Optimizing Web3 Treasury Management with Cega’s Structured Investments

Cega
Cega_fi
Published in
5 min readSep 20, 2023

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Effective web3 treasury management is crucial for a project’s long-term success. Recognizing this, the best web3 projects engage in proactive treasury management to mitigate risk, diversify exposure and grow their assets. Unlike traditional businesses that tend to keep funds in a checking account, forward-thinking treasuries use a range of financial instruments to ensure long-term sustainability and growth.

Today, most web3 treasuries are predominantly composed of their project’s native tokens and lack any diversification. In fact, a recent study showed 85% of DAO treasuries hold almost all their on-chain funds in a single crypto asset (their native token). This lack of diversification exposes DAOs to significant risk and volatility. To mitigate this, many treasuries are diversifying by allocating a portion of their funds into less volatile assets and strategic low-risk investment opportunities.

Active treasury management has increasingly become the norm in the web3 space, with more than half of the current treasuries generating some form of yield [source]. However, it’s worth noting that 80% of this yield is being sourced from liquidity provision (LP) and lending positions. This highlights the challenges that treasury managers face in adequately diversifying their investment strategies.

Despite a landscape abundant with innovative financial products, web3 treasuries often face high-risk, illiquid, and complex investment choices. There’s also incentive for these treasuries to keep their assets on-chain and utilize other web3 protocols for diversification. This aligns with their operational ethos and contributes to the ecosystem’s growth and sustainability whilst seeking lower-risk simple solutions.

Cega’s simple structured investments offer an attractive alternative, enabling web3 treasuries to achieve higher yields while meeting their diversification, risk management, liquidity, and on-chain preference requirements.

In this article, we’ll explore how Cega uniquely addresses the challenges and opportunities web3 treasuries face.

Safer, Higher Yields for Web3 Treasuries

For treasuries, the challenge is finding a financial instrument that allows capital to generate yield without taking on excessive risk, all while maintaining liquidity. Most treasuries traditionally look towards Treasury Bills as the go-to for a risk-averse strategy. However, what many are overlooking is the role that structured investments play in traditional financial markets. They serve as a diversified risk management tool that can enhance yield while protecting principal — exactly what Cega brings to the table for web3 treasuries.

Enter Cega’s Cruise Control Vault

Designed with web3 treasuries in mind, Cega’s Cruise Control Vault delivers higher yield and strong principal protection for the conservative investor. The Cruise Control vault provides investors with exposure to only crypto blue-chips, BTC and ETH, and offers protection against up to a 90% price drop in the market. Users simply deposit USDC and generate 8.6% APY, paid in USDC. Moreover, this Bond + Options strategy delivers real yields that are generated through a combination of options premiums and lending interest. Let’s look at the benefits Cruise Control brings to Web3 treasuries.

Higher Yields

Unlike traditional conservative investment options such as T-Bills (~5%), Cruise Control generates 8.6% APY, paid in USDC, giving you a more lucrative alternative for your treasury assets. To put this into perspective, 8.6% APY on a $1M treasury can add an extra engineering headcount to a project. This additional yield can provide a significant amount of funds at scale to support major developments for projects.

Strong Capital Protection

Our ‘Knock-In Barrier’ feature ensures that your principal is shielded from extreme market downturns, offering capital protection for up to 90% price drops in BTC and ETH. Based on extensive backtesting, Cruise Control shows a 100% success rate in safeguarding your capital. So with the added yield, also comes added protection.

Enhanced Diversification

Cruise control adds structured investments to your portfolio with a risk-managed approach to ETH and BTC exposure. Not only do treasuries diversify away from their native token but are also strategically positioned into exposure over blue-chip assets ETH and BTC. This serves as a dual advantage: reducing the vulnerability to single-asset volatility while gaining exposure to majors that align with the market they operate in. Cega’s suite of investment options also allows investors to implement a barbell strategy, balancing both conservative and aggressive investments with the products available.

Liquidity and Flexibility

With a 27-day investment cycle and automatic rollovers for compounding returns, Cruise Control offers both liquidity and the potential for long-term growth.

Mitigating Risks: Cega’s Comprehensive Approach

In any financial investment, understanding and mitigating risk is essential. While Cega offers a promising yield to treasuries, there are inherent risks tied to the market maker counterparty, as well as smart contract risk. Let’s delve into how Cega employs rigorous risk management practices to mitigate these.

Robust Counterparty Selection

Firstly, Cega engages only with verified and reputable market maker counterparties. This initial layer of due diligence serves as the first barrier, ensuring that only financially secure entities are involved in the transactions.

Proactive Credit Risk Monitoring through Credora

Cega employs Credora, a specialized credit analysis platform, to actively monitor the balance sheets of its counterparties. This platform provides real-time insights, allowing for a more dynamic and proactive approach to credit risk management. Learn more about our partnership with Credora here.

Legal Safeguards via ISDA Contracts

Cega strengthens its risk management architecture by signing legally binding ISDA (International Swaps and Derivatives Association) contracts with each market maker. These agreements set a robust legal framework that covers the terms of the trades, margin requirements, and dispute resolutions. In the unlikely event of a default or other contractual breaches by a market maker, these contracts provide Cega — and by extension, its investors — with legal avenues for recourse. Read here how ISDA Contracts helped protect Cega’s funds amidst the FTX crash.

Double Audited

To ensure security, Cega enlisted top firms to audit its code and has an ongoing retainer for new features. The Ethereum smart contract was double audited by Ottersec and Zellic. The Solana smart contract was audited by Ottersec and saw security consultation by Zellic during the development process. Find our audit reports here.

Talk to the team

If you’re interested in learning more about Cega’s Cruise Control vault as a diversification tool for your web3 treasury, please reach out to our team to discuss. Keep up to date with the latest developments at Cega on Twitter and Discord. If you’re ready to go, deposit into Cega today at app.cega.fi.

Contact: adam@cega.fi or sam@cega.fi

Use of Cega’s Portal and Services is subject to the Cega Terms of Service. Access and use of the Cega Portal and Services is subject to a range of risks, including financial risk including potential loss of funds. The Cega Portal and Services are not offered to persons or entities who are U.S. Persons, Restricted Persons, or Sanctioned Persons (as defined in the Cega Terms of Service). Access and use by such persons is expressly prohibited.

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Cega
Cega_fi

Cega is building the next evolution in defi derivatives with the first protocol focused purely on exotic options.