A Treasury Growth Strategy for Compound

A Treasury Growth Strategy for Compound

Author: @Avantgarde

Special thanks to @PGov @pennblockchain @AranaDigital @AlphaGrowth for providing valuable feedback to this proposal (not to be assumed as a signal of their support).

TL;DR

This proposal aims to activate some of Compound’s idle treasury assets to improve capital efficiency and boost revenue, complementing Gauntlet’s reserve management with growth-focused strategies to support the protocol’s growth initiatives and long-term sustainability. The strategy has three core parts:

  1. Earning above average vanilla yield on staked ETH: Engage ETH yield opportunities whilst controlling risk.
  2. COMP Yield Strategy with option to sell at opportunistic strikes: Use COMP to generate USDC whilst allowing sales if prices exceed pre-defined strike prices. This strategy maintains COMP exposure whilst making opportunistic sales possible at higher prices. In the meantime, it generates somewhere between 15%-35% annualised net USDC-denominated yield on COMP tokens.
  3. USDC Yield Strategy: USDC earned on the COMP strategy will be deposited into a Compound-exclusive DeFi Yield vault, which is a diversified, conservative-risk stablecoin strategy currently generating 15% APY (realistic average 9-15%). Said USDC can be used for COMP buybacks or fund growth-initiatives.

All of the above will be executed in a non-custodial manner.

Outcomes:

  • Earning higher than average vanilla yield on idle ETH assets
  • Earning a USDC-denominated yield on COMP (minimum 15%).
  • Build USDC buffer from COMP strategy that earns additional yield; use to finance, for example, the Delegate Compensation Program, conduct COMP buybacks if price falls below $50, and/or support other growth-related initiatives.

Ask:

  • An allocation of 3000 ETH (~$9.5m) to a non-custodial Avantgarde ETH Yield Vault to earn yield.
  • 69k COMP (~$5m) to run COMP strategies to generate USDC for the treasury.
  • Generated USDC to be deposited into a non-custodial Compound-exclusive DeFi Yield Vault to earn yield; to be earmarked for Delegate Program, COMP buybacks and/or other growth-initiatives.

Introduction

Compound currently has about $80m and $11.5m respectively in the Comptroller and Timelock contract. The Comptroller is entirely made up of COMP, with the Timelock holding about $9.5m in ETH and some 500-700k each in USDC, COMP, and wBTC. Rather than being put to work, these tokens are sitting idle and unproductive. Given where Compound finds itself, the DAO should do what it can to be as capital efficient and growth-oriented as reasonably possible.

We believe that the results of AlphaGrowth’s recent efforts around the Growth Program has given Compound a much needed spark, and we should continue to press the gas pedal a bit more to fuel this momentum. We believe that a too conservative of an approach at this stage will only weigh on the DAO’s ability to get the protocol back on track as a leading money market and lending protocol with an upwards trajectory; or risk being outcompeted.

Proposal

This proposal seeks to set up a growth-oriented treasury strategy to complement the management of reserves by Gauntlet, with the aim of improving capital efficiency and revenue generation on treasury assets to support the DAO’s capacity to fund further growth initiatives and strengthen financial sustainability. The proposed strategy includes three core parts:

  1. Staking idle ETH

Staking the idle ETH sitting in the Timelock contract will improve capital efficiency and help the treasury generate yield, with a number of strategies available. We remain open to feedback from the community, but initially we would aim to blend a diversified portfolio of established and battle tested protocols with measured positions in dynamic opportunities that can increase yield.

Avantgarde ETH Yield Vault

A non-custodial, permissioned vault for whitelisted DAO treasuries to access diversified staking yields on ETH.

  • Targets yields on ETH in excess of vanilla staking, within pragmatic risk parameters.

  • Aims to be diversified across ETH-assets, protocols and underlying yield sources.

  • Actively managed.

  • 0% protocol fee and 15% performance fee; calculated and paid out automatically by the vault.

  • Reporting is on-chain provable and auditable 24/7 via the Enzyme UI, and Avantgarde will provide additional formal reporting on the performance of assets on a quarterly basis, and can respond to interim questions as the community deems appropriate.

  • To protect participating DAOs from scrutiny, regulatory or otherwise, ownership of the vault is held by Avantgarde Treasury and controlled via a 3/5 multisig made up of two signers from Avantgarde Treasury, two signers from Avantgarde Finance, and one from Enzyme.

  • Avantgarde Finance acts as the delegated manager with certain smart contract roles & permissions (ensuring that Avantgarde can not misappropriate the funds). However, the vault will remain open to other potential DAOs interested in utilising the vault for its treasury in a similar manner (this would require Avantgarde to whitelist them as a permissioned depositor).

  • Any changes made to the vault won’t go into effect until after a 7-day cooldown period (please note that there is no reason to expect any such changes, and if there were, Avantgarde will make sure to communicate those on the forum with at least two weeks’ notice).

  • The DAO can withdraw from the vault at any time. Please note that the ETH Yield Vault may hold positions that accrue rewards on third party protocols which ideally should be claimed prior to a withdrawal. Hence, while the DAO could withdraw instantly and receive its deposit in the tokens held in the vault, the optimal way would be for the DAO to communicate its desire to withdraw in advance to facilitate liquidity management within the vault and ensure a seamless withdrawal process.

  1. COMP Yield Strategy + Limit Sell Order Option

We will begin by implementing a strategy to earn USDC yield on COMP tokens which can be used to fund other initiatives, buyback COMP, or grow the treasury without sacrificing long-term token exposure. The strategy aims to effectively monetize COMP’s appreciation potential while maintaining a source of stable revenue; allowing the treasury to generate revenue by agreeing to sell COMP tokens only if a set “strike” price is reached within a specific timeframe (aka “duration”). Regardless of whether the sale occurs, the treasury earns a premium, creating a consistent source of income while maintaining control of the tokens until the set strike price is met.

Below we include an example to show how the strategy basically works. This example is purely for educational purposes, and the cited duration and strike parameters, as well as the yield and earnings are purely hypothetical and on the conservative end. Actual durations and strike targets will be adjusted dynamically to achieve the highest yield within good risk parameters.

We will target a minimum 15% yield net of fees per annum (p.a.), but believe we can achieve upwards to 30% in the current market. Indicative quotes for the premium and APY can be simulated at MYSO Finance.

Example:

COMP price at time of execution = $72.46 per COMP
Strike prices:

  • 34.5K COMP at 94.20 (half the allocated COMP at 130% strike)
  • 34.5K COMP at 108.69 (half the allocated COMP at 150% strike)

Estimated annualized gross premium (received upfront):

  • Minimum 15% p.a. (projected $750k p.a. on $5M notional)

Duration: 180 days (for example)

Possible Outcomes:

  1. COMP > strike
  • DAO earns an estimated $375k upfront ($750k p.a.)
    • If COMP is sold at the 30% strike price of 94.20:
      • Total proceeds = 34,500 COMP x 94.20 = $3,251,700 USDC
      • Initial cost (based on baseline price) = 34,500 COMP x 72.46 = $2,499,870
      • Gain from sale = $3,251,700 - $2,499,870 = $751,830 (excluding premiums)
    • If COMP is sold at the 50% strike price of 108.69:
      • Total proceeds = 34,500 COMP x 108.69 = $3,748,805 USDC
      • Initial cost (based on baseline price) = 34,500 COMP x 72.46 = $2,499,870
      • Gain from sale = $3,748,805 - $2,499,870 = $1,248,935 (excluding premiums)
    • If all COMP are sold:
      • Total gain from sales (+ premium): $1,248,935 + $751,830 = $2,000,765 ($2,375,765)
    • The USDC is then deposited into the DeFi Yield Vault.
    • Avantgarde makes a new proposal to the DAO to top up the strategy (at much higher levels).
  1. COMP < strike
  • DAO has earned an estimated $375k in 6 months ($750k p.a.)
  • COMP has not been sold.
  • Strategy repeated to bring in another $375k for the next 6 months.

This pattern repeats.

Note: Myso takes a 15% fee on premiums (not sales) generated, which includes a referral fee.

Note: option premium and yields may fluctuate as they depend on COMP’s current price volatility, where the higher the volatility the higher the option premiums one can generate. The above indicative premiums are calculated as of 9 January 2024 where COMP had a slightly above average realized short-term volatility of 91% p.a.

COMP Yield Operations

Execution of this strategy will be done through the MYSO v3 protocol, which eliminates the need for institutional trading firms to take custody of COMP tokens or rely on off-chain legal agreements. The entire process is decentralized, secure, and transparent, ensuring maximum returns while retaining full asset control for the COMP treasury.

When a loan is successfully matched with a trading firm, the underlying COMP coins are locked in a segregated timelock escrow smart contract (audit report: Omniscia Audit Report). Upon match, the counterparty must automatically pay the premium to initiate the start. If the limit price is reached at maturity of the loan, the trading firm should pay the agreed strike price; otherwise, the coins automatically unlock after expiry, returning to the COMP treasury, eliminating counterparty risk.

To ensure competitive pricing, the COMP treasury can initiate a Dutch auction similar to a Balancer Liquidity Bootstrapping Pool (LBP). The auction starts with a high tbd target premium that gradually decays over time until a tbd minimum acceptable premium is reached. All parameters, including premium decay rates and auction duration, are fully customizable. Institutional trading firms are automatically notified about the auction, creating a competitive environment where the firm offering the best premium wins, maximizing the to-be-received option premium for the treasury.

Additionally, MYSO v3 includes additional features for advanced treasury management. To be more specific, the COMP treasury can define an “earliest exercise date,” ensuring coins can only enter circulation between the specified earliest exercise and expiry date (i.e., European option exercise). Moreover, while the coins are locked, the treasury can retain full voting power over its COMP tokens if desired.

In summary, the COMP treasury can efficiently operationalize on-chain strategies using MYSO v3 as follows:

  • On-chain settlement without counterparty risk: COMP are locked on-chain through segregated escrow smart contracts, removing the need for trust in trading firms.
  • Competitive bidding through Dutch auctions: transparent auctions ensure the highest possible premiums.
  • Advanced treasury control: the COMP treasury can control when coins enter circulation (if the option is in-the-money) and retain voting power if needed.
  1. USDC Deployment

There are two potential sources of USDC to be generated from the COMP yield strategy: first the guaranteed up-front premium, then the potential sale in case the COMP price is above the respective strike prices at expiry.

We propose to deposit the USDC generated from the strategy into a Compound DeFi Yield Vault on Enzyme, which is a diversified, conservative-risk stablecoin strategy currently generating 15% APY (realistic average 9-15%) as an alternative to the reserves managed on Aera.

As it grows in size over time, this vault could be used to buy back COMP when market momentum and conditions are less favourable, or finance various growth-related initiatives. For now, the strategy will generate a guaranteed USDC premium and allow the treasury to lock in profits at higher prices for a rainy day, should the market continue to trend higher.

Compound DeFi Yield Vault

A non-custodial, permissioned vault exclusively for the Compound DAO to access on-chain yields within DeFi, focusing on the largest, most battle-tested protocols.

  • Currently yielding around 15% (annualized), realistic average expectations 9-15% APY.

  • Aims to be diversified across stablecoins, protocols, and underlying yield sources.

  • Balances the level of yield with risk and capacity.

  • Actively managed.

  • 0.5% protocol fee and 7.5% performance fee; calculated and paid out automatically by the vault.

  • Reporting is on-chain provable and auditable 24/7 via the Enzyme UI, and Avantgarde will provide additional formal reporting on the performance of assets on a quarterly basis, and can respond to interim questions as the community deems appropriate.

  • Ownership will be held by the Compound Governor Timelock.

  • The DAO can withdraw from the vault at any time. Please note that the vault may hold positions that accrue rewards on third party protocols which ideally should be claimed prior to a withdrawal. Hence, while the DAO could withdraw instantly and receive its deposit in the tokens held in the vault, the optimal way would be for the DAO to communicate its desire to withdraw in advance to facilitate liquidity management within the vault and ensure a seamless withdrawal process.

  • Avantgarde Finance acts as the delegated manager with certain smart contract roles & permissions (ensuring that Avantgarde can not misappropriate the funds).

  • Any changes made to the vault won’t go into effect until after a 7-day cooldown period (please note that there is no reason to expect any such changes, and if there were, Avantgarde will make sure to communicate those on the forum with at least two weeks’ notice).

Reporting

  • Quarterly Reports: Detailed written reports on the strategies performance and results.
  • Community Call Updates: Regular updates to the Compound community highlighting achievements and performance while allowing for open dialogue and feedback on the execution.

Key Outcomes of the Proposal

  • Earn around 4-5% on staked ETH
  • Earn c 15-35% annualised net USDC-denominated yield on COMP.
  • Earn yield on the generated USDC, currently 15% (realistic avg. 9-15%).
  • Only diversify into market strength, not weakness.
  • Mitigate market impact on COMP by limiting capacity and strategy implementation.
  • Build a USDC buffer earmarked for the Delegate Compensation Program, other growth-related initiatives, and/or consider buybacks if COMP falls below, say, $50.

Fee Summary

  • ETH Yield Vault: 15% performance fee.
  • COMP Yield Strategy: 15% on premium only.
  • DeFi Yield Vault (USDC): 0.5% protocol fee and 7.5% performance fee.

About Avantgarde Finance

Avantgarde is a DeFi native asset management, advisory and research firm that specializes in running non-custodial onchain asset management strategies, leveraging DeFi protocols and tools to deliver solutions for DAOs, Foundations, and Institutional clients.

Avantgarde has been active in DeFi since 2016, notably as co-founders of the onchain asset management protocol Enzyme, and brings decades of TradFi experience to help DAOs and Foundations optimise treasury management strategies, improve financial sustainability, and support long-term growth. Past and current clients include Arbitrum, Gitcoin, Nexus Mutual, Apecoin among others.

We also serve as active delegate here on Compound, as well as on Uniswap, Safe, Morpho, and Paraswap, where we’ve participated in initiatives such as the Uniswap Bridge Assessment Committee, contributed with R&D to various proposals in line with our expertise, instigated RFP processes as well as spearheaded governance proposals.

3 Likes

Given that COMP has an ETH market I’d argue we might as well put idle ETH in COMP’s own market to be loaned out, Thus 0 fee or risk beside COMP’s own risk to itself. Let others borrow the ETH and stake it.

I’d argue the same for COMP’s USDC, put it in the Compound protocol as other protocols vaults are less trustworthy. 0.5% protocol fee and 7.5% performance fee for something inherently untrustworthy versus something relatively trustworthy aka COMP’s own services that are 0 fee.

For DAI, change it to USDS and put it with Sky.

I don’t understand the COMP yield thing well enough to comment.

2 Likes

This proposal is exciting and Avantgarde/Enzyme are absolutely well-run, although you know what I must point out because it is blaring and I honestly wonder why it was included (based on our previous praise of Aera being able to achieve DAO ownership of the vault).

So the question is, why should Compound lower its standard now?

I think we know what is proper here. Happy to hear more of the view, but if it is that Aera put Compound in any type of position due to the structure we praised, it’d be interesting.

1 Like

Thank you for engaging with the proposal @misher!
We understand the appeal of including Compound markets in the strategy and are happy to accommodate this as a custom mandate if there’s strong community support. While doing so might dilute the supply rate for other users, it would also lower borrow rates, so to proceed we would want the community to be aligned with this objective. Additionally, ETH staking could yield a higher return than supply rates on Compound.

The concern about vault trustworthiness is valid, though we’d argue that Enzyme is amongst the most battle-tested protocols in DeFi (has actually been on mainnet longer than Compound). While Compound offers a highly reliable and fee-free option, the DeFi Yield Vault provides access to a broader range of yield opportunities, which can diversify risks and enhance returns.

Re the COMP Yield Strategy: Feel free to ask for clarifications, happy to answer any questions or elaborate further on details!

Hey @cmrn, of course you can argue there are trade-offs, but given the relatively small allocation we think it makes sense to minimise operational overhead, and there are mechanisms in place to protect the DAO, like the 7-day delay etc. As a delegate of Compound, our interests are very much aligned.

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Loaning out ETH is safer than staking it which is why you receive somewhat less. ETH staking is inherently risky especially given that the merge was rushed. There’s a reason most ETH core devs don’t stake.

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Thank you for presenting this proposal. While we appreciate the effort to improve treasury efficiency, we wanted to raise some questions about its alignment with Compound’s goals and associated risks.

1. Treasury Depletion and Liquidity Risks
Allocating 3,000 ETH (~$9.5M) would deplete most of the DAO’s working ETH capital, limiting flexibility for future initiatives or emergencies. Additionally, relying on an external vault may constrain timely access to funds. Maintaining sufficient reserves and liquidity is critical to ensuring financial resilience and DAO’s ability to respond to market conditions or fund emergent growth opportunities.

2. Overlap with Existing Strategies
The proposed USDC yields are similar to what Compound’s own Comets can generate, making external strategies unnecessarily complex without offering clear added value to the protocol. With $26M in USDC already held in Aera for reserve management, further liquidations of COMP for USDC appear redundant and could limit flexibility for future strategic opportunities.

We also note that the Avantgarde vault commingles assets from multiple DAOs. This raises questions about how competing objectives might influence their strategies and whether the vault can maintain optimal outcomes for Compound specifically.

3. Projected Returns
The projected yields (e.g., 15-35% on COMP) lack detailed risk analysis, making it unclear whether the returns justify the potential downsides and risks. In particular, the covered call option strategy relies on finding counterparties willing to pay a significant premium (e.g., $325k to buy COMP at $98). It is uncertain whether such counterparties exist at the proposed terms, and the lack of detail about execution risks makes the viability of this strategy unclear.

4. Governance and Oversight Concerns
The proposed vault’s ownership structure places control with Avantgarde Treasury, introducing governance risks and dependency on third parties. Compound should prioritize strategies that maintain direct oversight and autonomy over treasury assets to reduce taking on excess risk.

Any more clarity from Avantgarde on the above topics would be helpful and appreciated.

4 Likes

Utilising idle assets is a positive development in treasury management for compound DAO. I like the fact that the fees suggested here do not include an AUM fee and is a function of pure performance.

It would be interesting to hear how you arrived at the conclusion to propose the specific amount of investments in ETH and COMP? Especially considering this would leave little working capital for the DAO.

This is a fair callout and I’d encourage the DAO to think deeply on the consequences of this setup.

1 Like

We think this proposal takes a pretty good stab at strategically aligning with Compound’s goals of maximizing treasury efficiency and supporting sustainable growth in a pretty clear manner. The proposed allocation enables the DAO to generate significant yield ~4-5% on ETH and 15-35% on COMP, is in line with prior conversations prior.

We agree that some more depth into how the yield rates are derived would be nice, and also the same with the proposed allocation derivation. At it’s core, were confident Avantgarde’s proven expertise in active management, and absence of AUM fees align its incentives with Compound’s success.

While staking ETH and external vaults introduce new elements, the potential for enhanced yield and diversified risk justifies these strategies and it makes sense to diversify. We’re pretty confident some type of engagement here in some manner makes a lot of sense.

2 Likes

Thank you very much for your comment, we really appreciate the detailed attention to strategy and governance. Still, we note there are potential conflicts of interests in section 1 + 2 with regards to directing funds to Aera and we hope you will promote good governance accordingly with regards to this vote. Our answers to the various points can be found below:

  1. Redemption of ETH for “Working capital”

We appreciate the need to maintain adequate liquidity. There are no restrictions on redemptions from the Enzyme vaults, so the DAO is free to redeem as needed. Working capital limits can be planned for well in advance with some coordination.

Where the community feels strongly about a specific reserve level, we believe this should apply in aggregate across treasury management operations, including those currently being run (such as through Aera). This will help maintain diversification.

  1. Overlap with existing strategies

The DeFi Yield Vault that we propose to deposit the USDC into is dedicated to Compound only, hence no comingling of assets as you suggest. Will clarify this in the original post, thank you! The primary reason for this exclusivity is the strategy’s inclusion of a buyback component: a dedicated vault helps facilitate efficient buyback execution when needed. Furthermore, the protocol coverage on Enzyme differs from that on Aera and therefore adds some diversity on strategy.

  1. Projected Returns

The projected returns are calculated based on recent and historical market volatility rates. We have done the work to establish market liquidity and counterparty demand ahead of making this proposal. The exact pricing will be a function of certain variables so we cannot guarantee that up-front. Instead, we propose a minimum annualized return of 15% before entering into a trade.

In terms of the risk profile of this strategy, the worst case scenario is that the DAO is long COMP plus the USDC yields (starting at 15% APY) which is better off than the DAO position today. If the options get exercised, this will result in a realised gain (from starting position). The process plus realised gain will be used to buy back COMP at pre-defined lower levels whilst earning yield in the meantime, possibly also to fund the proposed delegate program should it pass.

  1. Governance and Oversight

At the strategy level, the roles and permissions embedded within Enzyme are a key feature in protecting against the misappropriation of funds.

At the overall portfolio level, we are happy to work with the DAO to set up operational safeguards to ensure the optimal trade off between security and operational efficiency for Compound, including the use of Zodiac role modifiers where appropriate.

1 Like

Thanks @jengajojo for engaging with the proposal, appreciated!

The ETH amount is based on the general feedback/sentiment we’ve had from delegates, i.e. that we should stake the ETH that are just sitting there idle. There are no restrictions on redemptions from the Enzyme vaults, so the DAO is free to redeem as needed, and working capital limits can always be planned for in advance. We also think it makes sense to rather look at working capital in aggregate across treasury management operations, including the reserves managed on Aera which will help maintain diversification.

The COMP allocation is mainly based on delegate feedback (starting relatively small) but also on the capacity of the strategy (liquidity and counterparty demand).

Hope that answer’s your questions, thank you!

Appreciate the positive feedback @PGov!

Assuming you’re asking about the COMP Yield Strategy, the projected yields are estimations from MYSO’s simulation tool based on the chain, market size, trading volume and exchange listings etc.

With regards to the proposed allocation, please see our reasoning in the reply to @jengajojo above.

Please feel free to ask any further questions, and thanks again!

1 Like

Thanks @Avantgarde for this proposal.

Only recently has Compound decided to move more heavily into a sizable and more structured treasury and reserve asset engagement with Aera. It can be argued that it’s simply to early or drastic to add another treasury management program to the DAO’s purview. But, the growth program and other DAO-led initiatives continue to demonstrate a need for establishing a robust runway for the DAO. We think it’s therefore worthwhile to allocate more of the idle capital, native token and otherwise, to help fund Comp DAO, with the intention of doing so in perpetuity. There’s not really a compelling reason why the DAO should move slowly. Compound has already lost large amounts of market share to its competitors, and any future growth will be perpetuated by the DAO. If our funds aren’t effectively managed and forecasted, it’ll be tough to sustain the protocol. A combination of treasury managers to fulfill this vision correspondingly makes sense.

Ideally, various treasury management programs should converge when it comes to a working capital account since that’s a clear sticking point according to previous comments. A certain reserve for emergencies should be maintained—doesn’t have to be very large—and the process for the DAO to call capital from any vaults, Aera, Enzyme, or others, should be very clear.

That way, in the wake of an emergency, or prior to a proposal that requires a sizable capital expenditure, the DAO can effectively rebalance its accounts. I’d suggest treasury managers work together regarding this type of strategy. It may even be worthwhile to implement some type of advisory council for finances and treasury operations—additional overhead could perhaps be avoided if treasury managers can agree on operations though. Again, the main aspect is around liquidity, in other words, how to structure capital calls in order to meet liabilities when they arise. For example, for proposals with a large monetary ask, we may want to make snapshots customary. That way, the execution of the snapshot can act as the catalyst for the capital call. I’m unsure if an onchain vote would be required to call capital from Enzyme vaults, though. Seems like the 5-person multisig has provenance over it (correct me if I’m wrong). We’d like to hear more on the potential safeguards/operational pathways the DAO can engage in to withdraw funds. For Aera, the vault is owned by the Compound Governor Timelock, so funds from there can be called upon execution of an onchain vote, but much of the Aera work is also focused on the reserve side.

The flow of assets in this proposal generally makes sense.

  • Covered call yield + proceeds from COMP sales are collected
  • Yield from ETH is collected
  • The above are deposited into another yield vault which is kind of like the connector to the “working capital account” (this account is theoretical—just a way of framing things for now).

Sophisticated options strategies are always tough to implement, especially onchain, as well as when certain voters may not be sufficiently privy to the elements of a strategy. The non-custodial and automated execution-based setup for MYSO is a strong option. If this were to move forward, we’d appreciate an upper bound in terms of how much COMP can be allocated to this. Careful consideration of strike price is also vital. In December for example, COMP ran from $70 to $120 rapidly and has since settled. That would’ve meant much of the COMP, if options were in place, would be in the money. During spurts like this, it’s wise to have these options open. But after such a drastic change in price, there should be a multi-month halt as to not over-extend selling. Of course, this should be nicely balanced with buybacks, which we think are a good idea during bear markets. In sum, there should be limits placed on covered calls within certain time periods. Periodic reporting regarding these decision would be appreciated.

As for the ETH vault, a sizable, if not total, allocation to staking should be fine as long as we can come to an agreement on the USDC-based working capital. If worst comes to worst, we pull from the Comptroller. A good KPI mentioned is the explicit mention of certain DAO programs and the corresponding benefit they get from this treasury diversification. Utilizing yields from this to help a potential delegate reward program, for example, makes sense.

3 Likes

Thank you for the supportive words @AranaDigital!

Totally agree. We stand ready to work closely with Gauntlet on this, and should be able to manage without adding an oversight committee. However, open to discuss this further.

Enzyme vaults are non-custodial and withdrawals can be made whenever. Note that we’ve revised the proposal to set ownership to the Compound Governor Timelock.

Edit: Would also point out that with a Safe multisig as the owner settings can be changed more nimbly, with the trade off that the DAO has potentially less “work to do” in that case yet still has custody rights and can redeem any time even if not the owner. Happy to continue to discuss this!

Appreciate you raising these points as they are indeed important considerations that will shape how the strategy is executed as market conditions fluctuate. In the example we gave the COMP allocation is split two tranches, but nothing’s stopping us from dividing this further to stagger the strategy.

Written reporting will be done on monthly basis, and we’re obviously happy to highlight performance/results and discuss strategy parameters on community calls to allow delegates to share their thoughts prior. Have added these points to the proposal for clarification, thank you!

To reiterate, the aim is not to sell as much of this COMP as possible, but at a high-enough strike price that reflects a worthwhile trade-off.

2 Likes

Thank you for pointing out MYSO, I havent seen that before

2 Likes

Thank you for the proposal, @Avantgarde! We appreciate the initiative to enhance Compound’s treasury efficiency, and we are keen to explore the potential of such strategies.

However, we would like to share a few observations and seek further clarification:

While a competitive performance fee is understandable, 15% feels somewhat high relative to practices in other DeFi protocols. For example, ENS treasury management by karpatkey applies a performance fee of 10%. We encourage exploring a slightly lower rate—perhaps around 10%—to strike a fairer balance and reflect broader market benchmarks.

Piloting ETH & USDC first before implementing the COMP strategy

COMP’s volatility and relatively low liquidity make it less stable as an asset compared to ETH, posing potential risks. For example, if COMP fails to reach the strike price, the DAO’s revenue could be limited, or insufficient market liquidity might prevent the successful execution of options.
Given these risks, it seems important to establish contingency plans in case the COMP yield strategy does not perform as expected. With that in mind, prioritizing a pilot with ETH and USDC first to gather data and refine risk management processes before introducing the COMP strategy would be a more cautious approach.

Overall, we value the effort to increase Compound’s capital efficiency and look forward to further discussions on refining these ideas. Thank you!

1 Like

gm! my opinion on the matter is quite similar to what @misher and @Gauntlet have said.
The easiest option and the one also fully expressing trust into compounds own product is by depositing the money into compound comets either directly or through e.g. Aera vaults.

It would be interesting to hear the breakdown of how the yield would be achieved with the COMP portion of this proposal though.

1 Like

Coming back to this one, isnt the ask here to use 3000 ETH a little nuts? That is basically all the ETH in the Timelock.

It is my understanding, someone correct me if I am wrongg, that this ETH is supposed to handle insolvencies or other issues that arise from running the protocol.

I would not support (with my limited voting power) using 99.9% of the ETH to generate yield.

1 Like

Thank you @Tane for taking the time to review our proposal.

Reading your comment tells me there might be a misunderstanding of how covered calls work, so let’s clarify:

  • Volatility is raised at risk → actually volatility is here working in favour of the treasury because more vol means higher option premium
  • Misconception about revenue → actually the option premium is paid regardless of whether the option expires in the money or out of the money, plus it’s paid upfront, hence there’s actually immediate revenue no matter what, even if no conversion
  • Risk misconception → technically with a covered call there’s actually less downside risk then holding COMP; one can immediately see this by considering the extreme case where COMP was to fall in value to zero: in that case by writing a call you still will have earned the option premium no matter what whereas purely holding COMP would result in 100% loss.
  • Liquidity → we‘ve already validated that there’s liquidity to match, so no issue there.

Does that make more sense?

Lastly, ENS is a huge mandate relative to this proposal, so we’d argue they’re not really comparable. Nevertheless, we’ll drop the performance fee to match if it’s a deal breaker for the DAO.

Thanks again for engaging with the prop and let us know if you have any further questions!

1 Like