Summary:
Deposit % of excess DAI treasury reserves into Aave to earn interest, increase runway, and develop strategic partnership with Aave

Background:
Currently, the Olympus treasury has been accumulating stablecoins and liquidity pool tokens to back future OHM emissions. Several proposals have been discussed to increase available runway by decreasing APY, locked staking, etc. This year in particular, stablecoin assets like DAI effectively expose the treasury to long-term depreciation via inflation of the US Dollar.

Abstract:
OlympusDAO can increase available runway and develop a strategic partnership with Aave by converting excess DAI treasury reserves to aDAI. Current APY for aDAI at the time of this proposal is 2.33% APY + 0.63% APR in stkAAVE rewards. Excess reserves in the treasury consist of $7M in assets (see contract here). Interest on aDAI is variable and natively rebases, which simplifies management of these assets.

Motivation:
For OlympusDAO to become the Decentral Bank for DeFi, the protocol needs to expand and integrate with as many DeFi blue-chips as possible. Particularly compelling are permission-less integrations which provide benefits to both protocols. This both reduces the complexity of integrations and the risk of unforeseen composability issues. Investing excess reserves with Aave is a solid first-step towards getting sOHM listed as collateral on Aave for lending/borrowing.

Risks:
• Aave protocol risk

    What percentage of treasury are we thinking of depositing? My arbitrary gut feeling would be no more than 30% max.

    • tex replied to this.

      Dudemyguy agreed! My intuition is somewhere in the 20% range. I think this is the biggest part to decide on as a community. Excited to hear what y'all think!

      I'm with Dude on this one. Anywhere from 13%-33% seems significant but also permits us to take action against some unforeseen events, black-swan scenarios. I think it's important to still have a significant amount of our excess on standby and I think we should aim to be relatively conservative as the global macro outlook is relatively murky atm.

      I think if we put ourselves in this position it'll leave more room for the protocol to build on existing strategies.

      Very excited, on fire Tex!

      I would like to propose 33.33% of excess for this this initial strategic deployment of Dai into aDAI. This is both a nice allocation and a (3,3) meme.

      Looking at DefiSaver Smart Savings - Aave average is about 5% (yes yields are drying up). But at approx 2.4M we’d net nearly 100k dai. I’m here for it.

      I like the idea of integrating with Aave to foster our strategic partnership moving forward. Re allocation I think we should start small. Reason being we can always scale up if we want to. Considering the other way around would be odd. Say we bet big from the start and then figure out we want to allocate differently. Pulling liquidity is always a bad move for partners. Whereas scaling into it is much more reliable and promising. I think we should not do more than 10% at a time so that we can have a look at the situation. We can come back and re-evaluate. This is the most prudent thing to do from a policy perspective IMO.

      Edit: thank you so much Tex for bringing up the proposal and rooting for the Aave partnership.

        I think anything above 20 percent is too much. We want to diversify as much as possible to stabilize the treasury in the future. So with excess reserves id use above 10 percent at most. Cuz we will use probably around 510 percent to allocate to an alchemix pool id imagine. Thats 20 percent right there. And as the treasury grows 10 percent is goin to be ALOT of money. Great proposal Tex

        Don't know if this is the right place to discuss, but with the proposal from Zeus about setting our fuse pool, I think it would be really cool and benefitial if we'd put part of our treasury into our fuse pool instead. It would most likely give us a better APY, bootstrap our pool significantly, and solidify our partnership with Rari. We could also ask Rari to lower our protocol fee (similar to FEI) as a sign of Goodwill.

        I support a relatively small foray into finding conservative interest-bearing opportunities for treasury assets. I would love to see our risk-free value continue to increase and know that, in a year's time, that RFV will be much higher. That's the main goal....feeling confident in a floor for OHM. That said, AAVE is as safe as it gets for conservative strategies such as this....so I'm for it at 5-10% of treasury assets.

        Churchee personally a fan of this. aligns with 10% number others are throwing around and who doesn't like a meme number to give a precise target?

          xh3b4sd 10% is max from my pov

          xh3b4sd we should not do more than 10% at a time so that we can have a look at the situation. We can come back and re-evaluate. This is the most prudent thing to do from a policy perspective IMO.

          100%agree

            I think 10% is more than enough risk/reward for yield. Don't forget, it may only be $800k for now, but if sometime in future the treasury gets to like $100mill we'd be trusting alot of money with aave, and could be an opportunity cost if we use too much % on 1 protocol. Could be interesting to see if we could add Dai liquidity to our own fuse pool for higher % and ohmies pay the interest if they wanna borrow against sOHM 🤔 just thinking out loud

            There is general problem here that we need to untangle before we can think about deploying reserves at all.

            I take it we all agree that we should only be playing with excess reserves. However, the amount of excess reserves is constantly fluctuating due to the relation between inflow to the treasury and increase in circulating supply. For example, suppose you allocate 10% of excess reserves to Aave, but then bond sales drop off and excess reserves shrink. We may now find ourselves with a 20% allocation to Aave.

            So at best, any allocation of excess reserves will require a good deal of active management, or settling how often we will rebalance our portfolio, so to speak.

            Also, excess reserves will be determined in part by the APY for stakers, as this will largely determine the rate of circulating supply increase. So my sense is: we need to first figure out what we want for a long term sustainable APY. Only then can we make informed decisions about how to deploy the Treasury.

            It really depends on the strategy for the treasury, IMO. How much % of the excess DAI treasury are we planning on depositing on external protocols? I don't have a good suggestion for that yet.

            However, depositing 1/5 of that amount on Aave seems justifiable. It is the biggest player in the space, so definitely a significant amount IMO. But there should still be room for more of the big protocols, without the scale leaning too much towards Aave.

            √(69/420)3,3 = 0.05078549275 ≈ 5.08 % ≈ 355.498 DAI
            √(420/1337)3,3 = 0.1479941359 ≈ 14.8 % ≈ 1.035.959 DAI

            I'm not a fan of going beyond 10 % of the total excess DAI, though. But it might also be interesting marketing wise? Not sure.