BAO Finance -Treasury Update
Written by 50, Treasury galaxy contributor
Hello BAO fam!
Over the past weeks the treasury galaxy has been working on an initiative to update the stance of the treasury into one that is best equipped to earn bear market resistant yield, and fund DAO operations far into the future. In this article, we will be detailing the new philosophy of the treasury team, and sharing some of the insights we gained along the way.
Yield-farming maximalism
Due to the notoriously volatile state of the crypto ecosystem, the treasury galaxy has decided that a strict *no trading* policy will be adhered to (meaning the treasury galaxy will not try to time the market in the hope to realize gains on bluechip DeFi tokens, nor will we gamble treasury value on highly speculative crypto assets). From here on out, the positions taken will be exclusively focused on providing liquidity to stable pools in addition to yield farming on Eth — with the goal being to maintain the team runway in perpetuity.
Previous allocations
For the past few months, the treasury funds have mostly sat in the RAI3crv pool on curve earning a healthy double-digit APR — however, with recent governance concerns rising within Reflexer Lab DAO and the fact Bao Finance held more than 25% of RAI liquidity on Curve, we decided that it would be a wise choice to diversify our treasury holdings to mitigate the risk of RAI/FLX exposure.
Just tell us the positions!
Okay okay, here:
We will hold;
- $1m in stablecoin positions, split evenly between four pools
- 80 Eth in farming positions, split between two pools
Given current market volatility, we decided that in order to keep our runway safe we would maintain a ‘risk-off’ stance from now into the foreseeable future. This means a heavy weighting into stablecoins as opposed to market-exposed assets such as Eth and governance tokens. For further risk mitigation we deployed our stablecoin holdings across four carefully selected LPs.
Not-so-stable coins
In light of the recent Luna/UST implosion, the team spent many an hour reviewing and re-reviewing the pros and cons of each individual stablecoin. Our guiding principles for selection were;
- No undercollateralised coins.
- High-quality collateral only.
- Decentralisation where possible.
During our dive into the stablecoin ecosystem we encountered some interesting information about the options currently available. First and foremost is the tradeoff between decentralisation and liquidity; in an ideal world we would be able to interact with stablecoins in such a way that no third party risk is harboured, however in the current climate we found that simply wasn’t practical. Sadly, the most liquid and widely adopted stables tend to carry the risk of centralisation (USDC is a prime example), however given the lack of viable alternatives we decided that a hybrid approach was the best way to handle the situation. Exposure is therefore split between high liquidity/high centralisation and lower liquidity/lower centralisation positions.
As the ecosystem continues to expand we can expect the situation to improve, and the team will be closely monitoring the available options.
More excel sheets. Hurray!
To sum up…
The updated treasury positions mean that the team can continue building while having to worry less about market volatility and runway, so we can ship the new generation of BAO products as quickly and effectively as possible.
We’ve been hard at work behind the scenes and this is one important step towards our grand vision — we are super excited to share what we’ve been up to, so stay tuned! :)
