[AlphaGrowth] [2025 SubDAO] DeFi Operations

Background:

Compound DAO currently lacks a dedicated service provider to actively manage token deals and capitalize on market opportunities.This gap has left potential profits and strategic advantages untapped. This team will take on the responsibility of stewardship of token liquidity deals on behalf of the DAO Treasury and will be responsible for crafting and implementing bespoke DeFi strategies. By doing so, we intend to drive revenue, further diversify the DAO treasury, and enable DAO assets to help facilitate growth and optimization.

Through analysis, data-driven investments, and active management strategies, the DeFi Operations division will curate strategies with the mandate to grow the value of the DAO Treasury, diversify the Treasury’s holdings, and expand token utility for stakeholders.

  1. DAO Treasury Active management & investment strategies make the DAO treasury more diversified, leading to a higher total carry as well as less selling pressure of COMP token.
  2. Token Utility: DeFi partners list COMP, creating more yield opportunities for token holders.
  3. Compound Protocol strengthens partnerships and enables easier onboarding to scale the markets, TVL, and overall TAM.

The Opportunity

The Compound DAO Treasury currently holds a substantial amount of COMP tokens that are not actively managed, resulting in what we term as "dead capital”(inactive funds that are not earning yield or contributing to market activity). This inactivity misses out on potential yields from low-risk, high-reward DeFi strategies that would additionally support the liquidity profile and velocity of the COMP token. This results in a missed opportunity for substantial returns and enhanced token utility, market share, and total addressable market (TAM).

Currently the Compound DAO treasury currently has 1,087,778 COMP which is worth approximately $91M, stashed under its mattress.

We believe that there are 7 primitives that generate utility & treasury in crypto:

  1. Staking (Staked COMP)
  2. CDPs (Liquity v2 forks)
  3. Money Market Listing (Inverse, Fluid, Morpho)
  4. Dexes
  5. Perps
  6. Bridges
  7. Interest Rate Swaps

This division will evaluate each listing and deal as follows:

  1. Propose strategies for capital deployment
  2. Vet strategies and perform risk assessment and due diligence
  3. Analyze the efficacy of the opportunity
  4. Simulate the strategies in a closed environment
  5. Execute chosen strategies
  6. Perform needed maintenance on open positions
  7. Conservatively manage global risk profile
  8. Transparently report results

By implementing low-risk strategies and making them into accessible vaults and partner protocols, we can turn inactive funds into active revenue streams. Additionally this will provide additional yield opportunities to COMP token holders. The cost of engaging these services is dwarfed by the potential returns from investments. The opportunity cost of not acting is much higher than the all in cost. This initiative will not only grow and diversify the treasury but also increase the utility and distribution of COMP.

The Primary goal of DeFi Operations is to make each of these primitives a sustainable and fiscally responsible partnership for the DAO. Either through Grants, Incentives, Liquidity Deals, Tokenswaps or Fiscal Mechanism Design DeFi Operations can sustain the DAO thru bull and bear.

The secondary goal of DeFi Ops is to provide COMP holders with more options for the token:

  • Reasons to use COMP rather than sell
  • Extend operations runway
  • Partnerships opportunities facilitated through deal flow.
  • Growth of Compound protocol market efficiency.
  • Lower Borrow APRs on over-utilized markets.
  • Increase Depth of DEX Liquidity on Layer 2s.
  • Access and market penetration in burgeoning markets.

Past Portfolio Experiment:

In Q4, this a strategy (COMP - DOLA LP) was conducted at a smaller scale than what would be performed by DeFi Operations for the Compound DAO treasury.

As illustrated in this analytical report the Growth Program was able to grow its overall Portfolio Value (in USD terms) while also decreasing its reliance on COMP. Employment of this strategy yielded a large return and diversified the Treasury funds from COMP and DOLA to include VELO, AERO, RAM, DBR, and ICHI. This demonstrates a case study of what is possible through the deployment of COMP tokens. (Make them work for you. No dead capital.)

Breakdown:

  • Initial position: 4,736 COMP ($235,710)
  • End position: 2,701 COMP ($312,775)
  • Fulfilled primary goals that DeFi Ops will strategize towards:
    • Reduction in nominal COMP token position
      • Lessening COMP exposure for the Treasury
    • Drove value to the COMP token
      • Increased utility and token velocity
    • Expanded distribution across different blockchains.
    • Appreciated overall value of the Compound DAO treasury
  • Results of Low-Risk Trial Pool Strategy:
    • In the trial 3 month period, AlphaGrowth earned over $100,000 in capital gain as well as acquired $49,000 more of DOLA. In the 3.5 month period the position was earning a return, the LP on Velodrome attracted $252,973 in volume, culminating in 10,473 transactions conducted by 1,658 wallets.

The emissions captured, the Growth Program was able to help Compound to diversify its Treasury by acquiring AERO and VELO from its LP rewards.

DeFi OPs will build treasury positive Protocol Owned Liquidity(POL) Strategies for COMP LP on the following L2 networks: Arbitrum, Base, Mantle, Optimism, Linea, Unichain, Sonic and Ronin.

Other than pooling strategies, the Growth Program has proposed multiple strategies to help grow token utility and drive treasury growth.

New Strategies:

AI StableCoin Vault:

An Ecosystem fund has expressed interest to grant 6 figures in development and incentives to build a stablecoin yield vault. This vault will be wrapped in an A.I. agent token that will communicate with users and rebalance stablecoin yields. An AI agent will increase user interaction, visibility and increase yield optimization for the compound community. The expected outcome is 25-50MM in stablecoin TVL and new AI token owned by the Compound DAO.

COMP Yield Vaults

This strategy allows users to earn COMP rewards by using COMP as collateral and reinvesting yield. We call it “COMP on COMP”, and it is a form of earning staking yield on COMP, but instead of staking, the COMP is deposited as collateral.

In this case, we are discussing COMP being listed on the AERO market on Base.

Here’s the Strategy:

  1. Deposit COMP as Collateral
  2. Borrow AERO [Market Utilization is currently 29%]
  3. Sell Half, and Farm AERO-USDC LP.
  4. Sell AERO Yield for more COMP.
  5. Deposit COMP as Collateral.

We can build a vault strategy that transmutes AERO emissions into COMP Yield, while increasing utilization on an under-utilized market.

Once built, it seems reasonable that this strategy would attract TVL until market utilization drove the cost to Borrow AERO to parity with the APR earned from the farm.

Delta Neutral LPs:

Compound DAO at this time does not have any plans for COMP liquidity on Ethereum Layer 2s. We have experimental partnerships with Inverse Finance, which constitute most of the COMP liquidity pools on Base and Optimism, but there is not enough depth of liquidity to facilitate a substantial increase in trading volume.

One low-risk strategy that could be implemented is as follows:

  1. Deploy a DOLA market on Base.
  2. List COMP as collateral on the DOLA market.
  3. Deposit COMP as collateral on the DOLA Market, and borrow DOLA.
  4. Deposit COMP-DOLA LP on Aerodrome and farm AERO emissions.
  5. Supply AERO into the AERO market on Base, and earn Lending APR.

The yield from this strategy can significantly increase liquidity and yield for idle token:

  • Increases partnership with Inverse Finance by increasing their Lending Yield, and deepening COMP - DOLA LP.
  • Inverse Finance is one of the highest holders of veAERO, and they could vote to direct AERO emissions to this pool, effectively helping Compound bootstrap our position on Aerodrome.
  • Compound DAO can earn Fed Points on the DOLA base compound market. These points can be used to deepen liquidity, incentives or increase DAO treasury.

It’s worth noting that neither Compound nor Inverse Finance had to purchase any additional assets to make this strategy viable.

Other similar strategies and pools can be created on Uni-chain with and Uniswap LP as Collateral: [Nextosi] Contracts that enable Uniswap LP tokens as Collateral on Compound

COMP Everywhere:

DeFi Ops will continue to provide detailed insights into COMP’s performance and provide parameter recommendations that prioritize spreading COMP Everywhere while furthering the health of the COMP token.

Strategic focus will be placed on leveraging COMP to spur on new lending activity while expanding distribution of the token to new markets, where it can form an insurance layer to protect investors against some of the sell-side pressure on the token.

Cross-Chain Stabilization Vault

After COMP Everywhere the DeFi operations team can create a Cross-Chain Interest Rate Arbitrage vault, meant to bring market Utilization into Equilibrium. Compound Markets are not efficient, and it’s largely because people don’t seem to care enough about them to take advantage of their inefficiencies.

In December, we had people leaving the ETH mainnet markets, because utilization was too high, which drove up borrowing costs. Yet, on L2s, we had utilization rates which were much lower.

Here’s the Strategy:

  1. Deposit COMP as Collateral on ETH markets for Arbitrum, Optimism, Base, Scroll, Mantle.
  2. Borrow ETH on markets that have a low borrow rate.
  3. Bridge that ETH to a market that has a high utilization, and therefore a high Lending APR.
  4. Lend the ETH until the Arbitrage Opportunity Closes.
  5. Bridge the yield back to the original chains.

Woof has a Position Migrator which can be adapted to do this, and the strategy described above can be automated into a vault. The consequence of running a vault like this would be an equilibrium force across markets. We would be able to drive up utilization on under-utilized markets, which would further incentivize Compound to deploy to more new chains.

We would also benefit from executing the arbitrage.
Previous post: Stabilization Vaults

Protocol Partnerships:

DeFi operations team will actively pursue and find a partnership for the following Primitives Bridges, CDP’s, Money Markets, Interest Rate Swaps, Perpetuals the goal that each deal will help generate treasury growth thru fees generated on protocol transactions.

The DeFi Ops team will collaborate closely with other service providers to create any other tailormade solutions that benefit the Compound Protocol as a whole and target the DAO’s business development goals.

Budget

11,900 COMP service fee and 30% of fees and incentives earned through these strategies, for a dedicated team to run this business unit on Compound’s behalf.

Market Leaders

DeFi Operations is one of our more innovative, and interesting areas of experimentation, but DeFi moves at incredible speeds. Our biggest competitors are making similar moves:

This is a Snapshot from Aave’s own version of DeFi Ops – a vote, which passed on 12/22:

https://snapshot.box/#/s:aave.eth/proposal/0xd1fdca5d69b03ed57848180d62a812ab1a1ff72f85d671c417b5ff8fb2bd0a7c
The DeFi Operations Business Unit is ready to innovate on behalf of Compound.

Questions?

This document is intended to educate community members on the value generated by and general activities of a DeFi Operations business unit. If there are additional questions you’d like to know please ask them below, we’re happy to answer, though some answers may be during office hours to protect strategies that are more valuable if they cannot be easily copied by our competitors.

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Last budget request: 11900 COMP

This budget request: 11900 COMP service fee and 30% of fees and incentives

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My comment got hidden, so I posted it again without the link.

Deleting so it isnt duplicative now that it is unhidden.

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Correct. Is there a question?

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No, just seeing if my account would get suspended again for posting a fact

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Thank you for checking.

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Actually yes, I have a question.

Based on the breakdown in the post:
Initial Position = $235,710 (4736 COMP at $49.77)
End Position = $312,775 (2701 COMP at $115.80)

Post Farming Strategy: $565,406 (COMP, AERO, RAM, DBR, DOLA, VELO, ICHI)
So by doing nothing you could have had $548,428 (4736 COMP at $115.80).

Now you have accumulated a lot of altcoins with a higher risk profile than COMP. Isnt that the opposite of what you should be doing? I mean, the strategy should be diversifying out of COMP into blue chip assets (BTC, ETH, Stablecoins) instead of high beta assets.

Yet you’re asking for 11900 COMP plus 30% of fees+incentives to run an almost equivalent strategy to do nothing? Id actually argue accumulating worse assets than COMP is worse than doing nothing because you can still distribute COMP as incentives on Compound.

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Pretty strong agree with @mexilc here. AlphaGrowth’s Q4 strategy figure is chart crime implying significant growth when simply holding the COMP would have produced roughly the same performance in USD terms. In “decreasing its reliance on COMP”, AG increased its reliance on less Compound-aligned, lower-MC altcoins and low-MC stablecoin (no shade on these projects, just objective as-of-today observations).

I am staunchly opposed to a DAO-authorized AI agent + token and to DAO-driven cannibalization of one of its own less-utilized markets to generate COMP yield.

COMP everywhere (especially meaningful access to liquidity on L2s) and cross-chain stabilization are worthy targets, but I’m not convinced it’s the DAO’s place to run these strategies. If it is profitable, external third parties should be lining up for the opportunity, like they do with liquidations; I’m left to conclude that it is some combination of labor-intensive and risky that makes me question if the DAO should be engaging in it.

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First of all, thank you for the detailed feedback and participation. It’s always great to have an involved and passionate DAO that seeks transparency and accountability. It’s my opinion that this is a prerequisite for the possibility of significant and sustainable decentralized growth.

With regards to Impermanent Loss, as you’ve accurately noted, the Dollar-denominated spot value of the position would be somewhat higher were we to not engage in any market creation or DeFi activity during this period. However, let’s dive into the goal, function, and efficacy a bit further.

The Compound treasury has, to date, 1.08M COMP, equaling, at the time of writing this, $93M. The DAO is reliant upon service providers selling this COMP to afford to provide services. Were all the COMP to be sold, FAR less than the theoretical spot value ascribed would be attained, while effectively fully rugging the protocol.

I work with quite a few PhDs in mathematics and Economics, and lecture Masters programs on Tokenomics. Liquidity depth and understanding is an imperative and contentious point that I’d be happy to go into more detail in on a twitter space or community call, but a leading philosophy currently is to value the native token of a protocol at a $0 carry. I personally disagree with this, but posit that it should only be a $0 carry for any amount that would reduce the price by more than 5%, but regardless, there is far more than that amount in the Treasury currently, and the dollar-denominated value is certainly a misnomer in calculating treasury value.

To protect against significant sell-pressure, coordinated sales such as OTCs need to be done, but who does them and at what price? This requires some entity that can be trusted with coordinating between capital parties, and any deal of the kind will upset community members who misunderstand how capital markets and the business side of crypto works. Note, that this is also NOT what the DeFi Operations division is doing! Our operations should actually reduce the need for 3rd party entities and large scale OTCs.

INSTEAD of enabling predatory market makers to profit off of sub-standard OTC mechanics with little transparency, the DeFi Ops department seeks to use the tokens in a manner that organically diversifies the treasury over time through liquidity provision and DeFi mechanics WITHOUT selling COMP. The results referenced in the original post are absolutely ideal:

  1. Treasury Gain – the dollar-denominated value of the treasury position increased
  2. Treasury Carry Gain – the dollar-denominated value of the non-COMP portion of the portfolio went up significantly more
  3. Impermanent Loss Existed – The value of COMP went up so much that there was indeed positive impermanent loss throughout the effective velocity-growing DeFi Operations. COMP going up is good!

Notes were made about the tokens earned having a worse liquidity profile than COMP, and yes that’s true. Therefore a treasury should have more COMP than those other tokens… we do. By a lot. There are significant diminishing returns here, see the aforementioned allusion to the treasury carry conversation. 0.001% of the MCap of a worse asset that we don’t mind selling is more advantageous to the DAO than the equivalent dollar amount of COMP, of which the Treasury already holds over 10% of, and we want to mitigate the selling pressure of.

Now let’s take a closer look at the assets:

  1. DOLA is a stable coin. The position netted us more stable coins, which are absolutely ideal for paying service provider fees in. This is a win.
  2. AERO - VELO - RAM - DBR. These tokens were earned through emissions from the position. We were never preferring them to COMP or selling COMP for them. If the DAO decides we should sell them all for stables, BTC, ETH, buyback COMP, etc then that is all possible. In general maximizing incentives, grants, and rewards for DeFi positions is part of our job that will maximize the success of these operations.
  3. ICHI. Ya, this is a bit of an odd example and was done before the instantiation of the DeFi Ops desk to gauge exposure to different ecosystems and test out single-side provisioning ALMs. The method worked well and is something reproducible with blue chip assets and/or longer-tail assets that provide some sort of impermanent loss insurance and/or significant enough upside.

In general this process was far from an end goal, but a successful experiment. As mentioned in the original post, in recent months we’ve had incredible opportunities pass us by due to the inability to act upon inbound deal-flow. While AlphaGrowth does not deserve all of the credit for the increase in price of COMP, they also do not deserve none of the credit.

We all want significant success both for Compound the protocol, and the COMP token. We want to ensure both are in good and capable hands, able to scale with the increasing demand we’ve seen.

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Thanks for the feedback, and I responded to MexiLC as well in more detail.

What about a potential AI agent do you oppose? Why do you see this as cannibalization?

With regards to COMP everywhere, I think you may be a bit idealistic. Initial liquidity is typically seeded by a founding team or Foundation fund, and is sorely lacking in this truly decentralized DAO. There is a cold start problem with liquidity provision, it takes so much capital to get to a point where volume flows and profitability is possible. If not the DAO, then who?

Note that we’ve received offers from Market Makers. They have, in my professional opinion, been neither fair nor transparent. We are offering to engage in this on behalf of the DAO to enable transparent oversight and objective growth.

As always, I’m happy to go into more detail, both our proposal and planned operations, and 3rd party offers (without naming names) on a community call.

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Does AlphaGrowth own the COMP treasury? This seems a bit of an over-reach.

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I have nothing against the concept of an AI agent, it just strikes me as strange narrative-chasing (complete with associated speculative token) in the context of the proposed stablecoin vault service. It’s unclear from the description whether the intent with this strategy is to “drive treasury growth,” like several of the other examples, or to “communicate with users and rebalance stablecoin yields” which implies servicing users instead of the DAO. Maybe the idea is just underdeveloped, but either way I can’t shake the sense that the associated 6-figure grant has “but what’s the catch?” written all over it.

The cannibalization comment refers to any plans to make the DAO itself the majority lender or borrower on a Comet. I’d be interested in Gauntlet’s opinion on this, but to me this kind of situation adds a separate dimension to risk management on these markets. I see the logic of yield arbitraging against Aerodrome’s emissions with the AERO Comet, but isn’t COMP’s liquidity profile on Base not strong enough to support the kind of size such a collateral position would need to be?

I take your point that my viewpoint on COMP liquidity is idealistic; it probably is, I’m comfortable owning that.

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I support AlphaGrowth’s DeFi Ops Subdao proposal. More hands on deck are needed at this stage in the game. I see lots of forum talkers, but not so many action-takers. Here Compound has willing parties, ready to do hard work.

We all know the thrill of riding the crypto wave, but “dead capital” is the silent killer in our community. If the tokens we’re holding are not working for us, not earning, not staking, not farming - just chilling in our wallets or in this case, the DAO Treasury, doing squat while the market dances… dead capital doesn’t just mean we’re not capitalizing on gains; in this high-stakes environment, it’s a huge opportunity cost that is quite literally costing the DAO millions in potential revenue. Every piece of capital needs to be on the job. AlphaGrowth’s proposed plan of a DeFi Ops team stepping in to “manage” the Compound DAO’s funds, can turn deadweight into dynamic assets that can maximize Compound’s exposure to upside while mitigating the risks of volatility.

AlphaGrowth has demonstrated both operational capability and strategic foresight in their previous engagements. Their growth when adding new markets and collateral assets, and their successes in securing significant grants, showcases their ability to drive sustainable growth. This directly translates to increased revenue and TVL for the DAO, thereby benefiting all stakeholders.

The SubDAO structure also allows for specialization, where service providers can focus on specific tasks that add value to the protocol.

Handling large treasuries requires meticulous risk assessment and fast-acting, proactive management. That kind of management doesn’t happen without a team of well-informed experts. AlphaGrowth is expanding their team to include a task force of tokenomics experts, who possess a variety of skills in fiscal strategy and decentralized financial operations management: These experts will be responsible for planning and executing strategies on positions that will seek to:

  1. Mitigate risks associated with market volatility
  2. Avoid smart contract vulnerabilities
  3. Adapt to the ever-changing regulatory atmosphere.

Their involvement will ensure the funds are utilized in a way that caution and ambition is exercised, aiming for higher returns on capital while protecting the DAO’s financial profile and sustainability.

This specialized approach to managing DeFi Operations can lead to more efficient use of available resources, quicker adaptation to market needs, and innovation in product offerings, all of which are crucial for growth of the Compound DAO.

Additionally I’ve seen AlphaGrowth’s continued commitment to engaging with the Compound community through forums and updates to foster trust and transparency. They’ve proven to keep the community informed, involved, and at the forefront of the decision-making process, and I believe they’ll continue to do so in the DAO’s best interests.

Thank you AlphaGrowth for being willing movers on the DAO’s behalf. I look forward to seeing what the team accomplishes in 2025. I hope others will see the value in this proposal and the work you intend to take on.

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Thanks for the reply.

I am noting that I think treasuries should consider moving their assets to a mix of BTC, ETH, and USDC for long term growth. I am not against trying things out and find ways to grow the treasury but I am against accumulating high beta assets when blue chips exist.

When the experiment fails to substantially beat “Do Nothing” I think it is necessary to point that out (as I have done). The DAO can decide how to vote here just my thoughts.

I think the main hang up here is the budget reqested size compared to the performance of experiment 1. Doesnt match in my eyes.

If Im paying $1m a year or more for a team to run DeFi strategies, the strategies should yield more than the cost of the team, otherwise what is the point? So far I dont see evidence that this would be the case outside of taking lopsided (read extremely risky) farming strategies.

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