Accessing Alpha Yield Strategies for DAO/Protocol Treasuries with MYSO v2
A look into how MYSO v2 can support DAOs/protocols with tapping into risk-adjusted yield strategies and diversifying native treasury holdings
After releasing MYSO v1 in January of this year, we’ve constantly been discussing ways of improving the protocol in areas like capital utilization, efficiency, and cost structuring for retail users and orgs alike. The v1 was a critical step in bringing non-liquidatable loans to the forefront of DeFi — but the v2 is a totally different beast!
We’re happy to announce that after months of work and numerous security audits, the MYSO v2 protocol is close to release. v2 represents a significant overhaul of the protocol for both borrowers and lenders, implementing an innovative approach to how you can structure your on-chain strategies.
One exciting use-case that we’ve been exploring and which we are extremely thrilled about is supporting DAOs and protocols on a number of different fronts through bespoke Zero-Liquidation credit markets.
Let’s dive into the current state of DAO treasury management and how MYSO v2 can bolster positive returns through diversification and yield generation as well as propping up the utility of your native token!
State of DAO treasury management
Some of the fundamental aims of DAOs should be to maximize long-term token holder value and generate sustainable returns for users and members alike. To achieve this, they have a number of choices to make to allocate treasury funds in a risk-managed way, starting from how they budget runway capital to what investments can be made to put their reserves to use productively.
According to DAO analytics platform DeepDAO, the total liquid assets held in treasury reserves across all DAOs stands at a whopping $19.9 billion — in addition, ~175 organizations have AUM of over $1 million.
Digging in a bit deeper, we can see that many DAOs hold reserves mostly denominated in their own native token — this holds true for L1/L2 blockchain orgs (Optimism Collective, Arbitrum, Polygon, etc.) and some of the largest DeFi-based DAOs, including:
- Mantle (which has over $1.3 billion in MNT token)
- Uniswap (its $2.6 billion treasury is almost solely held in UNI token)
- ENS (about $620 million denominated in ENS, or ~93% of its treasury)
- Lido (~$207 million in LDO, or 70% of its treasury)
- InstaDapp (its $156 million treasury is ~98% comprised of INST token)
Though this trend varies on a case-by-case basis, many large DAO treasuries have started to diversify away from this uniformity. Numerous protocols have (rightly so) pushed towards acquiring stablecoins and blue-chip crypto assets, like ETH, for future expenses and investments.
With this shifting DeFi governance zeitgeist, DAO treasuries began to embody the spirit of an eclectic governance-managed portfolio, where users vote in their best interest to generate maximum revenue while balancing the weighting of reserves and investments.
Thus, it is crucial for treasury teams to manage DAO reserves in a way which:
- maintains and grows their value
- supports the long-term value growth of the DAO’s own token
- provides value to the DAO’s community members
As part of this effort, DAO treasury teams typically invest part of their (stablecoin) reserves into DeFi lending protocols. Some DAOs, like Gnosis, have begun outsourcing some parts of their treasury management strategy to firms like Karpatkey, which operates to “preserve capital through state-of-the-art risk management and trust-minimized DeFi treasury execution” by way of various yield strategies across the DeFi ecosystem.
However, while this allows DAO treasuries to earn some yield, it neither contributes to the long-term value growth of the native token (which is a major pain point for many DAOs), nor does it provide any meaningful value-add to the DAO’s community members.
This changes with MYSO v2 — by utilizing Zero-Liquidation Loans, DAOs can deploy reserves to support their tokens’ value growth, earn yield, as well as create lasting community benefits.
Supporting DAOs through MYSO v2
MYSO v2 provides two products for DAOs to maximize returns and drive as much value back to users as possible. With these solutions, a DAO has the ability to create any lending market and execute a variety of different on-chain strategies to support revenue generation and value alignment.
The first product, known as Blitz Match, is a peer-to-peer (P2P) lending market that allows lenders and borrowers to connect directly to interact and take on loans. DAOs can make use of this product to create bespoke lending markets for their native tokens, explore various yield opportunities, and even engage in more complex strategies, such as DAO-to-DAO swaps and synthetic buybacks.
The second product, known as Whale Match, is a peer-to-pool (P2Pool) lending solution that allows a user/DAO to create a loan proposal which would pool assets from interested lenders to fund a bespoke loan agreement. DAOs can make use of this product to, for example, source deals to secure stables to diversify their native treasury and structure loans with customized repayment strategies/schedules.
Let’s learn more!👇
Blitz Match — Diversifying yield strategies through lending treasury holdings
DAOs can use MYSO to create fully-customizable loan offers to their token holders (see, for example, Olympus DAO utilizing MYSO). For this, a DAO simply creates a lending vault and defines the loan terms at which it would like to lend. There are many markets a DAO can spin up, as well as different strategies that a DAO treasury can tap into.
For example, the DAO can choose to lend out USDC against its own native token as collateral and earn a risk-adjusted yield. The DAO treasury can create multiple loan offers in parallel and define at which LTVs, tenors, and interest rates they’d feel comfortable lending. And when we say ‘multiple loan offers’, we mean that the bespoke unified lending vault allows for quoting hundreds, if not thousands, of gasless off-chain quotes with the click of a few buttons! Updating/deleting these loan offers is also possible in a matter of seconds.
From a financial risk-reward perspective, the DAO treasury bears default risk that a loan may become undercollateralized and not be repaid. This resembles a deep in-the-money covered call strategy with a low delta. The risk premium is set by the DAO and can be hedged outside and independently of MYSO, if needed.
With this approach, DAOs can:
- Create credit markets for the DAO’s own native token without lengthy governance processes, oracle integrations, etc.
- Lend idle stablecoin reserves in a more strategic way that creates value for the overall community
- Earn higher yield and improve capital efficiency
- Fully customize and control the loans the DAO underwrites
- Reduce selling pressure and incentivize long-term hodling in the DAO’s own native token
- Provide a unique borrowing experience to the DAO’s community, without liquidation risk
- Signal high conviction on the DAO’s own token and participate in a possible synthetic buyback strategy
Another cool strategy that DAOs could utilize with Blitz Match is creating lending markets with their native token as the lending currency. This would incentivize further utilization of idle treasury native tokens and establish markets for a variety of unique pairs, such as those where borrowers put up LP tokens as collateral and can loop for leveraged exposure on the underlying, as well as the potential yield👀
Blitz Match is a powerful product that allows DAOs to tap into various yield strategies and customize loans to match the risk appetite of many different users. We’re excited to see how different protocols will make use of this tool and how different loan offerings will be structured!
Whale Match — Put your treasury-owned native tokens to use
In addition, MYSO v2 allows DAOs to put their treasury-owned native tokens to use in a productive and value-aligned manner. Through creating a loan proposal and successfully garnering interested lenders, DAOs will be able to borrow stablecoins or other proposed assets by using their idle native token reserves as collateral!
For this, a DAO can create a loan proposal on the MYSO platform outlining the desired loan terms (e.g., target loan amount, LTV, loan duration, repayment structure/conversion details, etc.). The proposal can then be shared with interested lenders and adjusted until sufficient interest is found. If enough lender subscriptions are received, the DAO can finalize the loan by providing the corresponding collateral.
The loan can also be structured with a conversion feature (similar to convertible bonds in TradFi). This allows the DAO to potentially serve repayments in the DAO’s native token rather than in stablecoins, thereby reducing overall stablecoin borrowing costs. This can also help attract lenders, who can now access equity-like upside participation in the DAO’s native token.
With this approach, DAOs can:
- Borrow stables by using idle native token reserves as collateral (stables can then be used to earn yield, bootstrap liquidity in own DeFi offerings, etc.)
- Diversify from the DAO’s native token holdings without negative market impact or negative market signaling
- Lower borrowing costs by adding a convertibility feature with the native token as repayment
- Have full flexibility for the loan terms the DAO desires (tenor, LTV, conversion factor, repayment schedule, interest rates, etc.)
- Distribute part of the DAO’s native token reserves to high-conviction lenders (positive adverse selection)
Whale Match is a unique product that offers DAOs an opportunity to structure deals that allow for treasury diversification and venture debt financing. DAOs can secure stables for runway/product development while offering interested lenders upside participation in the collateral token through a unique convertibility feature.
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At MYSO, we’re convinced that designing oracle-independent, liquidation-free lending systems will be an important alternative to conventional protocol design and will be a valuable tool for all DAOs to make use of.
Our Blitz and Whale Match products are designed with different approaches in mind (P2P vs P2Pool), but both work to support treasuries in their quest for diversification and yield generation.
If you’re a DAO interested in becoming either a lender or borrower (or both) on MYSO v2, and if you have any questions about either product, please reach out to the team on Discord.
We’re excited to see how different DAOs work in structuring their loans and for the endless yield opportunities that await!
