A Treasury Growth Strategy for Compound

Proposals
28

The proposal is now LIVE on Snapshot: A Growth-Earmarked Treasury Strategy for Compound

See the latest updates and version of the proposal below.

Updates to the Proposal since V1

Based on feedback, a number of changes have been made to the proposal since first draft:

Lowered COMP amount to $1.5m

  • Ask lowered from $5m to $1.5m as a first pilot.

Focusing Exclusively on the COMP Covered Call Strategy

  • Citing Gauntlet’s concern over working ETH capital, we have removed the ETH strategy and are focusing exclusively on the COMP strategy.

Deploy Converted Stablecoins to Support Compound’s Liquidity

  • Using external lending markets may generate higher yields, but the most value-aligned way to deploy stablecoin proceeds is within Compound’s own lending markets to support liquidity supply and foster borrowing activity on COMP.

Using Yield-Bearing cUSDC for Strategic Buybacks

  • Stablecoin proceeds from the options strategy will be used to buyback COMP price at key levels through cash-secured puts using Compound-deposited, yield-generating cUDSC, as deemed appropriate pending market conditions.

  • If a COMP conversion (despite keeping probability reasonably low) occurs from the options strategy, we deposit the USDC into Compound and use the yield-bearing cUSDC as collateral to write put options—earning yield on yield while converting USDC back into COMP at favorable prices—eliminating any potential strategic overlap related to USDC accumulation.

  • To optimize execution, we will use technical market signals to help identify and trigger buyback opportunities systematically, see below for further elaboration.

  • The bought-back COMP can then be used to rerun the covered call strategy, continuing the yield generation cycle for the Compound DAO.

TL;DR

This proposal aims to activate some of the idle COMP in the Compound treasury to improve capital efficiency and boost revenue. The strategy has three parts:

  • COMP Yield Strategy: Use COMP to generate USDC yield. This strategy maintains COMP exposure whilst making opportunistic sales possible at higher prices. In the meantime, it targets to deliver 15% or more annualised net USDC-denominated yield on COMP tokens.

  • Deposit USDC into Compound for cUSDC: Deploy USDC proceeds from the COMP strategy into Compound lending markets, earning additional yield via Compound-deposited cTokens.

  • cUSDC & Yield-Generating Buybacks: Use yield-generating cUSDC as the underlying for put options to earn yield on yield while buying back COMP at favourable key levels.

As each COMP → cUSDC → COMP cycle completes, the strategy can be continuously rolled over to keep generating yield for the DAO.

Outcomes:

  • Earn USDC-denominated yield on COMP (targeting 15% APY).

  • Earn yield on cUSDC proceeds deposited into Compound.

  • Earn yield on yield while buying back COMP at key levels.

  • Enhance capital efficiency and financial sustainability.

  • Stimulate trading volume and market liquidity.

Ask:

  • 34k COMP (≈$1.5m as of March 25th) to execute on the outlined strategy to generate USDC for the treasury.

Proposal

This proposal presents a treasury strategy to complement Gauntlet’s reserve management, with the aim of improving capital efficiency and revenue on idle treasury assets to support the DAO’s capacity to fund growth initiatives and improve financial sustainability. The proposed overall strategy includes three parts:

1. COMP Yield Strategy

We propose using COMP to write out-of-the-money call options that balance maximum upfront premium while keeping conversion probability reasonably low. Since the most recent feedback-based adjustments to the proposal means less focus on depositing USDC into a yield-generating vault and more so on rolling an “options wheel”, we will also adjust the strategy parameters to lower the conversion probability.

  • Target an average 15% annualized option premium, +/-5% in the short term following the lowered conversion probability target.

  • Expiry for covered calls will not exceed 180 days.

  • If no suitable covered call opportunities meet these parameters, suboptimal trades will not be forced until the right opportunities arise.

See recent quotes on a notional amount of $1,480,050, with premiums ranging between 13.2-19.4%:

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2. Deploy Stablecoin Proceeds into Compound Lending Markets

All USDC proceeds from the option premiums and any COMP conversions will be deposited into Compound lending markets, earning additional yield via Compound-deposited stablecoin cTokens.

3. cUSDC Yield and Strategic Buybacks

Building on feedback from different delegates, we propose using any converted stablecoins from the COMP Yield Strategy to strategically defend the COMP price at key levels through cash-secured puts using Compound-deposited, yield-generating cUSDC, as deemed appropriate pending market conditions.

A cash-secured put strategy involves holding stablecoins while selling a put option on an underlying token (e.g., COMP), think a reverse covered call. Treasuries looking to conduct buybacks can use cash-secured puts at target price levels, committing to repurchasing tokens at a discounted price while earning option premiums along the way.

In other words, if a conversion from the covered call strategy occurs—say, for example, $1 million worth of COMP is sold at a 130% strike price for $1.3 million USDC—we deposit the USDC into Compound. If the COMP price needs to be defended (see the ‘Buyback Triggers’ section below), we use the yield-bearing Compound USDC as collateral to write cash-secured puts. This allows us to earn additional yield on yield while converting USDC back into COMP if the price falls below the put strike levels, thereby defending and acquiring COMP at favorable prices—eliminating any potential strategic overlap related to USDC accumulation. The bought-back COMP can then be used to rerun the covered call strategy, continuing the yield generation cycle for the Compound DAO.

We propose continuously monitoring market conditions using technical indicators (summarised below). If an attractive buyback opportunity is identified, the cTokens will be used as collateral to sell put options on COMP with:

  • Strike prices between 80-100% of the spot price.

  • Expiries of up to 90 days to optimize for stablecoin liquidity.

Buyback Triggers

Incorporating community feedback, we propose monitoring key indicators to objectively identify buyback opportunities:

  • RSI-Based Trigger: If RSI (14-day) drops below 30, COMP is considered oversold, signaling a potential buyback opportunity.

  • Moving Average Crossover (SMA-14 & SMA-50): A buyback signal is confirmed when SMA-14 crosses above SMA-50 after a downtrend.

  • MACD Confirmation: If MACD crosses above its signal line, this reconfirms positive momentum and a potential buyback opportunity.

  • Market & Earnings Multiples: Additional fundamental market dynamics and earnings multiples can be incorporated to refine buyback execution.

Below is an illustration of historical buyback signals based on these indicators:

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Implementation and Execution

While the infrastructure setup of the proposed strategy will be fully detailed in a follow up on-chain proposal, this section outlines the implementation from a high level below.

Avantgarde have typically used a combination of Safe multisig roles & permissions (via the Zodiac Roles Modifier) for implementing bespoke treasury management strategies. These setups provide beneficial flexibility to fine-tune execution of the strategy, while still protecting the DAOs assets by setting permissions so that only specific pre-agreed actions on selected protocols can be performed.

We propose to keep the assets to be managed in a Safe multisig (referred to as the Avatar safe) owned by the Compound Governor contract, and add a separate 1-out-of-2 multisig (the Signer safe) managed by Avantgarde and Myso as a signer on the Avatar safe to execute transactions.

To facilitate efficient trading operations, we will use the Zodiac Roles Modifier to set permissions for the Signers. The value of Zodiac roles is that you can be super granular when it comes to what Signers are allowed to do, to ensure there’s nothing they can do that results in a loss. In this case, the Signer safe will only be able to perform these actions:

  • Depositing in the USDC and COMP compound markets

  • Taking quotes and withdrawing proceeds from MYSO V3 (“takeQuote” and “withdraw” actions on the MysoV3Router contract)

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Strategy Execution

Execution of the options strategy will be done through MYSO v3, 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.

MYSO Protocol Architecture

The protocol consists of two core smart contracts: the Router and the Escrow

Implementation Contract. These contracts are publicly available in the official MYSO V3

repository and have been thoroughly audited (see Omniscia Audit Report). Users only need to interact and approve the core Router contract, which manages all token transfers related to option writing, auction creation, bidding, exercising, borrowing, and fund withdrawals.

When a user writes an option and is matched with a trading firm:

  • A segregated escrow smart contract instance is created, locking the underlying tokens for the option’s duration.

  • The escrow contract mints an option token, which is sent to the trading firm upon match, ensuring atomic execution and eliminating counterparty risk.

  • 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 Gitcoin treasury, eliminating counterparty risk.

Reporting

  • Quarterly Reports: Detailed written reports on the strategies performance and results.

  • Community Call Updates: Monthly updates to the Compound community.

Compensation

15% on premiums only.