rook DAO treasury, due to the passive nature of the product. Meaning the Rook DAO treasury just has to withdraw if they decide to in the far future.
Analysis
Expected Return
The Rook DAO treasury can expect to earn 2.5-5% APY.
3.3% (as of 16th of Dec) of the 20% allocated would return per year = $63,487
3.3% (as of 16th of Dec) on the total USDC holding would return per year = $317,436
Potential Risks and Mitigation
Short term losses can occur due to Intra maturity price fluctuations of the underlying bonds. However, these will always be recovered as the bond reaches maturity.
Implementation
Execution
Directly mint USV, allowing the strategy to manage the underlying bonds and produce the yields for the Rook DAO treasury.
We would suggest introducing the 20% ($1,906,526) through multiple tranches over a time period which we can share with a more detailed breakdown upon the success of this proposal.
The Rook DAO community would hold the USV assets in their custody. USV is redeemable for USDC at any given time.
We also note that a smaller test transaction would be merited to make sure the Rook DAO treasury can become comfortable with the process. The Phuture team will be available to run through the process for the Rook DAO treasury team.
Monitoring and Reporting
Rook DAO’s position will be viewable on the Phuture app [4]. The Phuture Team will also work with Rook DAO’s Treasury to develop appropriate public dashboards to track the position.
Official Team and Disclosure
Charles Storry (Growth lead) - Charles | Phuture#2761 (Discord)
Oliver Mehr (Product lead) - Oliver | Phuture#0686 (Discord)
Alex Melnichuk (Tech lead) - Alex M#7244 (Discord)
Specification
- Upon ratification, Phuture team will partner with Rook DAO Treasury to develop tranches and timeline
- Rook DAO Treasury will move funds to USV in tranches as agreed above