• General

  • Request for Comment: Treasury Framework

Summary

The purpose of this post is to request feedback on a new treasury strategy and framework for Olympus DAO resulting in an official proposal covering the following categories:

  • Guiding policy

  • Target treasury composition

  • Asset allocation process

  • Strategic Assets

  • Other

This is a call to action for the DAO to comment on any or all of the above categories. Please provide feedback organized by section / sub-section. We hope to make this as inclusive and iterative as possible.

Guiding Policy

The Olympus treasury is at the very core of the protocol and the DAO, and combined with novel monetary policy, makes OHM unique. The long-term sustainable management of the treasury is essential to OHM’s success. Yet, we must also recognize OHM’s growth will be driven to a far greater extent by true demand and utility rather than treasury management alone. Our strategy should reflect this reality by focusing on conservative deployment strategies as opposed to active and aggressive investments. Furthermore, our strategy should be consistent with Olympus’ ethos of decentralization, favoring organic third party proposals and scalability to ensure the framework is compatible with an on-chained governed future. The treasury team may devise and propose strategies but hopes to eventually spend more time shepherding and vetting proposals from the community, DAOS, service providers, etc.

Target Treasury Composition Recommendations

Asset Mix: The treasury team recommends a 75%/25% between stable assets and volatile/ directional assets, respectively. This ratio will provide Olympus with a stable base for open market operations (RBS) while maintaining sufficient market correlation and upside. Assets should be limited to 5% of their respective circulating supplies. The treasury team will continuously monitor the ratio of assets within each category and evaluate new assets as they become available.

For reference, the current asset mix is approximately 80%/20%, composed of the following:

Rebalancing: The target weights should behave more like bands, rebalancing when weights deviate more than 10% from targets. Custom strategies may be created to automatically rebalance and a dashboard will be created to empirically measure positions against their target weights.

Protocol Owned Liquidity Mix: Rebalance OHM/DAI and OHM/ETH pool sizes to match broader treasury target ratios. As of this writing there is approximately $16 million and $20 million of DAI and ETH, respectively, deployed in POL pools. While the treasury team recognizes the importance of the pool, it recommends reducing the OHM/ETH pool (and possibly increasing the OHM/DAI pool) to mitigate IL and to increase capital available for LSD or other ETH opportunities.

Maximum Protocol Exposure: Limit exposure to any protocol / project to 60% of the treasury. For reference, DAI accounts for 50% as of this writing. This would still apply to protocols with multiple products – e.g., exposure to FRAX and frxETH would cumulatively be limited to 60%.

Asset Duration: Limit deployments into illiquid venues to 7.5% of the Treasury. For purposes of the ultimate proposal, illiquid is defined as a maturity or lock-up greater than 4 months. In no event shall the treasury deploy into assets with maturity or lock-up greater than 1 year, with the exception of select strategic assets.

Asset Allocation Process

Baseline Allocations: The treasury team should recommend baseline strategies for each asset or group of assets. Baseline strategies should carry little to no incremental risk over holding the underlying asset. Yields on base strategies should serve as a hurdle rate for other opportunities for the DAO to evaluate. Through past OIPs, baseline strategies have emerged as follows:

  • DAI: DAI Savings Rate staking

  • FRAX: FRAX-USDC base pool on Convex

  • LUSD: Stability pool

There is no baseline strategy for ETH today. The treasury team recommends deployment of ETH into liquid staking derivatives or similar products.

Asset Deployment Applications: It is our hope that the treasury team spends most time not writing proposals, but rather vetting and shepherding deployment proposals from others. The ETH baseline strategy should serve as a great test case, as we invite proposals from the community, LSD protocols and other stakeholders. With respect to other assets, we expect the baseline strategies to cover the majority of holdings but that leaves ample room for other deployment opportunities. The treasury team has developed an intake and vetting process, and will work with initial applicants to iterate and establish best practices. Applications should be consistent with the treasury guiding policy, prioritizing security and decentralized processes above chasing highest returns. Applications will be evaluated along the following criteria:

  • Protocol history

  • Strategy risk

  • Smart contract risk

  • Protocol governance

  • Expected returns

  • Strategic benefits

Today, treasury deployments are done through a custom system of allocator contracts that interact with the treasury. In the future, we intend to develop an “allocator SDK” allowing third party proposals to come complete with an allocator that can plug into Olympus architecture paving the way for a decentralized treasury management system that is compatible with on-chain governance.

Strategic Assets

The treasury team should recommend target levels of strategic assets for governance purposes. Once achieved, additional rewards should be sold into stablecoins or ETH. With respect to voting, the treasury team should make intentions clear for each asset, providing certainty to the market for a given period of time.

Other

Please suggest other topics that you believe should be covered in the OIP.

    Thanks team, this all seems eminently sensible. Couple of small Qs-

    - is the intent to have a dashboard to capture how we are tracking against the allocations? Some are harder to track than others without referencing multiple data-sources e.g. "Assets should be limited to 5% of their respective circulating supplies."

    - "In no event shall the treasury deploy into assets with maturity or lock-up greater than 1 year, with the exception of select strategic assets." - this seems a bit open to interpretation as "anything we hold more than 7.5% of is by definition strategic" ... unless the definition of strategic assets below were to be made more specific? Can we at least list those specific assets for now given our focus on governance is limited to just a few protocols?

    Thanks again, yes from me.

      thomasscovell

      To question one, the goal would be to have an objective check against the policy that we get approved for such that it minimizes human error in said checks. If we put engineering efforts into a dashboard that will check that we are or aren't in acceptable windows of tolerance to our goals, it an be transparent and objectively checked by anybody. This is transparent and helps keep the Treasury Team accountable.

      To question two, "Strategic Assets" actually have an OIP Qualification within the DAO vernacular. OIP-51 defined the first ones and OIP-110 added to the list. We would use future OIP's to qualify if more were needed or to deprecate those that are no longer important.

      The spirit of that clause is to prevent any asset being locked up for longer than a year, even if it's marked strategic. In the past, we had FXS that was locked up for four years and the current treasury team feels a lockup of that length is never needed. A year is the maximum and most lock up periods will be several weeks as defined by the gauge votes.

      Thanks for participating in the discussion!

        Hello treasury team, I have a few questions:

        How does the treasury team see the impact of the BLE on POL?

        What is the thinking behind the 'Assets should be limited to 5% of their respective circulating supplies.'? Why was that number chosen?

          Nice proposal. Treasury management is probably one of the most important & underlooked areas right now.

          I like your guiding policies around focusing on conservative deployment as well as favoring organic third party proposals. The 75%/25% weighting makes sense and aligns with that. The allocator SDK is also really cool and aligns.

          My only questions or additions would be:

          • what's the framework for evaluating new assets?
          • what's needed for a new asset allocation / rebalance to pass?
          • how does the proposal support runrate etc.

          Thank you. This is great.

            nic thank you for your thoughts and questions!

            Regarding rebalances & and new allocations:

            Part of the treasury strategy are the "Asset Deployment Applications" where protocols can apply for funds to be allocated with them. These applications with go through a risk assessment by the treasury and the entire DAO. To make an educated decision there will be several factor impacting it. For example:

            • Smart-Contracts -> Depending on the amount of changes in the code a discount coefficient will be applied. (Whether its forked code or completely novel)
            • Time since Mainnet deployment
            • Quality and quantity of audits
            • Seniority of Dev-Team
            • Governance (Timelocks)
            • Oracle risks

            Regarding acquiring new assets for the balance sheet of Olympus:

            Depending on the circumstances this might not only be in realm of the treasury team, partnerships and strategy will probably lead any discussion in this area. But if its about acquiring more $AURA to further develop a yield generating strategy, we will always have proposal up on the forum explaining our reasons and getting further input from the community.

            That being said, we encourage every Ohmie out there to give us their input, we value it a lot and if you think an asset is interesting or a great fit for Olympus please raise you voices!

            Regarding run rate support, I'm not sure about that this is out of my domain, I'm just here to generate yields 😃

              Mark11

              Hey Mark,

              These are great questions. I'll take them in order:

              Personally, I see BLE and POL as two discrete but largely unrelated things. For POL, we bear all IL Risk as we own both assets. For these reasons, we have to take a long, hard look at things like OHM/ETH IL since we have a stability mechanic and ETH does not. That creates increased risk if ETH sees a large correction and a gap opens in the pool.

              For BLE, we hedge that risk with the counter party. They receive a Pro Rata share on exit and this allows some space for risk distribution both from the incentivized cost to operate and from the IL.

              Like any new product, it's a test as well. We can go to market, evaluate traction, monitor behavior and if actuals meet or beat the thesis. It's a liquidity exercise that we can keep a close eye on to watch performance.

              For clarification on the 5% of circulating supply, it's a conservative boundary to ensure we don't get into a liquidity crunch. Thinking of LUSD specifically, early Olympus found itself in a position where it was holding a little quarter the supply that starts to have real, tangible impact on the partner. 5% per assets circulating supply was collectively seen as conservative. Would totally be open to hear counter arguments where more or less can and should be considered.

              Thanks for the engagement!


                JaLa The treasury team recommends a 75%/25% between stable assets and volatile/ directional assets

                After recent events I would like to see greater allocation for volatile/directional assets. I'm comfy with 50/50 in case there would be some framework defined where majority of that would be ETH/BTC.
                We need to decrease our exposure to "down-only" assets which stablecoins proved they are. They're stable until they broke. In current situation where there's not truly decentralized stablecoin with enough liquidity for us (pointing at you LUSD) I'm willing to take rather greater volatility risk than de-pegging risk. This can be re-evaluated once some alternatives emerge (crvUSD or AAVE - ghost?).

                    I would echo @hodlmao above. 75%/25% stable/volatile is too conservative imo. Possible framework:

                    1. The community adopts the position that stables are kept solely for the purpose of supporting the lower cushion of RBS. If there are other use cases for stables the community likes these could be factored in.

                    2. Using historical data on the cost of IBs, we estimate how much it would cost to maintain the lower cushion for a year + some insane error term. For example; imagine IBs cost $2M for the past year (idk the actual number). Plus a 5,000% margin for error means we need $100M stables in the treasury. The different parameters can be modelled for the community to evaluate and vote on.

                    3. When reserve bonds are turned back on, they are only on for stable assets until we reach that threshold of $200M. After that its purely ETH, wBTC and whatever strategic assets we may want (CVX, BAL etc)

                    I like this framework because it links treasury management to RBS, its programmable but with room for DAO discretion, its data driven and it provides forward guidance for the market. It would make OHM backing more volatile. Worth it imo. I personally think no stable asset is gonna be big enough AND decentralized enough until OHM gets biig.

                    The question then is what stables to hold. There's not many suitable options out there but we do have room to increase LUSD exposure. What's the most of their mcap we can hold without being seen as a risk by the liquity team?

                    hodlmao

                    This was discussed today and will taken into consideration was we structure the OIP. Thanks for the comments!

                        4 days later

                        We need to accelerate this pronto - need to get more ETH in the treasury asap!

                        4 days later

                        +1 Next steps?

                        This is great, are there any updates on when the application will go live?

                        10 days later

                        I thought this was a terrific writeup @yieldohmie wish more DAOs were this proactive and transparent as it makes it much easier for community contributors to bring forth useful solutions. Excited to share some specific solutions in a few weeks.

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